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2 Dec 2014
ANZ: Fonterra GDT auction down but basing?
FXStreet (Bali) - ANZ offers a review of the latest Fonterra GDT auction, in which prices ended down 1.1%.
Key Quotes
"GDT auction prices down 1.1%. Whole milk powder down 7.1% – average price of US$ 2,229/mt though we note some firming across the back-end contracts. Skim milk powder (SMP) rose 5.7% (though this only reverses the prior auctions decline) and butter up 7.3% so some better looking detail in pockets and we note SMP powder led aggregate prices down so farmers will be hoping it cuts both ways."
"But stepping back the bottom line is that we are still seeing weakness through the peak sales period and while we can see some uplift potential towards the later part of the season that’s too late to materially influence this seasons Fonterra payout; a figure well under $5/kg MS still beckons."
"Of course the real issue for the dairy sector and New Zealand economy is not the 2014/15 payout, its prospects for 2015/16. One year of a low payout is manageable; two years becomes problematic. Putting on our rose tinted glasses, some firming in back-end contracts is welcome and 40% of the product mix does seem to be basing / lifting, but they need to lift a long way yet for any degree of comfort to be forthcoming over where the coming seasons payout could be."
"With current spot prices still trading in a manner consistent with the payout in the low $4’s, we need to see considerable uplift for “break-even” (that’s $5.50kg/MS on the average dairy farm) to be achieved next season. So belt tightening looks set to continue and extend for a while yet."
Key Quotes
"GDT auction prices down 1.1%. Whole milk powder down 7.1% – average price of US$ 2,229/mt though we note some firming across the back-end contracts. Skim milk powder (SMP) rose 5.7% (though this only reverses the prior auctions decline) and butter up 7.3% so some better looking detail in pockets and we note SMP powder led aggregate prices down so farmers will be hoping it cuts both ways."
"But stepping back the bottom line is that we are still seeing weakness through the peak sales period and while we can see some uplift potential towards the later part of the season that’s too late to materially influence this seasons Fonterra payout; a figure well under $5/kg MS still beckons."
"Of course the real issue for the dairy sector and New Zealand economy is not the 2014/15 payout, its prospects for 2015/16. One year of a low payout is manageable; two years becomes problematic. Putting on our rose tinted glasses, some firming in back-end contracts is welcome and 40% of the product mix does seem to be basing / lifting, but they need to lift a long way yet for any degree of comfort to be forthcoming over where the coming seasons payout could be."
"With current spot prices still trading in a manner consistent with the payout in the low $4’s, we need to see considerable uplift for “break-even” (that’s $5.50kg/MS on the average dairy farm) to be achieved next season. So belt tightening looks set to continue and extend for a while yet."