Warrnambool Cheese and Butter chairman Lino Saputo Jr. in Australia for the group’s AGM on Monday, told The Australian prices were likely to bottom at current levels as supply came out of the sector.
“Inventories are starting to be depleted and buyers are appearing on the market, but it takes a little bit of time before that materialises in higher prices,” he said.
“I would suspect within the early part of 2017 that prices should be back to normal levels.”
He said supply fundamentals were already improving compared with last year due to cutbacks in Europe, Latin America and New Zealand, as well as less investment in growth in Australia, while Chinese demand was beginning to rise once again.
Global prices have been weak for some time, with recent cuts to this year’s farmgate prices seen as inevitable given the bleak international outlook.
WCB rival and Victoria’s largest milk processor Murray Goulburn stunned the market in April, however, with news of a retrospective slashing of the farmgate milk price from $5.60 per kilogram of milk solids to a range between $4.75 and $5.
It has since outlined an opening price of $4.31 for the 2016-17 season, well shy of its competitors as Fonterra, WCB, Bega and Lion offer prices in a wide range from $4.75 to $5.67.
“I think if you look at the indications they gave to the market I think everybody was shocked by their step-down and the clawback, but it’s not for me to judge whether it was managed appropriately,” Mr Saputo said.
The move is expected to prove beneficial to Murray Goulburn’s rivals as some disgruntled farmers look for an alternative, with WCB reporting a “lot of interest” in jumping ship.
“There’s quite a bit of demand (in) dairy farmers wanting to come on board with us,” Mr Saputo said.
The news comes after Fonterra – which made a similar, if less drastic, retrospective cut to prices two months ago – recently said it had seen an 18 per cent drop in its milk collection in the month of May. The affect on Murray Goulburn is as yet unclear.
Farmers have reason to be hopeful the opening farmgate milk prices for the 2016-17 financial year are merely a starting point, with price step-ups seen as possible through the season as Mr Saputo Jr regards his firm’s $4.80 price as its low point in the cycle.
“We believe ($4.80) is a very good starting point for prices for the dairy industry,” he said. “Having said that, I’m quite optimistic the fundamentals on the dairy industry are going to improve on a global scale and I feel quite confident that there’s going to be some step-ups along the way.”
Should global conditions improve as expected, local farmers are expected to rewarded swiftly.
“As soon as we start to see a recovery … that’s when we would indicate a step-up on price,” Mr Saputo said.
“We need to see the recovery happen, we need to understand that that is sustainable and at that point in time is when we would see improvements to farmer payouts.”
Mr Saputo also serves as chief executive of Montreal-based dairy giant Saputo, which won control of WCB in 2014 and was recently accused of using a $142 million capital raising to edge itself into a position to mop up all the shares it does not already own. A complaint to authorities fell on deaf ears given Saputo ultimately only lifted its stake from 87.92 per cent to 88 per cent.
The firm is currently blocked from gaining complete control by rival Lion, which holds a 10.2 per cent stake in WCB.
“We’re not overly concerned with having full control over WCB,” Mr Saputo said. “I think we are very happy with the 88 per cent that we control.”
He added Lion’s decision to exercise their rights to the capital raising came as “no surprise”.
Saputo saw profits at WCB tumble 87.8 per cent in the most recent financial year but remains confident in its Australian investment as emerging markets are seen likely to drive long-term growth.
“I think this is a great industry to be in and I’m very, very bullish on it,” Mr Saputo said.
“I think if I look at the long-term perspective for dairy there’s going to be more consumers than there are producers.”
Source: TheAustralian
Link: http://www.theaustralian.com.au/business/companies/warrnambools-lino-saputo-tips-dairy-prices-to-bottom/news-story/77f3fc8180c933802a41cf2f20e67103
