HighGround Dairy Pre-GDT Volume Analysis – December 16, 2013

Fonterra’s First Decline in 12 Month Volume Forecast Since 3 September Fonterra Pre-GDT Volume Forecast Analysis After six straight events of higher forecasted volumes on GDT, Fonterra pulled back their overall 12 month forecast for all commodities this week by 1% (8,110MT; 17.9 million lb). With price strength in the auction two weeks ago, customers may have increased their 2014 contract volumes which would then reduce the GDT volume forecast. Or perhaps Fonterra is being conservative with their long range forecast as climate conditions have been a bit dry over the past month. But it was a good run with event-over-event volume increases and the overall Fonterra 12 month GDT volume is still 11% (79,030MT; 174.2 mln lbs) above its low from in early September. When breaking down Fonterra’s 12 month forecast by commodity, the skim milk powder (SMP) forecast increased by 8.2% (10,500MT; 23.1 mln lbs) versus two weeks ago while the whole milk powder (WMP) forecast was lowered by 2.7% (14,000MT; 30.9 mln lbs). We have to imagine the narrow spread between Fonterra’s C2 regular spec WMP and medium heat SMP at just +$40MT along with the strength of anhydrous milkfat (AMF) and butter prices have a lot to do with the adjustments. While whole milk powder is Fonterra’s primary export commodity, their SMP/butterfat revenue stream has been creeping higher for the past few months. In other commodities, Fonterra lowered the AMF annual volume forecast by just 0.8% (630MT; 1.4 mln lbs), knocked the butter forecast down by 10% (4,350MT; 9.6 mln pounds) and annual cheese volumes have fallen for two straight months – this week off by 0.7% (190MT; 419,000 lbs). For Tuesday’s GDT auction (Trading Event ‘TE’ 106), Fonterra left WMP volumes alone at 30,000MT. This will be 13% less than offer