Dairy Situation and Outlook Piasecki H-21 Improving Employee Engagement Sally Roberts, Blake Robinson, John Droppert June 2017 John Droppert Senior Industry Analyst
Last time we spoke March 2017 2
The current situation Three key themes NDFS: Profitability, confidence, trust Ongoing issues within supply chain Underlying confidence in own business is robust Market conditions looking ok Well balanced international market but plenty of risk! Domestic sales growing, but continued pressure on value Relief is in sight Better milk pricing flagged for export regions Input costs likely to stay subdued Modest growth in milk volumes likely 3
Confidence is down, but farmers more positive about own businesses National Dairy Farmer Survey (NDFS) 4
DairyTas more robust than the national average, but well down National Dairy Farmer Survey (NDFS) 5
DairyTas highlights National Dairy Farmer Survey (NDFS) Respondents in this region reported feeling Optimistic because: Demand for dairy (19%) Improved management (16%) Farmgate price ok (11%) Pessimistic because Farmgate price is too low (21%) Cost of production (9%) Milk processor management (9%) 6
High proportion of farmers in wait and see mode National Dairy Farmer Survey (NDFS) 7
High proportion of farmers in wait and see mode National Dairy Farmer Survey (NDFS) 8
Vast majority expecting to grow or maintain production National Dairy Farmer Survey (NDFS) 9
Some key take-outs National Dairy Farmer Survey (NDFS) Trust has taken a knock 10% changed processor, 17% would like to Milk price is the key driver, but 21% also cite concerns with processor management, 12% about the clawback, 8% lack trust Profitability is under severe pressure 45% expecting a profit in 2016/17 (80% in 13/14 & 14/15; 62% in 15/16) Farmers have responded in a variety of ways Adjustment to debt arrangements; change herd size (38% / 26%); change supp feeding (30% / 17%) There is a silver lining 1/3 of farmers expecting to grow herd next 12mths 2/3 expecting to grow production next 3 years 72% still see opportunity; milk price correlation 10
DairyTas highlights National Dairy Farmer Survey (NDFS) Positivity in this region is significantly reduced compared to 2016 and a downward trend is becoming evident. A considerably lower proportion of the region s respondents made an operating profit last financial year than in 2016 and less than half expect to be profitable this financial year. Over the past 12 months more than half of the region s respondents have extended, refinanced or deferred debt. Significantly fewer respondents invested on farm in the last 12 months and less than half intend to invest this financial year. Almost three quarters of Dairy Tas respondents expect production to be greater by 2019/20. 11
May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 USD/Tonne FOB International markets more balanced for now International market 6000 Boom Droughts (especially NZ) Strong demand (especially China) 5000 4000 3000 2000 1000 0 MORE EFFORT IN TO JOB Butter SMP WMP Cheddar Weaker demand (China, Russia, OPEC) Oversupply (especially EU) Bust
Whodunnit? International market 13
A look at the competition International market Europe Short term production constraints Intervention United States What milk crisis? Where to from here? New Zealand The parable of the production upside 14
Tonnes In general: demand is growing International market 3,000,000 Exports to key markets (total volume) 2,500,000 2,000,000 1,500,000 24% 1,000,000 500,000-57% MORE EFFORT IN TO JOB Committed employees put in more & 87% are less likely to resign 2 Employees believe volunteer programs help to communicate Company s values 3 Southern AFRICA ASIA - STH EAST MENA Greater China Japan Mexico Russian Federation 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Are there caveats? International market KEY CONCERNS US milk production still growing strongly Europe slower, but responsive NZ will bounce back in spring Demand remains heavily China-focused Stockpiles in Europe and the US Divergence along production lines (fat vs protein) The usuals Brexit/Trump/Greece/Oil 16
Solid growth in the domestic market; but value under pressure The Australian market 24% 57% MORE EFFORT IN TO JOB Committed employees put in more & 87% are less likely to resign 2 Employees believe volunteer programs help to communicate Company s values 3
Fresh white milk: drift back to private label The Australian market 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 24% Company branded vs P/L fresh white milk Share of Supermarket Sales 57% MORE EFFORT IN TO JOB Committed employees put in more & 87% are less likely to resign 2 Employees believe volunteer programs help to communicate Company s values 3 Branded Private Label
Grain and hay pricing well below 5 year averages Input costs 57% 24% MORE EFFORT IN TO JOB Committed employees put in more & 87% are less likely to resign 2 Employees believe volunteer programs help to communicate Company s values 3
Water and fertiliser attractively priced Input costs 20
Million litres Milk production has been hit; slow recovery ahead Milk production 1,200 1,100 1,000 900 800 700 600 24% 500 400-8% Jul 2016-Apr 2017-7.5% forecast for 2016/17 (8.95 billion litres) +2% to +3% for 2017/18 (~9.2 billion litres) 57% MORE EFFORT IN TO JOB Committed employees put in more & 87% are less likely to resign 2 Employees believe volunteer programs help to communicate Company s values 3 11/12 12/13 13/14 14/15 15/16 16/17 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Improving as the season progresses, but significant regional differences Milk production Estimated volume growth by state: By Vic regions: May YTD May YTD QLD -2.4% +1.1% Gippsland +0.2% -4.5% NSW -4.7% -5.3% 57% VIC -2.0% -9.0% SA -5.1% -8.1% MORE EFFORT IN TO JOB WA -5.0% -1.8% TAS +3.0% -6.1% Northern -10.2% -17.7% Employees believe volunteer programs help to communicate Company s values 3 Western +5.4% -4.9 %
It ain t fixed, but it s not as broke What s ahead? NDFS: Profitability, confidence, trust Some may be rebuilt faster than others Industry level vs individual supply chains Market conditions looking ok Upside appears limited There are plenty of risks Domestic trends unlikely to change anytime soon Relief is in sight Opening prices being announced Input costs likely to stay subdued (not without risk) Modest growth in milk volumes likely; limited by cows, confidence, cash!
THANK YOU John Droppert (03) 9694 3873 Get the Situation and Outlook Report www.dairyaustralia.com.au