CSB - Kelly Eckhold: GDT auction

Westpac Chief Economist Kelly Eckhold joins Craig Cumming to chat about the GDT auction overnight

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Episode Transcript

Speaker 1 (00:00):
Sixteen minutes past seven o'clock. Yeah, good news overnight in
the Global Dairy Trade auction. It happened at we had
a jump of five point five percent. But instead of
me talking about let's welcome in the WISPAC chief economist
Kelly eck Hole, Good morning, Kelly, how are you very good?

Speaker 2 (00:13):
Thank you?

Speaker 1 (00:14):
Good result overnight.

Speaker 2 (00:16):
Yeah, well, this is one of the strongest options we've seen,
I think in a couple of years or so. Really,
the futures markets had suggested that it might be a goodie,
and they seem to have come right.

Speaker 1 (00:28):
When you look at it, I suppose you know, you
look back at I think I've counted seven raisers in
the last ten but we had a big drop in
the start of July, So does that just balance that out?

Speaker 2 (00:38):
Well most of this Yeah, what's happened is these prices
are ranging, and we find ourselves sitting at the top
end of the range, especially for home or powder. What
tends to happen is that if the Chinese come and
buy in the auction, then we get a much stronger
option and the price is head to the top end
of the range. And that's what's happened today. And if

(00:58):
not sometimes you see it weakness, including that particularly weak
option we had about a month or six weeks ago.

Speaker 1 (01:05):
Any reason for that, Like, can you predict what the
Chinese is going to do?

Speaker 2 (01:09):
Nobody you can easily do it. But the tendency with
a lot of the Chinese purchases of commodities is there
very variable in whom's their inventory management. So what tends
to happen is they buy a lot of inventory, it
stacks up over there, then they don't buy anything for
a while, and then they came rushing back again. We

(01:30):
sort of see a bit of this also in the
in the inpermarket as well in the log market, where
it's either feast or fame.

Speaker 1 (01:38):
Any flow and effects. Now when it comes to this
result overnight.

Speaker 2 (01:42):
Well, I mean there's a bit of upside risk to
our estimate of what the milk price will be for
Fonterra for the current season. We have eight forty, which
is already a bit above where Fonterra is currently indicated.
I think we're probably getting a bit close to the
time now where fon Terri will start to make some
better updates to their range. Perhaps they might move it

(02:06):
up to something a bit closer to what we've got,
But you know, these sort of price levels were to persist,
then I think we'd probably need to put our price
up perhaps thirty or forty cents as well.

Speaker 1 (02:17):
Yeah, I'm looking at the whiteboard here, I'm in the
country studio from Jamie McGue. He's got eight to seventy five.
I don't know what that really means when it comes
to whether he's predicting what was going to happen. And
again when it comes to I suppose that farmers, what
does that mean to them? Does they give them more certainty,
a bit more clarity about moving forward, a bit more confidence?

Speaker 2 (02:33):
Yeah? Well, I mean I guess part of the issue
with farmers is that certainly if they could be confident
these prices will persist, that'll obvious to be a positive thing.
There has been a lot of volatility though, in the
last six months, so I think everybody has to be
a bit cautious about predicting medium germ trends. The reality
is with this Chinese economy is it's still pretty weak.

(02:55):
The official sects stistics are starting to increasingly reflect that reality,
where the Chinese authorities are admitting that they're probably unlikely
to meet their five percent growth target for the year.
So from a fundamental perspective, we don't see much going
on in China that suggests that there's a lot of
strength here. But having said that, they still need to

(03:17):
buy buy a product, so we do still see them
supporting the options at least at some base level.

Speaker 1 (03:24):
Yeah, I mean, if they're going to stop odd, does
that mean the next couple might be a bit barren?

Speaker 2 (03:28):
Well, there is a risk of that, I think, because
that is the kind of consequence here. They've got a
bit of infantry and now that sort of supported of
the last couple of options pretty well. So you could
be right there that they may just step back a
little bit. But having said that, these prices are now
sitting pretty much at their highs for the year, comfortably
above long term averages, So even a tack back of

(03:50):
sort of like five percent or so wouldn't really be
a disaster I think in the cont in the context
of where these prices have been.

Speaker 1 (03:57):
Oh you're felling us with thanks, Kelly, Thanks very much
for your on this morning. Good there we go, Kelly Ekolda,
the WISPAC Chief Economists. On the back of the global
dairy trade oxyen the Haben. Overnight the price index jump
by five point five percent, so three raises in a
row after that real big dip in July. I think yeah.
I counted. Seven of the last ten have been in

(04:18):
the positives, so that's good news.