Saputo Inc., Canada’s biggest milk processor, raised its bid for Warrnambool Cheese & Butter Factory Co. to A$537 million ($480 million), after a ruling from Australia’s takeover regulator.
Saputo will pay a maximum A$9.60 cash a share on condition it gains more than 90 percent of Warrnambool, the Montreal-based company said today in a statement. It had previously offered A$9 a share rising to a maximum of A$9.20. The offer trumps a A$9.50 bid from Murray Goulburn Cooperative Co. and a cash and share offer from Bega Cheese Ltd.
The three-way contest for 125-year-old Warrnambool, based near the town in Victoria that bears its name, has more than doubled its market value since Bega, its largest shareholder, made an initial bid on Sept. 12. Bidders are seeking to increase production and add export infrastructure to help them tap rising demand for dairy produce in Asia.
"These increases will be available to all shareholders regardless of when they accept, including those who have already accepted the Saputo offer," the Canadian processor said today in a statement.
Saputo won’t increase its bid again before its offer closes on Jan 10., it said as it extended from Dec. 20 the deadline for shareholders to accept the proposal. Warrnambool rose 2 cents to close at A$9.27.
Shareholders will get A$9.40 a share if Saputo obtains more than 75 percent of Warrnambool shares, the Canadian company said in the statement. It reiterated a previous proposal to pay A$9.20 per share on taking greater than 50 percent of the Australian producer’s shares.
Saputo holds 17 percent of Warrnambool, while Bega has 18 percent and Murray Goulburn holds 17 percent, according to data compiled by Bloomberg.
Australia’s Takeovers Panel lifted orders preventing Saputo from processing shareholder acceptances after it made undertakings to amend its proposals, the regulator said today in a statement.
Murray Goulburn, Australia’s biggest milk processor, had asked the regulator to intervene over Saputo’s revised Nov. 25. offer, under which Warrnambool dropped plans to pay shareholders special dividends linked to the deal.
That proposal had "put into place arrangements that were complex, created uncertainty and were most undesirable," the panel said in its statement.
Warrnambool’s board has recommended Saputo’s offer to shareholders.
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Soybeans fell for the first time in three sessions after forecasts for rain in South America eased concern that developing crops would be hurt by hot, dry weather.
Southwest Argentina may see rain this week, benefiting late-planted corn and soybean crops, while additional showers may develop later in the six to 10 day forecast, Commodity Weather Group said today. In Brazil, rain this week will mostly be in northern areas and may expand into central regions next week, it said. Soybean planting was 66 percent complete in Argentina, the Buenos Aires Grains Exchange said Dec. 12. Most Brazilian farmers finished sowing, according to researcher AgRural.
"Argentina remains a little on the warm side, but this is somewhat normal and rains remain in the extended forecast," Matt Ammermann, a risk management consultant with INTL FCStone, said in an e-mailed report today. "Long-lasting dryness seems unlikely, but of course remains the primary risk. Central and northern Brazil continue to receive adequate rains."
Soybeans for March delivery fell 0.4 percent to $13.195 a bushel by 6:34 a.m. on the Chicago Board of Trade. Futures rose 1 percent in the previous two sessions. The most-active contract is down 6.4 percent this year. Brazil is the world’s biggest exporter, while Argentina ranks third, after the U.S.
Soybean planting in Brazil and Argentina will top records this season at 29.9 million hectares (73.9 million acres) and 20.5 million hectares, respectively, Hamburg-based Oil World said Dec. 10. Brazil’s harvest may reach an all-time high of 88 million metric tons, while Argentina will produce 54.5 million tons, according to the U.S. Department of Agriculture.
Corn for March delivery declined 0.1 percent to $4.2275 a bushel after sliding 3.6 percent the prior three sessions. Chinese officials found more shipments containing an unapproved genetically modified variety, the General Administration of Quality Supervision, Inspection and Quarantine said in a statement today without providing figures. China previously rejected 180,000 tons of insect-resistant corn from the U.S. because the variety was still undergoing a safety review.
Wheat for March delivery was little changed at $6.2225 a bushel in Chicago, after touching $6.21 a bushel. That matched yesterday’s intraday low, the cheapest price for a most-active contract in 18 months. In Paris, milling wheat for March delivery dropped 0.5 percent to 203 euros ($279.27) a ton on NYSE Liffe.
Egypt, the world’s top wheat importer, is seeking to buy at least 60,000 tons in a tender today, according to the General Authority for Supply Commodities. The state-run buyer received offers of supplies from the U.S., France, Romania, Russia and Germany, according to two traders involved with the tender who aren’t authorized to speak with the media.
In the December WASDE report, the USDA increased the forecast of 2013-14 marketing year exports of U.S. soybeans by 25 million bushels, to a total of 1.475 billion bushels. That forecast is 155 million bushels larger than exports of last year and only 26 million bushels smaller than the record exports during the 2010-11 marketing year.
Large U.S. exports are expected this year even with record large production in South America. The USDA's Foreign Agricultural Service estimated the size of the 2013 crop in South America (Brazil, Argentina, Paraguay, Bolivia, and Uruguay) at 5.377 billion bushels and forecasts the 2014 crop at 5.766 billion bushels. The projected size of the 2014 crop is 1.515 billion bushels larger than the drought-reduced crop of 2012. Compared to production this year, production in 2014 is expected to be 220 million bushels larger in Brazil and 190 million bushels larger in Argentina. Larger crop expectations reflect increased acreage (particularly in Brazil) and expectations of slightly higher yields (particularly in Argentina). Production is expected to be down slightly in Paraguay and Bolivia. The actual size of those crops will not be known for several months, but current weather conditions are generally favorable and some anticipate that the Brazilian crop in particular will be larger than the current forecast.
