Better way needed to establish milk price – Rabobank

Rabobank’s dairy global strategist says Europe needs a better way to establish the world market milk price than following New Zealand’s Global Dairy Trade (GDT).

“I think people here in Europe have been known to quote the GDT price and taking it for the world price. It’s just one factor that says something about world demand, but it is not the world price,” Netherlands-based Kevin Bellamy told Agriland.ie.

“If Europeans are going to be the key exporters on the market for the next couple of years while the Euro is so weak, then we need to have a better way to establish what price that is going for on the world market.”

In 2008 the world largest dairy exporter, Fonterra, established the fortnightly GDT auctions with the aim of providing a “reliable, transparent, price discovery platform” for globally-traded dairy commodities.

However, it traded less than one-third of its products through the GDT auctions last year, with the balance of dairy products sold through direct to customer sales.

By reducing GDT volumes, Fonterra use the auctions as an effective price discovery mechanism, for there is no minimum percentage of its milk products it is required to sell on the GDT.

Bellamy rejected some suggestions that Fonterra manipulate the GDT.

“I think that is just how their business works – it is supply and demand – but there are some opaque bits as well. I think it’s important that you don’t have to have a huge volume flowing across but you do have to have enough of a volume to establish a realistic price.”

Europeans Caught Ball-Watching GDT

“I watch European farmers and companies and the market watching the GDT closely and I worry that because I think it is affected by local issues [in New Zealand] and the particular conditions there. I think we do need to establish a better way at looking at European prices,” Bellamy said.

As local producers respond to lower prices and fear deteriorating weather conditions, New Zealand milk production may be down about 2% in the year to June.

“I think it’s interesting that if you look at previous downturns in production in New Zealand, then that market suddenly spikes higher, but this time it hasn’t. I think that’s just because the market has factored in that New Zealand will be less of a player when the prices are so low.”

Bellamy is the former Executive Director of the Global Dairy Platform, a global consortium of over 60 companies with a collective turnover of over $100 billion annually.

He was also the Chief Executive Officer of the UK Milk Development Council for six years and served on a number of dairy-related boards, including the UK Dairy Council and the National Farmers Union Dairy Board.

He also said that something also needs to be done about volatility in the international milk market and added that there is a huge degree of conflicting evidence about what actually happened in 2007 to create the extreme volatility that has since remained in the market.

Bellamy concluded that there is nothing to indicate that such volatility is going to improve within the next couple of years.