Projecting Market Tension

The Market Tension Index

Our Dairy Trade Simulator (DTS) contains a monthly Market Tension Index (MTI) which has been derived from estimates of historical and projected future commodity ingredient (SMP and WMP) stocks in the hands of major global dairy exporters. Our analysis shows the MTI has been a reasonable forward indicator of dairy product spot price levels. The MTI is contained in our Global Dairy Directions.

The MTI represents a relative measure of market tension, effectively an inverse index of the total estimated ingredient inventories in the hands of major dairy exporters. The index was set at 100 in January 2013. This specific data was selected as milk powder spot prices were near long-term average values, and valid reference points were available across country/product combinations.

The higher the MTI, the greater the market tension and shorter the supply of commodity ingredients. When exporter stocks are high, the tension index is low. The rationale for this is that over time any surplus or shortage in milk availability will show up in changes in powder inventory volumes.

We’ve written a blog about it here.

The Relationship between the MTI and Spot Prices

There is a close relationship between the historical MTI and observed spot prices. We have explored historical correlations between the MTI and spot prices, as well the extent of any lagged effect impacts.

Our work shows a historical 93% correlation between the MTI and the 6-month lagged Oceania weighted-average spot price, where the weighted-average spot price is derived using the annual global export mix and monthly spot price quotations for the main 4 dairy commodities – WMP, SMP, cheddar and butter.

Projected commodity values

Leveraging the scenario analysis capability of the DTS, we developed an analytical framework for providing Oceania and Europe monthly fundamental value projections. This framework provides a clear linkage of factors affecting net trade to projected prices for each region-product combination.

MTI & Price

The Market Tension Index

Our Dairy Trade Simulator (DTS) contains a monthly Market Tension Index (MTI) which has been derived from estimates of historical and projected future commodity ingredient (SMP and WMP) stocks in the hands of major global dairy exporters. Our analysis shows the MTI has been a reasonable forward indicator of dairy product spot price levels. The MTI is contained in our Global Dairy Directions.

The MTI represents a relative measure of market tension, effectively an inverse index of the total estimated ingredient inventories in the hands of major dairy exporters. The index was set at 100 in January 2013. This specific data was selected as milk powder spot prices were near long-term average values, and valid reference points were available across country/product combinations.

The higher the MTI, the greater the market tension and shorter the supply of commodity ingredients. When exporter stocks are high, the tension index is low. The rationale for this is that over time any surplus or shortage in milk availability will show up in changes in powder inventory volumes.

The Relationship between the MTI and Spot Prices

There is a close relationship between the historical MTI and observed spot prices. We have explored historical correlations between the MTI and spot prices, as well the extent of any lagged effect impacts.

Our work shows a historical 93% correlation between the MTI and the 6-month lagged Oceania weighted-average spot price, where the weighted-average spot price is derived using the annual global export mix and monthly spot price quotations for the main 4 dairy commodities – WMP, SMP, cheddar and butter.

Projected commodity values

Leveraging the scenario analysis capability of the DTS, we developed an analytical framework for providing Oceania and Europe monthly fundamental value projections. This framework provides a clear linkage of factors affecting net trade to projected prices for each region-product combination.

Freshagenda are specialist food industry consultants who have developed the Global Dairy Directions. Our core skills and expertise in interpreting industry, market and supply conditions, and their outlook for decision makers.

Our core skills and expertise in interpreting industry, market and supply conditions have made us highly valued within the sector as specialist food industry consultants.

We have developed the Global Dairy Directions platform – or the GDD – which is forward looking tool that allows dairy companies, brokers, traders and processors to project the outcome of future scenarios in global and local dairy markets based on variable key assumptions.

Built in Microsoft Excel, our Global Dairy Directions platform uses historical data along with a big set of macros, allowing users to run queries, test scenarios and project future possible outcomes in their part of the dairy industry. It spans the globe as it contains data from key dairying regions all over the world and thus can be used as a tool to help navigate strategic planning at management level.

We include trade data from South America, the US, Europe, New Zealand and Australia as well as other emerging regions. We rely on different sources for our data, including Global Trade Tracker which provides us with up-to-date data, so our clients always have the latest available data at their hands.

Food industry consultants with holistic perspectives

Led by food industry consultants and analysts with combined hands-on experience in excess of 45 years in commodity markets and value chain analysis, Freshagenda has a solid commercial understanding of market dynamics affecting food industry sectors and supply chains and delivers complex information in concise, easy-to-understand formats.

Our strength lies in our unique big picture perspective – a “whole of chain” approach. The engagement spans from farm inputs through to detailed retail and consumer insights – including analyses at the category and sector levels such as interpreting performance of market segments and food categories.

Our recent work includes extensive studies of food price determination within the retail market and various analyses of industry profitability and performance, as well as facilitation of industry and enterprise planning.

Freshagenda have a track record of assisting decision makers assign priorities and direct policy based on the relative size of segments and pressure points affecting their value chains, and have delivered a number of consulting services and analysis to industry, government and corporate clients.

Whether you are a producer, trader, buyer, or investor, Freshagenda offers commercially relevant market intelligence that is relevant to you.

More detail on our analysis capability is provided in case studies