1. John Droppert
December 2018

2. 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

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

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

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

6. 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

7. 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

8. Handy moves in FX
International market

9. 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

10. 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

11. Feed costs
24%

12. Feed costs
24%

13. 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.

14. 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

15. 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%

16. 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.

17. 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

18. Thank you John Droppert (03) 9694 3873
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