Jamie Gray is a business reporter for the New Zealand Herald and NZME. news service.

Online dairy auction marks 5th year

Dairy prices are expected to fall as New Zealand production recovers from drought. Photo / Christine Cornege
Dairy prices are expected to fall as New Zealand production recovers from drought. Photo / Christine Cornege

Fonterra's GlobalDairyTrade (GDT) platform - an internet-based system that has become part and parcel of how bulk dairy product is priced internationally - turned five years old yesterday.

By the next auction, or trading event as GDT likes to call them, it will have clocked up US$10 billion ($12.9 billion) in sales. September 17 will also mark the 100th GDT auction.

"GDT has become part of the landscape when it comes to dairy pricing," GDT director Paul Grave told a news conference called to mark the milestone.

"It's a really good news story for Fonterra, for the dairy industry, and I guess for us, because it has shown that over time we can change the way that things are done," he said.

"I think we can now say that we are firmly cemented in the landscape of dairy," he said.

GDT started in July 2008 at about the time of the global financial crisis with just one product - whole milk powder - and has grown to become a globally recognised entity.

The auctions take place in the early hours of the morning, usually last about two-and-a-half hours, and attract the major players on the global dairy scene.

The platform has six international sellers - including Fonterra and names like DairyAmerica - and about 800 registered bidders. Each auction draws 250 to 300 bidders.

Fonterra - which is responsible for about 25 to 30 per cent of the international dairy trade - has worked to ensure that GDT is at arms length from the co-operative.

Grave said Fonterra had gone to some lengths to convince players that it could not "screw the scrum".

The GDT has an advisory board which comprises five bidders and five sellers and the auctions themselves are run by the Boston-based and Nasdaq-listed Charles River Associates.

GDT acts like a stock exchange, with its own set of rules. Like an exchange, it has a key barometer in the GDT-Trade Weighted Index to reflect how well or how badly the market has performed.

Before GDT - contracts for internationally traded dairy products were typically month-to-month affairs, which worked fine when markets were calm and orderly.

But by 2008, prices where swinging violently - sometimes by up to 20 per cent within a month - which proved to be almost unworkable for buyers and suppliers.

Grave said GDT was designed to be a price discovery tool.

"It's not designed to stop volatility, but to give people a window on where the price is," he said.

Not all globally traded dairy product is bought and sold via the GDT platform - but GDT prices are commonly used as reference points for contract sales, he said.

Global product prices firm up

Dairy prices are expected to fall as New Zealand production recovers from drought.Picture / Christine Cornege Dairy product prices firmed at the latest GlobalDairyTrade auction, the GDT-TWI Price Index rising by 0.7 per cent compared with the last sale two weeks ago.

At current levels, prices are now 13 per cent below the record level reached in April but are still 69 per cent higher than they were this time last year, Westpac said.

It was the second time in a row prices had risen, and the volume of product sold hit a six-month high. The average winning price rose to US$4643 ($6013) a tonne, the highest since April 16.

The total volume of dairy products sold at the latest auction jumped to 38,890 tonnes from 23,674 tonnes.

Whole milk powder, the biggest product by volume and the most important segment for New Zealand producers, gained 0.1 per cent to US$4757 a tonne. Skim milk powder rose by 3.1 per cent to $4441 a tonne.

Bank of New Zealand economist Doug Steel said prices remained high by historical standards.

"The current level of prices will provide a good income boost for the country," he said.

Westpac economists said they expected world dairy prices to fall further from their April record peak as New Zealand production recovered from drought, but prices would remain elevated by historical standards.


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