Price Takers?

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http://www.google.com/url?sa=X&q=http://www.stuff.co.nz/waikato-times/news/4867659/Farmers-hit-back-at-suggestions-of-milk-rip-off&ct=ga&cad=CAEQAhgAIAAoATACOAJAna6A7QRIAVAAWABiAmVu&cd=BSPu7ZU_tvc&usg=AFQjCNGM4JFxd1VYa2e0xQlq9MPP83f3rw


"Consumers see Fonterra as the big evil but we're a price taker, we're not a price setter. The prices they see are dictated by what other countries have said they will pay for it. People don't want to hear that though," Mr Houghton says. ..."

(more at link)

Maybe Mr. Houghton is right, but, that is not to say Fonterra has no power.

One question which no one seems to ask is why NFDM is traded on the CME? In some years, although prices have risen and fallen for NFDM on the CME, no actual product has changed hands. An example of the year in which no product changed hands is 2006. In 2007 one load was traded.

Obviously, the world price is being determined by the CME even though no one thinks of going to the CME to buy NFDM.

The California NFDM price, in 2010 averaged about 10 cents less than the CME for 2010. California is where most of the milk powder exported from the U.S. originates. Fonterra handled most of the exports from California in 2010.

So, one might say, Fonterra has friends in the right places. American dairy farmers cannot say the same.

Fonterra's Latest Auction

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As you can see from above all product prices in Fonterra's globalDairy auction fell.

Today, on the CME grade A NFDM lost tow cents to close at $1.21/lb. For comparison, the average Fonterra auction price for SMP was $1.39 per pound.

We continue to be way below world prices. How long ago were we told we need to produce at world prices?

NFDM & CME

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Today Grade A NFDM fell on the CME. Big surprise, there were no loads traded. The fact is CME works its magic even when no product changes hands, as can be seen in the above graph.