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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."

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