Global Dairy Trade Results Update – 5/3/16
Executive Summary Dairy product prices declined for the first time in three auctions during the GDT event held May 3rd. Highlights from the most recent auction include: • The GDT Price Index declined 1.4% at the May 3rd event as gains in whole milk powder prices were not enough to offset weakness in other dairy products. • Declines in prices were led by butter milk powder and butter, each finishing down 5.5%. Whole milk powder prices increased for the third consecutive auction at the May 3rd event, finishing up 0.7%. • Total quantities sold for all products at the May 3rd event remained weak, finishing 2.8% less than the previous auction while also remaining 23.5% lower on a YOY basis. Additional Report Details Dairy product prices declined for the first time in three auctions within the Global Dairy Trade (GDT) during the auction held May 3rd as the GDT Price Index finished down 1.4%. 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 had fallen back to a 14 auction low during mid-March but remained at the second highest level experienced during the past three months as of the most recent event, despite the decline. The GDT Price Index represents a weighted-average of the percentage changes in prices between trading events for all products offered. The GDT Price Index finished the May 3rd event 10.1% below the previous year price levels and 41.0% below the three year average price for the first auction of May. The GDT Price Index has finished lower on a YOY basis for 13 consecutive events through the May 3rd event. Declines in prices were led by butter milk powder (-5.5%), followed by butter (-5.5%), skim milk powder (-3.6%), lactose (-2.7%) and anhydrous milkfat (-1.6%). Price gains were experienced within whole milk powder (+0.7%), cheddar cheese (+1.8%) and rennet casein (+3.5%). U.S. SMP and butter did not trade for the 42nd and 43rd consecutive times, respectively, at the May 3rd 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 May 2nd 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 May 3rd event of 20,615 MT were 2.8% less than the previous auction while also remaining lower on a YOY basis. Volumes sold for all products within the first auction of May were 23.5% below last year’s average volumes sold for the month of May and 23.0% below the previous three year average May quantities sold. Within the GDT auction, butter offered by U.S. sellers, representing product sold by Dairy America, did not trade for the 43rd consecutive 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, Oceania butter prices for short-term contract periods increased to an eight month high during the December 1st auction before once again declining to a ten auction low during the Apr 5th event. Oceania butter prices over short-term contract periods declined slightly during the most recent event, finishing near the recent 11 auction low experienced during early April. 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 78.9% premium to GDT prices while CME futures prices are trading at an 85.0% premium to GDT prices from Jun ’16 – Nov ’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 13.2% premium to GDT prices while CME futures prices are trading at a 22.4% premium to GDT prices from Jun ’16 – Jul ’16. Cheddar cheese was not sold at the GDT auction for Contract 3 (Aug ’16), Contract 4 (Sep ’16), Contract 5 (Oct ’16) and Contract 6 (Nov ’16). Oceania and Europe GDT SMP prices have converged since mid-2014 as prices have moved downward in tandem. Europe SMP prices remained within 5.0% of Oceania SMP prices at the most recent GDT event. U.S. SMP, representing product sold by Dairy America, did not trade for the 42nd 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, was sold for the second consecutive auction at the May 3rd event, remaining higher than Oceania and Europe prices. 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 over short-term contract periods reached a new low at the August 4th auction prior to trending higher throughout October and then declining once again to a 17 auction low during the May 3rd event. U.S. NFDM spot prices are currently trading 4.5% below GDT SMP prices however U.S. NFDM prices are expected to regain a premium to GDT SMP prices during future months, as U.S. prices are trading at a 9.2% average premium to GDT prices from Jun ’15 – Nov ’15.