Fonterra’s GDT auction fall offset by dollar

FONTERRA’S fortnightly global dairy trade auction has fallen for the fifth time in six auctions, but that was offset to some extent by a further weakening in the New Zealand dollar.

The kiwi yesterday fell below US70c for the first time this year — it is down almost 5% in the past fortnight — on prospects of US interest rate hikes, which drove up the US dollar value.

Despite the slight GDT index decline, some analysts are predicting an upgrade in farmgate milk price predictions, although that depends on currency movements.

The auction data comes at a time when Fonterra is showing more of a decline in production than the overall dairy sector. This suggests its rivals have picked up more from the national milk pool.

The 1.1% decline on the overall GDT price index was led by rennet casein and whole milk powder, down 10.5% and 1.5% respectively .

Anhydrous milk fat declined 1.9% and butter prices were steady.

ASB rural economist Nathan Penny described the overnight auction prices as ‘‘weak’’, being down 1.1% overall and the key whole milk powder price was down 1.5%.

He had expected a rise in the whole milk powder prices.

‘‘However, the sharp move lower in the New Zealand dollar more than trumps the price fall overnight,’’ Mr Penny said.

Since the last GDT auction, the New Zealand dollar had fallen 4.6% against its US counterpart. The net effect of the currency decline meant the overall dairy auction prices were about 3% higher in New Zealand dollar terms since the last auction.

‘‘And, of course, it’s auction prices in New Zealand dollar terms that matter for the farmgate milk price,’’ he said.

ASB was keeping its farmgate milk price predictions ‘‘under review’’, but Mr Penny said there was potential to revise the milk price forecast upward, if the dollar decline did not prove temporary.

Fonterra’s global dairy update said the company collected about 1.31 million kilograms of milk solids in New Zealand in the 10 months ended March.

It expected production for the whole season ending May would be down on the previous year at 1.5 million kgMS, an improvement on its previous estimate of 1.48 million kgMS. It cited difficult weather for the decline.

Fonterra’s share of the national milk pool is about 82%.

Figures from the Dairy Companies Association of New Zealand, which provides an aggregate of all its members, including Fonterra, show milk production down a milder 1.3%.

While there are fluctuations in the series, there is a trend for the aggregate to fall less than Fonterra’s share, AgriHQ analyst Amy Castleton told BusinessDesk.

ASB’s Mr Penny said, reading the two sets of figures, ‘‘Fonterra is losing some share’’.

He said there were various drivers for that, not just the milk payout. Rivals such as Synlait Milk and Open Country did not require their suppliers to be ‘‘shared up’’ to match their production. Fonterra shares, which pay annual dividends, were last at $5.72.

Some people might prefer to hold investments other than Fonterra shares, Mr Penny said.

Other considerations for switching companies included the ability to supply summer milk and go organic.

Farmers supplying Synlait have had the option to seek a greater return from A2 milk, although Synlait now has Fonterra as a competitor for that supply, after A2 Milk announced it would also work with Fonterra. Fonterra’s milk collection in Australia so far this season has jumped 26%. — Additional reporting BusinessDesk

❛ It’s auction prices in New Zealand dollar terms that matter for the farmgate milk price

ASB rural economist Nathan Penny