1. Presentation to Oireachtas Joint Committee on Agriculture, Food and the Marine
Joe Collins – MD Ornua Dairy Trading & Ingredients
Anne Randles – Company Secretary
24th November 2015

2. Content Volatility – Definition
Frequency and magnitude
What’s driving it from a dairy perspective
Irish milk seasonal output and farming lead/lag compounding factors
Ornua approach to managing volatility
Ornua Purchase Price Index (PPI)
Market situation report & outlook

3. Volatility defined ………….
Volatility is a term given to frequent, significant and unpredictable fluctuations in a commodity's value
But volatility is a normal feature of commodity markets
Mainly caused by mismatches in supply and demand, which can occur for many reasons. 
Understanding and managing volatility and associated risks is essential for businesses in the dairy sector
For dairy products, minor changes in supply and demand can have major impacts on price due to lead and lag in supply chain

4. Volatility increasing ……..
Max move: +/-24cpl
Max move: +/-10cpl 4

5. Why is Dairy Volatility increasing ………….
EU Dairy has moved from regulated market to free market
Weather shocks - impact
As global demand grows, areas more vulnerable to weather shocks are being used to produce milk
Trade policies impacting demand
Russia’s ban on EU food imports vs free trade agreement  
Stock policies impacting on price movements  
Data availability and speed
Hedge funds, dairy auctions and futures

6. Irish Milk: Seasonal, Grass-based system compounds Volatility risks

7. How can Ornua help insulate farmers against volatility
Grow brands – Kerrygold , Pilgrims Choice , Dubliner etc  
Develop value-added, differentiated ingredients  
Diversify markets & sectors  
Strengthen supply chain partnerships
Fixed Price Milk Schemes  
Trading expertise focus, contract & stock management

8. Ornua PPI 2015 ytd – 10 point swing
The Ornua Purchase Price Index (2010 = 100)

9. Extra milk (from 2014) has depressed prices

10. Dairy Market: Weakness returning after brief upturn
October 6th: Recovery Peaks; Prices begin to weaken again
August 4th : Low Point

11. Recent signs of an output slowdown in NZ have improved sentiment…but further stabilisation required
New Zealand: Early season supplies showing decreases; forecast for more substantial declines as season progresses (Fonterra estimating 5%+ decline)

12. EU milk output is very strong (post quota)
+1.3 est.

13. Exports have been hindered by events in Russia

14. And China…

15. China stocks still weighing on market
Source: Dairy NTEL

16. EU export performance has been good, considering the difficult market environment
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17. Demand for Dairy Fat is Increasing in US & EU
EU Butter consumption up 3.7% in 2014, compared to annual average increases of 0.8% for
EU Cheese consumption up 1.6% in 2014, compared to annual average increases of 1.1% for
US Butter sales up 14% in 2014; Sales of whole milk up 11%, with Skim milk down 14%

18. Market Outlook
In the absence of a rapid (weather-related) supply-correction, the coming months will be difficult for dairy farmers
some commentators forecasting weak prices out to H2 2016
Market still digesting 2014 supply-overshoot and demand shocks
Demand (+c.1.5%) will eventually catch-up with supply growth (+c.1.25%) & stocks: Question is when?
Current (below cost of production ) prices are not sustainable for farmers or processors
Milk price recovery may lag recovery in product prices
Long term, future is positive;
Fundamentals remain in place; world populations are growing, getting wealthier, and becoming more positively disposed towards dairy fat and protein
Ireland has a competitive edge in milk production

19. In conclusion Volatility is increasing
Only the strongest in the supply chain and those that adapt will succeed
For farmers, the best insulator against volatility is a combination of:
Open market returns
Fixed milk pricing schemes
Hedging on a relevant financial exchange when liquidity allows
Efficient and shrewd financial planning (in those key times of plenty)
For its part, Ornua’s volatility management mechanisms ensure its own product prices (as evidenced by the PPI) trade in a narrower, less volatile range than the market highs and lows

20. Thank You
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