Fonterra Reduces 12 Month GDT Volume Forecast; NZX Futures Volume Sets Record

A few days before each Global Dairy Trade (GDT) auction, Fonterra releases an updated total forecast supply over the next 12 months (offered on GDT) along with forecast offer quantities for each commodity for the upcoming auction and subsequent four trading events. This information is published on the NZX website.  Last Thursday, Fonterra published their latest numbers with the forecast total supply for all dairy products over the next 12 months revised 4.9% lower than the previous event. This is the third straight decline in their 12 month “all product” estimate and is off 9.6% since mid-July’s numbers.  When breaking down these volumes by commodity, whole milk powder saw the largest 12 month decline, off 8.3% versus the previous event.  This is significant as whole milk powder represents 58% of Fonterra’s estimated 12 month volume on GDT.  Other major commodity 12 month forecasts were either revised slightly higher (cheese up 3%, skim milk powder up 0.6%) or left largely unchanged (anhydrous milk fat, butter). The decline in total volume offered on GDT could be construed as bullish as it looks like anticipated supply is being reduced. However, since GDT volume is only a portion of Fonterra’s overall sales, it may represent a shift away from ‘commodity’ volume offered to the masses via auction and more toward products made to spec for Fonterra’s contract customers. But with the number of qualified buyers increasing at each trading event and more bidders participating in the process, we have a hard time formulating a bearish argument from this information. WMP prices appear to be well-supported.  The NZX dairy futures complex has already had a record August and we are just half way through the month.  At 3,285 metric tons