Milk Prices: Sigh…

Milk prices, especially the price of skim and whole powdered milk, plummeted at Global Dairy Trade of New Zealand, dropping 12.4% and 15.5% respectively. (Source: Agrimoney.com | New Zealand milk prices follow Europe, US lower)

People were starting to think that milk prices were beginning to stabilize, and that milk prices were finally starting to go up to the point where dairy farmers might not be under such financial stress from low prices.

But that might all have been little more than a house of cards. There were always a lot of problems with those hopes.

The first problem was that except for the New Zealand and Australian producers, milk production in the rest of the world had not really declined all that much, and in large parts of the world like North America, production had actually been increasing. While prices have been going up here in the US, that increase in milk price seems to have been due more to market stabilization and corrections than to anything else. There has been no significant increase in demand for dairy products to push prices up.

The second was that many seem to rely on prices at GDT as some kind of indicator of the overall health of the milk market. They shouldn’t. Global Dairy Trade is owned by Fonterra, the huge milk co-op in New Zealand. It markets it products mostly to Southeast Asia and China. And because it is owned by Fonterra, Fonterra can do whatever it likes with it. Fonterra has deliberately restricted or increased the amount of product flowing through GDT in order to manipulate the market prices in the past.

So relying on a sales organization that serves a rather narrow market, and which is wholly owned by a milk producer, and which has used that sales organization to manipulate market prices in the past… Well, do I really need to tell you that relying on sales figures at GDT as some kind of indicator of market conditions is really not a good thing to do?

 

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