Dairy prices fall

Thursday August 14, 2014 Masrur Alam Khan

The GDT Price Index has fallen by 8.4 percent during the last GlobalDairy Trade auction on the 5th of August.  More worrying the figure below reveals that the weighted average wining price has plummeted to 3,025 USD/MT (US dollars per mega tonne) from its record high of 5,042 USD/MT set in February this year.  





This event, in conjunction with other market signals, has prompted various commentators to rethink their 2014/2015 price forecasts.  Fonterra has already reduced its forecasted milk pay-out from $7 per kg to $6 per kg, while other commentators are considering reducing their current forecasts further.  While not totally unexpected, the rapidity of this decline is concerning for both dairy farmers and the consequential impacts on the nation’s economy.


The most concerning aspect of the rapid fall in global dairy prices is the potential negative impact it may have on export receipts given that dairy exports accounted for almost a third of all export receipts in June 2014.  Conventional economic theory indicates that prices should only explain part of the export story however the two figures below beg to differ.  They reveal that over the last year dairy exports have mainly been driven by solid growth in global dairy prices while production has remained flat.    




However it isn’t all bad news for exporters as demand for dairy products, especially powdered milk, continues to grow rapidly in China and other emerging Asian markets.