Rabobank Analysis - GDT Event 203

Rabobank Analysis - GDT Event 203

Commentary
A mixed result in the commodity bag overnight; but generally a positive auction for New Zealand farmers with the average price index at the GDT auction for up 2.2%. Importantly, the WMP index was up 4.2% taking it to its highest level since October 2017. A total 25,400t of product was sold.

As many of you would be aware, Fonterra has revised its milk intake for the 2017/18 season twice in the past few weeks. Right now Fonterra are predicting milk intake of 1,480 million kgMS - which is down 4% on the 2016/2017 season. The risk of drought flagged in the latest GDQ has clearly come into play.

According to Fonterra, dry conditions are expected to continue, and even if the rain forecast for early in 2018 eventuates, it will not be enough to bring production back to previously anticipated levels.

As a result, Fonterra has begun to take volumes of whole milk powder off the Global Dairy Trade platform in response to lower milk supply.

In other news, weaker price signals continue to flow through to European dairy farmers. Friesland Campina are cutting their guaranteed price for January by 4c to 37.5c/kg. This is the first price cut since April 2017 for RFC suppliers and their largest-ever monthly price cut.

Turning to Australia, November milk production was up 4.3%. Production in Victoria was up 4.4%, Tasmania up 10.4%, and SA up 9.4%. Production in WA was down 1.2%, QLD down 0.6%, and NSW down 1.8%. National production in the first 5 months of the season is now up 3.1%.

A newly-formed Mountain Milk Co-op (based in Northern Victoria), which was started by former Murray Goulburn suppliers, has been signed up by Freedom Foods, whose recruitment drive for their Shepparton plant has added about 50 million litres a year of extra supply from the state’s Goulburn and Murray Valleys and the NSW Riverina in the past 6 months. A sign that competitive pressure for milk supply will be a key feature in 2018.

Results
AMF index down 0.2%, average price US$6,405/MT
Butter index up 0.6%, average price US$4,501/MT
BMP index down 7.3%, average price US$1,866/MT
Cheddar index down 2.1%, average price US$3,317/MT
Casein index down 1.1%, average price US$4,419/MT
SMP index up 1.6%, average price US$1,699/MT
WMP index up 4.2%, average price US$2,886/MT

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