Yesterday the global dairy trade auction was held. This is the market place that tends to drive the internationally traded price of dairy products. Prices are still going down as they have since Feburary. The rate of decrease was less than previous drops. Only 1.1% rather than the colossal drop on April 1st. Hopefully this means that the prices are starting to stabilize at a new level.
But what does this all mean for the NZ economy? Well what better source than our Reserve Bank governor; Graeme Wheeler. Yesterday he gave a fascinating speech to DairyNZ in Hamilton entitled “The significance of dairy to the New Zealand economy“.
The essence of which to me was that the international dairy trade of whole milk powder to China saved our arse (and probably the arse of the National party) during the latter part of the global financial crisis.
But that for NZ to carry on solely depending upon growth in it is risky. Other big milk producers like the US are seeing the value of our trade to China and will/are gearing up to take a large piece of that action. The Chinese government itself is trying to improve the quality and production of milk and derived products. It is interesting to see that dairy farmers themselves are increasingly cautious about further value growth – as expressed in their investment decisions.
I’ll probably write more on this over the next week. But here are some more graphs to entice readers to have a look at the speech.