Explains – The Global Dairy Trade Index (GDT)

3 December 2015



INVESTOR EDUCATION – The Global Dairy Trade (GDT) Index

The Global Dairy Trade (GDT) Index is a measure of the current value of diary as a commodity group. The
GDT is made up of a number of dairy products which includes milk fat, butter, cheese and milk powder. The index is calculated as the weighted-average percentage changes in price for all the dairy goods that
comprise the index. Approximately, every two weeks an online auction is held where buyers and sellers of
diary produce trade to determine the price for each diary product in the index.
The index is essential to the dairy industry because it gives a reflection of the current value of diary. The
auction platform allows buyers and sellers to trade dairy items as demand and supply dictates. The index is also used as a key determinate in number for diary industry contracts such as the price farmers are paid by Fonterra for their milk.

GDT- What is it and how is it used
The Global Dairy Trade (GDT) Index is a measure of the current value of diary as a
commodity group.
The GDT trade index currently comprises of :
Sold quantity by product October 2014 – September 2015

* Other includes BMP, Lactose, Rennet Casein and SWP
Source : GLOBALDAIRYTRADE An update on GDT key indicators C H A R T F O C U S September
As illustrated in the above chart, whole milk powder and skim milk powder make up a significant portion of sales on the GDT index.
GDT Trading Mechanics
Approximately every two weeks dairy sellers and buyers meet on an online trading
platform where produce is traded to determine a clearing price for each good.
The trading event runs over several rounds with the prices increasing round by round
until the quantity of bids received for each product matches the quantity on offer for
the product. The quantity offered for sale along with its price are pre announced for
each auction round.
Dairy buyers bid the quantity of each product that they wish to purchase at the
announced price. If the total demand exceeds the quantity on offer, then the price of
that product increases between rounds and bidders must re-bid their desired quantity.


Generally, as the price of a product increases, the quantity of bids received for that
product decreases.
Shortly after a trading event has concluded, the results are published with each trading
event typically lasts approximately 2-3 hours.

Source : GLOBALDAIRYTRADE An update on GDT key indicators C H A R T F O C U S September

Why is the GDT index important

The GDT index important to the dairy industry (particularly NZ and AU) because it is a
way of representing the changes in the value of dairy products as a commodity.
Generally, price changes are a function of demand and supply factors and therefore
observers are able to assess whether current demand is meeting the amount produced
by sellers.

When demand is high we would expect to see prices increase and vice versa, when
demand is falling prices are also likely to fall.

It is also used in a number of important contracts within the dairy industry. For example
Fonterra uses the GDT Index in setting the price it pays its farmers (the milk gate price).

Essentially, Fonterra determines the milk price it pays farmers by calculating what
revenue it could get by selling all the milk it collected on the GDT index as opposed to
selling its ‘value add’ products that it currently sells to consumers. It then deducts its
costs to calculate the final price for farmer’s milk. By this way, Fonterra is essentially
selling farmer’s milk directly onto the GDT index on their behalf.

Index calculation

The GDT index is a price index of the products listed in the above table. It measures the
price percentage change as opposed to just the value change of all products. By using
a price method as opposed to a value method, it is better able to reflect the variety of goods that make up the GDT index.

The Global Dairy Trade (GDT) Index is a measure of the current value of diary as a commodity group. The index is essential to the dairy industry because it gives a reflection of the current value of diary. The auction platform allows buyers and sellers to

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