Friday, December 8, 2023

Payouts in peril as GDT plummets

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‘Such a large fall will increase the chance of further downgrades’.
Whole milk powder prices plunged to the lowest level in about three years.
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Global dairy prices fell sharply overnight, which doesn’t bode well for this season’s forecast milk price payout.

The Global Dairy Trade (GDT) index fell 4.3% off the previous auction two weeks ago.

The GDT price index is calculated from the total quantity sold in a trade event across all products, contract periods and sellers.

The index currently stands at 918, which is the lowest it has been since September 2020.

Whole milk powder, which has the biggest influence on Fonterra’s milk price, plunged 8.0% to US$2864 ($4567) a tonne, also the lowest level in about three years.

“Such a large fall will increase the chance of further downgrades to Fonterra milk payouts for the season,” said BNZ senior markets strategist Jason Wong.

Fonterra currently expects to pay its farmer shareholders a range of $7.25 to $8.75 per kgMS, with a midpoint of $8.00 per kgMS in the current season.

That figure is already below the breakeven mark, according to some calculations.

“Falling dairy prices and NZ commodity prices, in general, went against the grain of higher global commodity prices in July, a worrying trend for NZ’s terms of trade,” Wong said.

Both cheddar and skim milk powder fell 1.4%, and anhydrous milk fat and butter slipped 0.5% and 0.7%, respectively.

“Ongoing weakness in China’s economy is the major driver,” ANZ Bank senior economist Miles Workman and strategist David Croy said in a note.

ANZ Bank expects Fonterra to pay $7.75 per kgMS, and Westpac Bank recently lowered its milk price forecast by more than a dollar to $7.80 per kgMS.

According to NZX dairy analyst Alex Winning, however, China was active in the overnight auction.

“North Asia returned to the fold at this auction, taking out top buyer’s spot for both milk powders and cheddar,” she said.

“This was a shift from recent events and a welcome one.”

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