Milk everywhere.............

Following the move down on GDT our WMP futures curve continues to be sold back. September is down $20 at present to $2680 on 40 lots. January is down $50 to $2850 on 100 lots and February is down $100 to $2950 on 100 lots. There is good two way interest in the market at present with bargain hunters on the bid. The WMP market may end up today.

Where to from here? That’s a very hard call especially when our last pick couldn’t have been more wrong – the market is so volatile at present - 50 day historic volatility is running at 32% and over 50% on shorter dated volatility. Whilst some believe this is quite bearish with WMP just above the five year low and plenty of supply coming - others are saying next month is the time WMP will bounce because C2 on GDT equates to a January delivery into China which is the start of the period when WMP can be imported with a reduced tariff. Another point to consider – manufacturers would have been pricing WMP into product at over $5000 per tonne earlier this year - they must be very tempted to load up given prices have basically halved.

If WMP prices remain down here – the Fonterra payout will be under pressure. ANZ today revised the 2014/2015 milk price forecast to NZ$5.25 from the current $6. According to ANZ – whilst there is divergence in the industry – NZ$5.50 (including dividend) is break even for average farms. This could equate to a $5.1bn hit to dairy revenue or 2.2% of GDP.