Australia, New Zealand dairy companies stir hopes of market revival

Strong profit results from Australian and New Zealand dairy processors on Wednesday fanned hopes of a market revival as farmers globally curb milk production after a glut that pushed prices to multi-year lows.

Australia's biggest processor Murray Goulburn, rival Bega Cheese Ltd and New Zealand niche processor a2 Milk Company all met market expectations despite a turbulent year marked by falling prices and sluggish demand.

The results added to expectations of a market pick-up after recent data showing falling output in Europe and North America as farmers hurt by lower milk payments cut output.

"There is no doubt, prices have bottomed," said Michael Harvey, senior dairy analyst at Rabobank.

"There has been a supply response from many of the world's largest dairy exporters. The missing piece was signs of a slowdown out of Europe, but in the last week or so we have seen data that EU production fell for the first time since April."

European Union figures showed milk production fell 1.5 percent in June.

Whole milk powder prices last week soared 18.9 percent and are now 42 percent higher than February lows.

Murray Goulburn met its revised guidance with a 60 percent profit jump to A$40.6 million ($30.9 million) after cutting the amount it pays farmers for their milk.

Australian and New Zealand processors have profited from strong demand from Asia for dairy products such as infant formula and the company said it was confident about capitalising on further Asian demand.

"Despite the difficult environment, international sales were up 67 percent from last year," said interim CEO David Mallinson told a briefing. "The company is in a very strong and sound financial position and very well placed for growth in the future."

Bega, which sells its milk to infant formula maker Bellamy's Australia, more than doubled its profit to A$28.8 million on the back of strong demand for formula, while a2 Milk posted a net profit of NZ$30.4 million ($22.1 million) after a small loss a year ago.

"Global supplies are tightening and we have seen Chinese demand starting to rise," said Belinda Moore, senior equity analyst, RBS Morgans.

"The likes of Murray Goulburn are well placed to profit from this rise in prices."

Murray Goulburn, however, sounded a note of caution amid the optimism, saying the recent run-up in prices had come just before the peak production period in Australia and New Zealand.

"Only a sustained recovery through those peaks will add meaningfully to milk price returns," it said.

Investors also knocked 9 percent off the shares of a2 on disappointment that it failed to offer any forward guidance, although the stock is still up more than 50 percent from a six-month low touched in early June.

($1 = 1.3748 New Zealand dollars)

 
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