Auction a microcosm of global market

Now, all in the industry are once again awaiting the next event for an indicator of the market heading into the 2012/13 season.

Delivery trucks emblazoned with cows grazing in scenic New Zealand landscapes are a common sight on the streets of Taiwan. The trucks also feature delicious-looking beef dishes, to tell a complete story of grass-fed Kiwi beef, from pasture to plate.

The Beef + Lamb New Zealand initiative has been running since 2008, says the industry-good organisation’s Asia markets manager, Helen Fletcher.

The ‘mobile marketing’ is a cost-effective way to drive brand awareness, she says.

“Whether the trucks are parked outside restaurants and supermarkets or being seen in high traffic areas while out doing deliveries, they are keeping New Zealand grass-fed beef front of mind for consumers.”

Taiwan is New Zealand’s largest beef export market for prime cuts. Local beef promotions focus on building and defending New Zealand’s market position against strong competition from Australia and the USA.

Beef + Lamb New Zealand created the New Zealand grass-fed beef brand in Taiwan in 2007 to distinguish Kiwi beef from other products in the market.

The English translation of our marketing slogan is: “New Zealand grass-fed beef – your lean and tender choice bred in nature’s pastures.” The brand also supports the ‘three-low’ message popular in North Asia – our beef is low calorie, low cholesterol, and low fat.

How has the GDT developed over the past year and how much does it reflect the wider market?

In mid-April the

GDT-TWI (Trade Weighted Index) indicator fell 9.9%, the largest fall since July 2010.

At the latest event on May 1, the GDT indicator fell a further 2.4% - with anhydrous milk fat (AMF) and milk protein concentrates (MPCs) suffering the greatest falls.

The question is: How representative of the wider market are these changes in the prices of products sold through the GDT?

Around 788,000 tonnes of product have been sold on the platform over the past 12 months, representing under 9% of world trade in all dairy products.

However for whole milk powder (WMP) the GDT share is just under 25% - a significant share of trade for this product.

There is no butter sold on the GDT platform and the volumes of cheese and AMF (anhydrous milk fat) are relatively small.

AMF sells at a significant discount on GDT to butter spot prices which is difficult to explain, as AMF is a more concentrated and generally more valuable form of dairy fat.

Based on this analysis it would have to be said that the GDT provides a much better indicator for WMP prices than for cheese or AMF.

There are currently 620 buyers registered to buy product on GDT, however the number of participating bidders is typically a fraction of the number registered.

The last two events have been characterised by large volume

offerings and the lowest participation rates from registered bidders for some time.

With new sellers joining GDT over the past year, and New Zealand enjoying a bumper season, volumes offered in the past two auctions are around three times the amount on offer at this time in 2011, while the number of registered bidders has doubled.

In broad terms the past month of GDT activity does characterise the nature of the wider dairy market at present.

There is lots of supply – due to all exporting regions enjoying favourable seasonal conditions.

Buyers are indeed holding back, with falling prices and high product availability there is a reluctance to commit too far forward, so many are only covering their immediate requirements.

However, some caution needs to be used when assessing these results for commodities that are not sold in large volumes on GDT or in spot markets generally such as cheese.

In addition, the structure of the GDT auction itself - with each auction starting at a 15% discount from the price determined in the previous event - means it tends to reinforce downward trends in a weakening market.

So while the GDT does provide an increasingly useful indicator it is not the only one, and needs to be viewed in a wider market context.

• Jo Bills is strategy and knowledge manager at Dairy Australia.