The primary reason for the forecast of large U.S. soybean exports in the face of record competition from South American supplies is the strength of Chinese demand. The USDA estimates show that China imported fewer than one billion bushels of soybeans from all origins as recently as the 2004-05 marketing year. Those estimates show larger imports each year since then, reaching 2.2 billion bushels during the 2012-13 U.S. marketing year. Chinese imports during the current marketing year are projected at 2.535 billion bushels. China accounted for 63 percent of total world soybean imports during both the 2011-12 and 2012-13 marketing years. That share is projected at 66 percent for the current year China imported 864 million bushels of U.S. soybeans during the 2011-12 marketing year and 791 million bushels during the 2012-13 marketing year. Exports to China accounted for 63 percent and 60 percent of total U.S. soybean exports in those two years, respectively.
Large soybean imports by China have been the result of the combination of declining production and increasing consumption. Chinese production totaled an estimated 639 million bushels in 2004 and only 448 million bushels in 2013. China consumed an estimated 1.583 billion bushels of soybeans during the 2004-05 marketing year and consumption during the current marketing year is forecast at 2.921billion bushels. Chinese consumption of soybean meal this year is forecast to be 126 percent larger than in 2004-05 while consumption of soybean oil is expected to be 89 percent larger.
Sales of U.S. soybeans for export during the 2013-14 marketing year have been extremely large. As of Dec. 5, the USDA reported sales for the year that began on Sept. 1, 2013 at 1.421 billion bushels, with nearly half of that total already shipped. Additional large sales under the daily reporting system have been reported since December 5 and will show up in subsequent weekly summaries. Sales account for just over 96 percent of the USDA's projection of exports for the year ending Aug. 31, 2014. In the previous five years, total sales as of the first week of December accounted for 53 to 83 percent of total exports for the year. Sales to China as of December 5 totaled 901 million bushels, or 63 percent of the total sales, with additional sales reported since December 5. Sales to "unknown" destinations, which may include some sales to China, accounted for an additional 14 percent of the total sales.
With 38 weeks left in the 2013-14 marketing year, soybean export sales are already near the total export projection for the year. On the surface, it appears that either exports will exceed the USDA projection or that prices will have to increase to slow the pace of consumption. With year-ending stocks of U.S. soybeans already forecast at a near-pipeline supply of 150 million bushels, there is little room for exports to exceed the current projection. Exports can be measurably larger only if the 2013 U.S. crop was larger than the current forecast (final estimate to be released on January 10, 2014) or the domestic crush is smaller than forecast. A third alternative is that China will cancel some purchases of U.S. soybeans if the South American crop turns out to be large and prices are lower and/or the current bird flu situation there worsens and reduces the demand for soybean meal.
Developments over the next few weeks will be critical for the direction of old-crop soybean prices. A combination of export sales cancellations, a larger U.S. crop estimate, or a larger South American crop estimate would likely trigger a lower price trend. Without such developments, current high prices would likely persist a while longer in order to finish the rationing of old crop supplies. Protecting the downside price risk appears prudent.
As prices for corn, sorghum, and wheat sink, acres could shift into cotton, at least in Texas. Yet cotton producers, who are at the mercy of Chinese intervention policy, face more uncertainty than corn and soybean producers.
"Cotton acres in 2014 could increase to 11 million from 2013’s 10.3 million acres," says John Robinson, cotton specialist with Texas A& M University.
U.S. cotton acres began dropping from previous-year levels in 2007 and hit a low in 2009. Prices began rising in 2010 and then peaked at more than $2 per bale in 2011. Rising prices encouraged some shifting of acres into cotton in 2010 and 2011, but by 2012, cotton acres had once again given way to other crops.
The 2010/11 price spike occurred as panic buying swept the world’s mills. The sharp increase in cotton prices spurred China to start building government reserves. Today China’s government owns somewhere between 45 million and 50 million bales of cotton, roughly half of the world’s cotton stocks.
"If China’s reserve stocks were in circulation, the market would be astronomically bearish," says Robinson. "It’s a set-up for future price weakness." Recently China tried to clear some of its reverses but little cotton was sold.
"The price offered was artificially high. It wasn’t a market-clearing price," says Robinson. So far China’s intervention policies have helped support U.S. cotton prices, but at some point China’s strategy could backfire.
"It creates a lot of uncertainty for U.S. cotton producers for sure," says Robinson. "Their price is being controlled by the policy interventions of the Chinese."
Unless China does something drastic between now and planting, Robinson says cotton will compete successfully for acres this spring.
"Everyone—corn producers, wheat producers, cotton producers, soybean producers—are much closer to a break-even propositions this year," says Robinson. "It will be tight for cotton producers. There’s not much room for error."
In the southeastern United States, from the Mississippi River Valley to the Atlantic, Robinson expects some corn acres to shift into cotton this spring as some cotton acres shift into soybeans. The upshot, he says, will be a wash for cotton.