JT Macfarlane's blog

GDT #195

The chart from CIP below tells the story of the last 6 auctions – an extended period of low volatility.

Readers will recall, however, that the last 2 auctions have disappointed with slightly negative outcomes, despite robust markets leading into the auction and expectations of a 3%+ price rise in GDT.

This week that trend remains in place, with futures markets continuing to suggest well supported markets across WMP (+3%), butter (+2.5%), and AMF (+2.5%) and SMP (+1.5%).

GDT194 another go

 Ahead of the last auction I was somewhat confidently suggesting a 3% - 5% lift in the WMP futures and a robust result across the board.  The -1.6% result in the GDT auction and a modest +1.3% uptick in WMP was therefore disappointing. In some respects, this was even more so, given that my optimism was partly predicated on an expectation of interest from Chinese buyers which did indeed eventuate – as shown in the GDT / CIP chart below. Chinese buying represented 44% of the auction volume.

GDT 193 interesting

At the time of the last auction I identified that it was hard to get excited with either the price action or the prospects for the auction (#192) given that +/- 1% looked to be likely (and indeed the outcome conformed to these expectations).

GDT #192

The GDT auctions this calendar year have (relative to the experience of prior years) shown relatively low levels of volatility. In fact, as shown below, only one auction amongst the last 12 has shown a move of +/- 4% and the last 3 auctions have seen the GDT index move less than +/-1%.

GDT 190 / dairy forecasts

Market Recap:

We are now several weeks into the new season and final price announcements for the 2016/17 are being made. It is too early for any commentary on the production side of the ledger! Price discussion this week was “headlined” by Synlait’s revised $6.15/kgMS 2016/17 final FGMP (down from a previously forecast $6.25/kgMS) with an average 14 cent premium across a number of “value add” categories including A2 milk.

Auction #189

It has been 3 weeks since the last auction and there has been a reasonable amount happening in the market:

GDT 188: Weak but good

The last auction result (+3.6%) was right at the top end of my expectations (+/-3%) and WMP was +5.2% but there has been limited follow through since in the futures market.

The result reinforced expectations for a final price for the current season slightly above $6.00 (the 2016/17 futures have strengthened from $6.05/kgMS to $6.11/kgMS) but since the last auction the 2017/18 futures price has weakened from $6.25/kgMS to trade at a discount to the current season at $6.00/kgMS.

2016/17 nearly over

The 2016/17 season is coming to a close and although there have been a  few surprises (March production data), the emphasis is now really on 2017/18.  It is worth noting that the year has been better than expected from a revenue and profitability perspective, notwithstanding the climatic challenges that farmers have been through. At the start of the season a $6+ milk price and a 40 cent dividend was something we would have all accepted without too much thought!

WMP under performing; GDT 186

Commodity prices:

Some could be bored with some of my commodity commentary and the repeated references to supply-demand balance. The chart below, I think, is an interesting example of these factors.

Auction 185 - steady?

The last auction preview (auction 184) was titled “attempting to find a base”.  Notwithstanding that somewhat optimistic title, futures and price action ahead of the auction was suggesting further significant falls in both WMP (circa 4-6%) and SMP (circa 10%+).