Dairy price discovery mechanisms have come a long way in recent decades. Not only do domestic futures markets offer an enhanced opportunity to both farmers and processors to lock-in milk prices, the resulting trading activity at exchanges creates a more robust price discovery mechanism for the entire industry whether or not you ever make a trade. Despite these inroads domestically and small steps internationally, more trench work must be done to move from verbal price haggling to more firmly quoted prices across the globe.
While many domestic marketers and farmers have offered ideas on how to improve USDA's extensive dairy data collection and reporting, we are fortunate to have the most robust dairy statistics and price reporting in markets not regulated by quotas in the world. Not many of us stateside fully appreciated that in years past. However, our collective eyes have been opened when gathering international price and sales data as we've spread our dairy export wings. Finding accurate dairy data from the EU and most other export countries around the world is no small task. In most cases, once quality data is found, it is often stale and months old.
Longtime world dairy export leader New Zealand found this out, as well. After gleaning verbal communication from its sales agents around the globe for decades, it learned the hard way that it didn't raise product prices fast enough to capture returns in rising markets. Yet, it was often quickly pressured to lower prices in downturns as customers were eager to remind its Fonterra agents that world dairy prices were falling in their respective markets.
To resolve this issue, the Kiwis started Global Dairy Trade (GDT). It represents a good first step. However, as dairy marketers both in the States and throughout the Northern Hemisphere have learned, GDT is much more effective at discovering prices in the Southern Hemisphere than it is in the North. However, the fact that GDT is so widely quoted around the globe speaks to the widespread hunger for more information of this sort.
While some fluid processors will start beating the drum for federal order reform to solve pricing issues on soured fluid sales now that the farm bill is law, that isn't the prevailing issue at hand. As the U.S. ramps up export sales, price discovery tools and market data geared to provide us more robust marketers should garner our primary focus. In doing so, we will make our industry even more nimble both at home and more competitive abroad.
This editorial appears on page 52 of the January 25, 2015 issue of Hoard's Dairyman.
Return to the Hoard's Dairyman feature page.
While many domestic marketers and farmers have offered ideas on how to improve USDA's extensive dairy data collection and reporting, we are fortunate to have the most robust dairy statistics and price reporting in markets not regulated by quotas in the world. Not many of us stateside fully appreciated that in years past. However, our collective eyes have been opened when gathering international price and sales data as we've spread our dairy export wings. Finding accurate dairy data from the EU and most other export countries around the world is no small task. In most cases, once quality data is found, it is often stale and months old.
Longtime world dairy export leader New Zealand found this out, as well. After gleaning verbal communication from its sales agents around the globe for decades, it learned the hard way that it didn't raise product prices fast enough to capture returns in rising markets. Yet, it was often quickly pressured to lower prices in downturns as customers were eager to remind its Fonterra agents that world dairy prices were falling in their respective markets.
To resolve this issue, the Kiwis started Global Dairy Trade (GDT). It represents a good first step. However, as dairy marketers both in the States and throughout the Northern Hemisphere have learned, GDT is much more effective at discovering prices in the Southern Hemisphere than it is in the North. However, the fact that GDT is so widely quoted around the globe speaks to the widespread hunger for more information of this sort.
While some fluid processors will start beating the drum for federal order reform to solve pricing issues on soured fluid sales now that the farm bill is law, that isn't the prevailing issue at hand. As the U.S. ramps up export sales, price discovery tools and market data geared to provide us more robust marketers should garner our primary focus. In doing so, we will make our industry even more nimble both at home and more competitive abroad.
