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Dairy Market Report 30 th April, 2015

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Dairy Market Report30th April, 2015

EU output easing early 15 due superlevy and poor profitability

Source: EU MMO

Source: EU MMO

Supplies down in largest 2 EU producers

Source: Ornua

UK supplies still up, but more modestly

Source: Ornua

Latest reports EU output in April 2015

• Lower than same time last year output reported since end of quotas in:• France• Germany

• Longer term, greatest in production expected in Germany and Netherlands, as well as Ireland.

• UK output growing much slower: +1.1% for 2 weeks to 18th April 2015 yoy. Strong sterling damaging milk price – lack of profitability.

• Ireland: anecdotal reports that production is up in most co-ops.

• “Wall of milk”? Or small increase due to lack of profitability?

Longer term output trends

Source: EU Commission

US production rising more modestly + 1.1% for March, forecast +1.7% for 2015

Source: USDA

Oceanian supplies still rising to Feb 15 – more slowly for NZ

Source: Dairy Australia, EU MMO

Feb 15 + 6.4%

Source: DCANZ NZ: +3.2% season to end Feb.Feb 2015

-4.9%

APS providing continued market support

61,000T gone into butter APS since last Oct.

Source: EU Commission

24,000t SMP gone into APS since last Oct

Source: EU Commission

CHEESE APS CLOSED SINCE LAST SEPT.

Source: EU Commission

Butter stock at 35,000t at end Feb, with product still coming in.

Source: EU Commission

SMP stock at 16,350t by end Feb, product still coming in.

Source: EU Commission

No more cheese intake, but stock down to 21,685t by end Feb.

Source: EU Commission

Three negative GDT offset most of earlier gains

Source: GDT

But GDT quantities trend 29% or 148,000t down

Based on: GDT

EU commodity prices holding much better: Slightly firmer butter and cheddar cheese prices

Based on EU MMO

Ornua PPI up 2.5pts for March to 100 pts, equivalent to 30.82c/l incl. VAT.

Source: Ornua

Returns slightly easier, no change in April Irish butter and SMP prices

19th April 2015 19th April 2015

Calculations at 28/04/15

Avg EU mkt

price at

19/04/15 - €/t

Trend re

prev wk c/l equiv

Estimated

coeff. Calculations 28/04/2015

Avg EU mkt price

at 19/04/15 - €/t

Trend

re

prev

wk c/l equiv

Estimated

coeff.

BUTTER (Irish) 3140 BUTTER 3210

SMP (Irish) 2130 33.06 35% 11.57 SMP 1980 32.02 35% 11.21

CHEESE 3220 CHEESE 3220

WHEY PWDR 900 38.56 41% 15.81 WHEY PWDR 900 38.56 41% 15.81

WMP 2660 32.99 8% 2.64 WMP 2660 32.99 8% 2.64

OTHER* 28.10 16% 4.50 OTHER* 27.22 16% 4.35

34.52 34.01

ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER ASSUMING THAT "OTHER" RETURNS 15% LESS THAN SMP/BUTTER

ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX ESTIMATE OF RETURNS FOR REPRESENTATIVE IRISH PRODUCT MIX

WITH IRISH PRICES FOR BUTTER AND SMP (GROSS RETURNS, BEFORE DEDUCTION OF PROCESSING COSTS)

Based on EU MMO

International milk prices Feb 15. EU avg = €31.88/100kgs (4.2-3.4)

Irish milk prices

Source: IFJ

Prices have fallen by 7 to 8.6c/l in the last year

Based on IFJ Milk League simple average

Based on IFJ Milk League simple average

Glanbia price commitment creates level of price stability through early peak

• March milk price• Base = 29.5c/l incl VAT (28.04+VAT) + 1c/l from stability fund

(2014) (VAT part of 1c/l?)• I.e. unchanged total payout of 30.5c/l incl VAT (28.99c/l +

VAT)

• Commitment for April/May• Payout unchanged (unless major market disaster) at 30.5c/l

incl VAT• Base may vary• Top up from fund to compensate• Some/all of the topup may need to come from new support

fund (to be voted on by shareholders in May)

• Another pressure for price stability through early peak: farmer mobility…

Outlook for output?

• EU: Uncertainty about milk supply post quota, but some evidence early output lower. Strong growth expected in certain countries. Other regions output constrained due to low milk prices

• UK: Cow numbers have grown over the past year (mainly NI), indicating output levels could be maintained in short-run despite poor Stg milk prices. Fewer replacement heifers in the system

• US: Concerns growing over impact of California drought. This, combined with weak milk prices should contain overall output levels, Culling up 3% yoy in 2015 . Forecast for year +1.7%.

• NZ: Output up 3.2% to end Feb with a forecast of +0,2% for season to end May, early drying-off (drought & milk price ) expected to impact on Mar-May flows

• Summary: Moderate growth expected in US due to Californian drought. EU suppliers may limit expansion in light of falling returns as milk pricing comes under pressure post quota

Outlook for markets?

• Cheese: Weak € & good domestic demand + increased drying capacity in UK are positives for EU against a background of lower output, but need for ‘short-buyers’ to re-engage to prevent further weakening

• SMP: Expectations of plentiful supply ex. EU & US continues to dampen buyer sentiment

• WMP: Increased supply volumes have encouraged buyers to hold-off. Further price weakness expected through out Q2

• Butter: Outlook unclear, mixed indications. US demand/pricing will provide some support. Overall market dynamic depends on extent of Q2 supplies in EU