12.40

6.40

6.80

5.80

0.80

1.20

7.80

8.80

9.00

0.20

0.20

12.40 7.90

7.50

Guides for gutter

Text colours

R 27 G 66 B 152

R 0 G 0 B 0

R 127 G 127 B 127

Background shading

R 242 G 242 B 242

R 225 G 235 B 244

R 227 G 244 B 236

8.40

Colour order (left to right, top to bottom)

R 59 G 110 B 143

R 251 G 193 B 119

R 115 G 198 B 161

R 103 G 153 B 200

R 186 G 163 B 171

R 191 G 191 B 191

R 127 G 127 B 127

R 201 G 48 B 146

R 27 G 66 B 152

R 84 G 7 B 91

R 248 G 152 B 29

R 241 G 237 B 238

R 254 G 234 B 210

R 211 G 227 B 237

Global dairy outlook

What lies ahead for Tasmania’s dairy sector

Michael Harvey

Senior Analyst - Dairy

3

Over 80 research professionals across 18 offices globally - 14 focused on dairy

Food & Agribusiness Research and Advisory Rabobank’s world leading research network

What is in store for 2015/16?

5

Global markets have found some life....

Source: USDA, Rabobank 2015

Dairy Commodity Prices (USD/t fob Oceania)

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

USD

/tonne F

OB

Butter SMP WMP Cheese

6

But we cautiously expect a gradual recovery in 2015

Source: USDA, Rabobank, 2015

-

1,000

2,000

3,000

4,000

5,000

6,000

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12

Jan-1

3

Jul-

13

Jan-1

4

Jul-

14

Jan-1

5

Jul-

15

Jan-1

6

USD

/MT

WMP Rabobank Forecast

Rabobank WMP price forecast

7

Milk production is falling across export regions

Source: Rabobank Note: includes EU 27, USA, NZ, Australia, Brazil, Argentina, and Uruguay

-6%

-4%

-2%

0%

2%

4%

6%

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

2008 2009 2010 2011 2012 2013 2014 2015 2016

Gro

wth

on

sam

e m

on

th o

f p

rio

r y

ear

Actual Recorded Growth

Rabo Forecast (by half)

Milk production growth of Big 7 exporters combined

8

Low prices have enticed other buyers back to the market

Import change in LME terms Q4 yoy

9

But world’s two largest importers remain out of the market

Source: Rabobank, 2015

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

China Russia Mexico Algeria Japan Venezuela Brazil

Th

ou

san

d t

on

nes L

ME

2009 2010 2011 2012 2013

Milk production growth of Big 7 exporters combined China is long on milk,

and slashing imports

Russia has

enforced its trade

ban with vigor

10

Tasmania farmgate prices have been mostly shielded

Source: Company reports, Rabobank, 2015

0.00

2.00

4.00

6.00

8.00

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15f

MGC AUD/kgMS Fonterra AUD/kgMS

Murray Goulburn vs. Fonterra NZ milk price (AUD/kg MS) Helped by market exposure and plant flexibility

11

Efforts are also being made to maximise market returns

Higher value products

Better margins

Less volatile

More defensible

-%

20%

40%

60%

80%

100%

Export

Domestic

Estimated market exposure by processor

12

A weaker AUD has helped..amid these currency capers

Source: RBA, Rabobank, 2015

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

13

Limited upside to current levels for 2015/16?

Competition for milk will remain fierce with all processors under pressure to retain and grow their

milk supply.

So we expect aggressive pricing and a strong opening in 2015/16.

BUT right now there is limited upside to current pricing for Southern Australia:

1. The AUD has already fallen considerably and while it might fall further, most of the benefit has

flowed through

2. We are unlikely to see higher domestic market prices; in fact there is a risk prices could fall as

retailers push for local prices to reflect lower global prices as contracts are renewed

3. Rabobank expects only a gradual tightening to occur in the global markets leading to a modest

price recovery in 2015

14

Other profit drivers look favourable for 2015/16

Bumper harvests in 2014 improved world supplies of most grains and oilseeds

Abundant global wheat stocks provide limited upside risk to prices

Local prices somewhat pressured by strong domestic and export demand

Market dynamics have kept global benchmark prices softer

The outlook is for oversupply to continue across most nutrient markets

Weaker AUD has put some pressure on local pricing

Global oil prices have fallen 50% since mid-June 2014

Outlook is for oil prices to remain weak for most of 2015

The current state of play bodes well for consumers

Medium-term prospects remain solid

16

Global demand dynamics look very favourable going forward

Forecast growth in milk consumption 2013-2020; by region

-1,000

1,000

3,000

5,000

7,000

9,000

Japan Australia SE Asia Middle East China

'00

0 l

iqu

id m

ilk e

qu

ivale

nts

Source: Rabobank

17

Tasmania remains well placed to compete

Source: OnFarm Consulting, DairyNZ, LEI, Teagasc, FADN, Genske Mulder, Rabobank, 2014 Note: 2006 data for Ireland unavailable

0.20

0.30

0.40

0.50

0.60

0.70

2007 2008 2009 2010 2011 2012 2013 2014E

Australia

New Zealand

California

Upper Midwest

Ireland

Netherlands

Farmgate milk production costs in selected countries (Usc/litre)

18

The recent trade agreement with China is a game changer for Australia

18

19

More milk matters for Australia

Source: Rabobank

Change in exportable surplus (2009 -2013)

-2

0

2

4

6

8

Australia Argentina Uruguay NZ US EU

billio

n l

itres (

LM

E)

20

Tasmania continue to buck the trend

Source: Dairy Australia, Rabobank, 2015

0

200

400

600

800

1,000

1,200

1,400

mln

lit

res

Tasmania milk production; current and forecast

21

Markets should still deliver profitable price; but it will be a bumpy ride

Source: USDA, Rabobank

Global WMP price, actual and forecast range

0

1,000

2,000

3,000

4,000

5,000

6,000

1999 2001 2003 2005 2007 2009 2011 2013 2015

US

D/

ton

ne f

ob

Ocean

ia

WMP Target high Target low

22

What it all means for Tasmania dairy sector

In the short term....

• Plant flexibility and domestic market returns have shielded local milk prices this season

• We are cautiously optimistic about a gradual recovery in global markets in 2015

• But there appears limited upside to current farmgate prices for 2015/16

• But favourable settings for key input prices should help protect margins

Looking further afield....

• Dairy demand will continue to expand in emerging markets

• It is expensive to make milk in deficit regions: they will need increased imports

• But we need to continue to grow to meet demand

• The Tasmanian dairy industry remains globally competitive

• And has the resources and investment to drive further profitable expansion

23

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24

Thank you

Rabobank International

Michael Harvey

Senior Analyst

Food & Agribusiness Research and Advisory

t. +61 3 9940 8407

e. Michael.Harvey@rabobank.com

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