Monday, July 28, 2014

Powdered milk price slashed in NZ | NZD sentiment down in all senses

Fonterra, the large New Zealand dairy cooperative which counts among its shareholders some 10,500 farmers in that country, which claims it accounts for more than 25% of all Kiwi exports, and which according to its website prepares a container of dairy product for export every three minutes in peak times, is the arbiter of the price of New Zealand’s most important commodity, dry powdered milk.

Now Fonterra has announced a further reduction in the 2014 – 2015 forecast for payments for milk solids to farmers, to NZD6.00 per kilo. This means a total drop since last season of NZD2.40, from NZD8.40, or a reduction in combined payments of NZD4.3 billion. The New Zealand Herald reports that this represents 1.9% of GDP.

NZD sentiment down in all senses

This news has served to confirm the downward trend in the New Zealand unit since the efforts of the RBNZ to talk it down. Governor Graeme Wheeler might have written the script for this news announcement.

For our part, we are awaiting a pullback in order to take a short position, as we do not chase the market. We may get this soon, as price has now reached the 200 Day Exponential Moving Average (EMA – see chart above).

Market sentiment is, in technical terms, a measure of the balance, or imbalance, between long and short market participants at any given time. This now seems to be in favour of the NZD bears. Sentiment for the Kiwi in the emotional sense of the term has also, it would appear, swung into negative territory.

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