Analysis: Under revision
A range of predominately NZ dairy industry price and volume information is provided here with regular updates and periodic analysis. Regardless, the NZ dairy industry remains informationally and analytically deprived.
A section has been added reflecting on speculation by Fonterra of NZ dairy industry payouts in excess of $8.00 per Kg of milk solids in the approaching 2010-2011 season.
United States Department of Agriculture (USDA) data on international commodity prices are graphed and supported by market comment at the end of the analysis. This comment may be of particular importance:
Oceania traders and handlers of manufactured dairy products continue to analyze the impact of the sharply lower prices recorded at the July 6 gDT event might have on current and future prices. In most instances, prices did ease, but often not to the extent of the 10 - 15% declines recorded for the various dairy products traded. Some traders are indicating that they have heard that some offers for various products out of the Oceania region are at levels below the average auction values. Traders and handlers are also stating that buyer interest has slowed greatly with many buyers stepping back from the market until more stability is realized.
For those buyers that are still in the market, many are seeking product for short term or immediate needs with most stating what they will pay versus what suppliers are quoting. Traders are stating that it appears that China may be backing away from the marketplace as their milk production comes more in line with needs.
To go direct to any required subject click on the relevant index link below:
USDA spot price data are to the 10th of November 2010. NZ dairy export statistics include data for July 2010. Global Dairy Trade auction prices are to the 3rd of August 2010.
- Introduction
- Dairy Price Volatility
- Fonterra's GlobalDairyTrade Auctions
- Fonterra and Market Power
- The Impact of China
- Conclusions
- Projections for Fonterra's 2009-2010 Payout
- Speculation of an $8.00 plus payout for the 2011 season is unhelpful to the dairy industry, and misleading
- Dairy Commodity Spot Price Graphs (to the 6th of January 2011)
- United States Department of Agriculture Dairy Market Overview
Introduction
Any milk producer will almost certainly have been heartened by the impressive gains made in dairy commodity spot prices seen from the beginning of August 2009 to May 2010. The gains have been led by whole milk powder and have flowed on to other dairy commodity products just as Fonterra said they would. The gains are such that they have largely dwarfed any impact of currency changes.
Price increases are faster than ever before, unusual in being coordinated across products, and appear to defy supply and demand logic. But milk production has hardly moved and demand curves are in all probability still moving left with lower disposable incomes across much of the world. In short, current dairy commodity spot prices are not the result of milk producer supply meeting the demand of final consumers, but of milk processor offered supply meeting the demand perceptions of supply system intermediaries. A good illustration of the artificial nature of the current situation (November 2009) from NZ is supermarket prices for retail packs of butter and cheese - including those produced by Fonterra - in many cases retailing below quoted Oceania spot prices for bulk supply.
While price volatility is being mentioned by most commentators, there are few economic reports being produced in NZ at the moment - including those from the RBNZ, that do not refer to rising dairy prices as grounds for significant optimism for the sector. The potential gains are being heralded as though they have already been achieved, and are in some cases encouraging a resumption of NZ dairy industry expansion.
For milk producer’s price volatility is destructive. The spectacular rise in dairy commodity spot prices is boosting industry confidence, but confidence not balanced by recognition of the price downside of volatility - something that could be severe.