Margins for most companies in dairy to be better this year in India: Report

Margins this year are expected to be better than the previous year for most of the dairy sector companies in India, according to Dairy Quarterly Q4 2018, a Rabobank report, which was released recently. India is entering its seasonal peak milk production period, which will last for three to four months and cover different regions. We will see an increase in domestic milk supplies, which, in turn, will lead to additional SMP manufacturing and stocking. As expected, the government has increased export subsidies to 20 per cent in order to export surplus SMP. In addition, state-sponsored benefits (export-linked benefits by Gujarat and Maharashtra, and a minimum support price for raw milk to farmers in Maharashtra) are also in play. These benefits may be extended through March 2019. As per official estimates, for H1 2018/19 (i e between April 2018 and September 2019), India exported about 9,600 tonne, compared to 4,750 tonne in the same period last year. September alone contributed 6,150 tonne. SMP exports are expected to surpass 20,000 tonne by December 2018. The industry estimates that India will export between 35,000 and 40,000 tonne of SMP by March 2019. Milk production estimates for the current year (2018/19) remain unchanged and are expected to surpass 180 million tonne. SMP and raw milk prices have also largely remained unchanged over the last quarter – and they are also not expected to move much in the next quarter. H1 2018/19 results have been announced. Most of the privately-listed companies have shown revenue growth combined with margin improvement over the corresponding period of the previous year. Margins this year are expected to be better than the previous year for most of the companies, with a higher share of consumer-centric retail products. Fonterra recently announced its re-entry into the Indian dairy sector by way of a JV (joint venture) with Future Consumer. Future Consumer is part of the Future Group, a leading grocery retailer in the country.

As per the official announcement, they are planning product launches in 2019. The Big 7 Regions The 2018 theme of slowing growth in the dairy industry in the Big 7 regions (the United States, the European Union, New Zealand, Australia, Brazil, Argentina, and Uruguay) has continued to creep into the final months of the year. The growth for Q3 2018 sunk to just 0.8 per cent year-on-year (y-o-y) and indicative Q4 2018 numbers show a similarly modest growth rate. Lingering effects from Mother Nature have severely impacted Australian milk flows and stalled European growth, with feed quality and quantity impacted across the second half of 2018. The US looks set to see the lowest year-on-year growth since 2013. Yet other areas of the dairy-exporting globe are testing this trend. Brazil moved into growth territory during Q3 2018 – a result of more moderate feed costs and profitable milk prices. Argentine producers have overcome inflated milk production costs and continue to make a recovery from the low volumes delivered over the prior two years. But the star performer remains New Zealand, setting a new record for peak milk flows in the month of October. Still, estimated flows for the Big 7 during Q4 2018 are for just 0.6 per cent y-o-y – the lowest since 2016. A challenging environment for expansion lies ahead. Herd numbers continue to shrink in Australia, Europe and the US, either to mitigate escalating costs and/or overcome disappointing farmgate milk prices – features that will continue into H1 2019. Australia faces a slow recovery, with industry confidence severely knocked, while consolidation of farm numbers in the US and Argentina is also set to continue. The EU is finding its footing post-quota removal and drought impact, which may provide opportunity for some regions, but challenges for others – particularly farmers in the Netherlands navigating farm phosphate references.

New Zealand dairy is facing stronger competition for other and uses, and resource constraints will provide barriers to growth across to 2020. Rabobank expects milk production to be squeezed into H1 2019. While H2 2019 will see milk production move upwards, it will only be at modest growth rates. Most Oceania dairy products continued to slide lower in Q3 2018, and into Q4, as milk flows increased. Cheese and butter prices in the EU and the US have also joined the downward trajectory. But the lid on SMP (skimmed milk powder) prices – firmly held in place over the prior two years – may be lifting, with most regions either holding current prices or lifting further. The latest European Commission tender results have pushed sales of intervention stock over the halfway threshold as tenders ramp up twice-monthly (excluding December). Buyers have taken a very relaxed approach to procuring very affordable product, particularly across China and South-East Asia. The full impact of the commodity price slide is yet to be priced into the EU and US farmgate level. Considerable uncertainty underpins the demand outlook,with many geo-political irons in the fire – the UK-EU divorce, which continues; the fine print of a trade truce between the US and China, which still needs to be written; oil prices, which have taken a bearish slide; and there are headwinds emerging at the US retail level for dairy demand. Slow and very modest milk production growth lies ahead for the major export regions over the next 12 months. The net exportable surplus available from the Big 7 will be limited across our forecast period to Q1 2020 – with significant pressure for much of 2019. Coupled with low stocks and steady demand, the risk is that the market moves rapidly upwards and catches buyers unaware, particularly in H1 2019. India

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Source : http://www.fnbnews.com

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