globalDairy Trade Auction Expanding

http://www.globaldairytrade.info/public/english/090311%20MEDIA%20RELEASE%20-%20FONTERRA%20ANNOUNCES%20EXPANSION.pdf


Fonterra is expanding globalDairyTrade, the online dairy products trading platform, to include products from other companies.

At this point the rules governing trading are still being finalized. Arla Foods and FrieslandCampina from Europe; California Dairies and DairyAmerica from the West Coast of the USA; and Murray Goulburn from Australia have all had input to the rulemaking and will likely participate when the expanded auction commences.

World prices have tracked higher than U.S. powder prices. The real question is what will this do to the calculation of U.S. dairy farm price? For sure NASS will not survey the internet auction held by Fonterra.

Data

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This week NASS will release quite a bit of data; http://www.nass.usda.gov/Publications/Reports_By_Date/2010/October_2010.asp


No one should see the data as precise. NASS obtains one set of numbers for milk production and the check-off obtains another. The two agencies then go back and forth to obtain numbers they can agree upon. With Cold Storage, the numbers have always had a tendency to be off. Then of course, corrections are made.

Also this week the Federal Reserve will publish the "Beige Book" on business conditions throughout the country. Agriculture is given some space and it will be interesting see what is said about corn.

Some Things Are More Difficult

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Note: I did not create either graph. The first is by USDA and the second is by Mark Stephenson (presented at a FMMO hearing July 9, 2007 Pittsburgh, Pa)

I will have to admit, I do not get why some people think the prices reported by NASS plants are somehow different from the CME. Yes each NASS plant "negotiates" with customers, but it is alway, always, CME plus a little insignificant sliver.

So, to me, it is difficult to imagine any improvement might be obtained with more frequent reporting (even if not delivered by pony express).

What I do get is the "make allowance" which is taken from the NASS price to arrive at "farm value." NASS and the make allowance were brought about to hide the fact that the same crooks were setting farm milk price.

The make allowance is fixed by regulation. Built into the make allowance is a return on investment (ROI). Above shows the breakdown for NFDM at 9% ROI. Cheddar is 8%. All in all a pretty good return in this day and age.

On the internet, I see "money market account" returns of .74% - few even have the money to put in a MMA. If a child set up a lemonade stand and invested the proceeds, in ten years, the ingredients for the lemonade would cost more than the money in the account.