Global Dairy Trade Results Update – 3/1/16
Executive Summary Dairy product prices increased slightly within the GDT event held March 1st. Highlights from the most recent auction include: • The GDT Price Index increased for the first time in five auctions at the March 1st event, finishing up 1.4%. • Whole milk powder prices increased 5.5% at the March 1st event, which was the largest percentage gain experienced in the past 10 auctions. • Quantities sold declined to a 23 auction low during the March 1st event, however volumes finishing 3.3% higher on a YOY basis. Additional Report Details Dairy product prices increased within the Global Dairy Trade (GDT) for the first time in the past five auctions as the GDT Price Index increased 1.4% at the auction held March 1st. The GDT Price Index declined by 46.8% in total over the ten auctions spanning Mar ’15 – Aug ’15 but had gained back nearly three quarters of the decline from Aug ’15 to Oct ’15. The GDT Price Index fell back to a 12 auction low prior to the slight increase experienced in the most recent event. The GDT Price Index represents a weighted-average of the percentage changes in prices between trading events for all products offered. Despite the increase in prices experienced during the March 1st event, the GDT Price Index remains 33.0% below the previous year and 45.9% below the three year average price for the first auction of March. Price gains were led by rennet casein (+14.9%), followed by lactose (+7.9%), whole milk powder (+5.5%) and skim milk powder (+1.3%). The percentage gain in whole milk powder prices was the largest experienced throughout the past ten auctions. Declines in prices were experienced in anhydrous milkfat (-8.3%), butter milk powder (-2.9%), cheddar cheese (-0.7%) and butter (-0.5%). U.S. SMP and butter did not trade for the 38th and 39th consecutive times, respectively, at the March 1st event. The table below provides a summary of the most recent GDT weighted average winning prices for key products. Butter has been adjusted to 80% butterfat and SMP has been adjusted to 35% protein content (equivalent to U.S. NFDM) in the $/lb columns below. CME spot and average futures prices are based on February 29th figures. CME average futures prices are weighted average prices based on the most recently reported percentage of the total quantity sold in each GDT contract period. Total quantities sold for all products at the March 1st event of 21,880 MT were 0.6% less than the previous auction and the lowest amount of product sold since Mar ’15. Volumes were slightly higher on a seasonal basis, finishing 3.3% above last year’s average volumes sold for the month of March. Mar 1st total quantities sold for all products remained 18.1% below the previous three year average quantities sold for the month of March, however. Within the GDT auction, butter offered by U.S. sellers, representing product sold by Dairy America, did not trade for the 39th straight auction after trading at each auction since being offered in Jul ’13. Butter offered by U.S. sellers for short-term contract periods has recently traded at a significant premium to butter offered by Oceania sellers for short-term contract periods, representing product sold by Fonterra. Jul ’14 U.S. / Oceania butter price premiums within the GDT auction were the highest ever experienced. After declining to record lows during Aug ’15, Fonterra butter prices for short-term contract periods increased to an eight month high during the December 1st auction before once again declining to a seven auction low during the most recent event. GDT winning prices in butter have been historically higher than U.S. butter prices until the run-up in domestic butter prices beginning in 2014. Over the past 27 bi-weekly events leading up to April ’14, GDT butter prices traded at a $0.19 average premium to U.S. butter prices. From Apr ’14 – Dec ’14, however, U.S. butter prices traded at a $0.92 average premium to GDT butter prices. The U.S. butter price premium was reduced throughout the early months of 2015 but has rebounded over more recent auctions. U.S. spot butter prices are currently trading at a 57.9% premium to GDT prices while CME futures prices are trading at a 64.6% premium to GDT prices from Apr ’16 – Sep ’16. U.S. butter prices traded at an 83.3% premium to GDT butter prices over the second half of 2014 and a 53.9% premium to GDT butter prices throughout 2015. Cheddar cheese available for purchase at GDT auctions is currently offered only by Fonterra, so GDT winning prices in cheddar cheese are a viable metric for Oceania prices. U.S. cheddar cheese prices have traded at a premium to GDT prices for the majority of the bimonthly events since Jan ’14 after trading at a discount for nearly all of 2013. U.S. spot cheddar cheese prices are currently trading at a 26.9% premium to GDT prices while CME futures prices are trading at a 36.3% premium to GDT prices from Apr ’16 – Jul ’16. Cheddar cheese was not sold at the GDT auction for Contract 5 (Aug ’16) and Contract 6 (Sep ’16). Oceania and Europe GDT SMP prices have converged since mid-2014 as prices have moved downward in tandem. Europe SMP did not trade for the fifth consecutive time at the March 1st event, however EU prices at the most recently traded December 15th auction finished at a 3.9% discount to Oceania SMP prices. U.S. SMP, representing product sold by Dairy America, did not trade for the 38th straight auction after trading at 69 consecutive auctions from Oct ’11 to Aug ’14. Dairy America is currently the only U.S. seller offering SMP within the GDT as Land O’ Lakes has formally withdrawn from the global auction platform. India SMP, representing product sold by Amul, also did not trade at the March 1st event. Although SMP offered by U.S. sellers has not traded since Aug ’14, the most recent U.S. / Oceania SMP price premiums experienced within the GDT auction have been the highest experienced since Sep ’12. Oceania SMP prices for short-term contract periods reached a new low at the August 4th auction prior to more recent increases in prices. U.S. NFDM spot prices are currently trading 9.1% below GDT SMP prices while GDT SMP future month winning prices are trading at a 0.9% average premium to CME NFDM futures prices from Apr ’16 – May ’16. U.S. NFDM prices are expected to regain a premium to GDT SMP prices on average heading into the second half of 2016, however, trading at an 8.5% premium from Jun ’15 – Sep ’15.