John Droppert December 2018

Key themes The current situation Markets: Global supply and demand are reasonably balanced, but not much upside Increasing supply in key exporting countries Increased demand from importers New Zealand is the key ‘swing factor’ The here and now: A tough season; feed shortage Milk production will be impacted Fodder availability is an issue for some, grain and hay pricing an issue for all The good news: Continued growth in the domestic market Increasing volume and value across most key categories Flavoured milk and traditional yoghurt

International market Commodity markets have wavered through spring More effort in to Job Pricing in NZ?

International market What are the forward curves telling us? More effort in to Job Pricing in NZ?

International market What are the forward curves telling us? More effort in to Job Pricing in NZ?

International market Europe: spot milk prices easing, fodder shortage? Mixed signals in the market International market Europe: spot milk prices easing, fodder shortage? Milk volumes lagging vs prior year Intervention sales US: Government assistance, trade wars, hot weather Farm exits in the northeast and Midwest New Zealand: looking ‘superb’ but ‘dry’ Farmgate price dropping NZ+6% EU .1% US.8% latter 1%, 1.8 respectively YTD

Demand is ok, but not coming to the rescue International market China, Japan, MENA (Middle East and North Africa), all good, not great Weakness in southeast Asia

Handy moves in FX International market

Committed employees put in more & 87% are less likely to resign 2 Seasonal conditions Very dry past six months in most regions Improved rainfall in October in some region, worse for others 57% 24% More effort in to Job Committed employees put in more & 87% are less likely to resign 2

Committed employees put in more & 87% are less likely to resign 2 Seasonal conditions Rainfall outlook suggests drier weather in WA for December – February Wetter than average December for eastern Australia Consistent with an El Niño summer 57% 24% More effort in to Job Committed employees put in more & 87% are less likely to resign 2

Feed costs 24%

Feed costs 24%

Input costs Water prices at 2009 levels in northern Victoria Culling rates increasing while prices are dropping Risks around water recently $300/ML. Fertiliser still good in historical terms but prices increasing. Cull prices well down and volumes down too except most recent 2 months.

57% 24% Australian milk production Where are we at? Milk volume by state: September 18/19 YTD QLD -10.5% -8.9% NSW -10.2% -8.8% VIC -4.0% -3.8% SA +7.7% +5.8% WA -0.5% -1.5% TAS +7.1% +5.0% By Vic regions: 17/18 YTD Gippsland -3.2% Northern -13.7% Western +3.4% -0.6% 57% 24% More effort in to Job +3.1% for 2017/18 (~9.3 billion litres) 2018/19 view: -5% to -7% nationally

57% 24% Australian milk production Contract Steady Swing regions? 2018/19 outlook Australian milk production Milk volume by state: September 18/19 YTD QLD -10.5% -8.9% NSW -10.2% -8.8% VIC -4.0% -3.8% SA +7.7% +5.8% WA -0.5% -1.5% TAS +7.1% +5.0% By Vic regions: 17/18 YTD Gippsland -3.2% Northern -13.7% Western +3.4% -0.6% Contract Steady 57% 24% Swing regions? More effort in to Job 2018/19 view: -5% to -7% nationally YTD (Sept): -3.3%

Committed employees put in more & 87% are less likely to resign 2 Steady growth in the domestic market; volume under pressure in some categories The Australian market Employees believe volunteer programs help to communicate Company’s values 3 57% 24% More effort in to Job Committed employees put in more & 87% are less likely to resign 2 Note: Butter/Dairy Spreads volume has declined due to higher prices (In 2017/18 dairy spreads down 1.3%, so recovered somewhat towards the end of the year). Average retail price of butter up 36% in 2017/18 but seen a lower decrease in volume. Consumers opt for smaller pack-sizes and have increased consumption of spreads. Average price of cheese grew in 2017/18 up 1% to !13.05/kilo. Previously larger and cheaper pack sizes and cheaper import from NZ had seen prices decrease.

Key takeaways Market improvements an opportunity; challenges remain The global market will drift until NZ slows down Signs are there, but milk still flowing Demand may improve, but seasonal slowdown ahead Australian milk production will fall this season Currently ahead of forecast, further drop expected Nov/Dec Heavy culling has slowed, but exits will slow recovery The most likely relief? FX Rain A ‘hot’ farmgate price The domestic market will continue to present opportunities Budget conscious volume market; higher value subcategories

Thank you John Droppert (03) 9694 3873 Get the Situation and Outlook report www.dairyaustralia.com.au