2 Oct 2014
GDT dairy prices collapse, Kiwi heaviness to prevail - ANZ
FXStreet (Bali) - ANZ reviews the latest GDT dairy auction from Wednesday, in which we saw prices collapse once again.
Key Quotes
"Another weak dairy auction overnight, with GDT-TWI prices declining another 7.2%, to be down a whopping 48.5% since February’s peak. Weakness was led by a 9.2% fall in wholemilk powder (WMP) prices to USD2,443/t while skim milk powder prices fell another 3%."
"Strong domestic supply and Russian sanctions continue to weigh. The failure of global dairy prices to recover adds further downside risk to Fonterra’s already-reduced 2014/15 milk price (currently $5.30/kg)."
"Indeed Fonterra said in September that they need WMP prices to rebound to USD3,500 by March 2015 to maintain their current payout estimate – that’s a long way from current levels."
"As a result, we have today reduced our forecast for the 2014/15 payout to $4.85/kg (from $5.25), assuming a modest bounce back in global prices. This sits well below the average cost of production for farmers and will have a significant impact on discretionary spending."
"We’d also add that the dairy sector has a huge amount of exposure to floating rates (of around 70%). A lower dairy price also has significant implications for the wider economy and monetary policy. Moves in the OCR look a long way off, with our call for the next move to arrive in March now under review. Expect the NZD to remain under pressure."
Key Quotes
"Another weak dairy auction overnight, with GDT-TWI prices declining another 7.2%, to be down a whopping 48.5% since February’s peak. Weakness was led by a 9.2% fall in wholemilk powder (WMP) prices to USD2,443/t while skim milk powder prices fell another 3%."
"Strong domestic supply and Russian sanctions continue to weigh. The failure of global dairy prices to recover adds further downside risk to Fonterra’s already-reduced 2014/15 milk price (currently $5.30/kg)."
"Indeed Fonterra said in September that they need WMP prices to rebound to USD3,500 by March 2015 to maintain their current payout estimate – that’s a long way from current levels."
"As a result, we have today reduced our forecast for the 2014/15 payout to $4.85/kg (from $5.25), assuming a modest bounce back in global prices. This sits well below the average cost of production for farmers and will have a significant impact on discretionary spending."
"We’d also add that the dairy sector has a huge amount of exposure to floating rates (of around 70%). A lower dairy price also has significant implications for the wider economy and monetary policy. Moves in the OCR look a long way off, with our call for the next move to arrive in March now under review. Expect the NZD to remain under pressure."