Worry Over Tariffs Sink Global Dairy Trade Auction
The looming tariffs from China (and Mexico) set to go into effect this week were a primary factor for the dismal performance of the Global Dairy Trade (GDT) auction this past Tuesday.
The GDT aggregate price fell 5% on a moderate volume of trade, the largest decline in a year. New Zealand could benefit if U.S. dairy sales to China falter, notes Nathan Penny, a senior rural economist with ASB Bank in Auckland, New Zealand.
“For now though, dairy buyers are more nervous about the fallout from the increasing trade tensions and the potential impact this could have on dairy demand,” he says.
He also notes that the Chinese yuan has also lost 3% of its value in the last two weeks, and the New Zealand dollar has fallen 3% just this week. Since world dairy sales are typically done in U.S. dollars, it means some of the fallen value in dairy prices is offset by the weakened currencies.
Another factor in world prices is strong milk production in New Zealand and Australia. Even though both countries are now nearing the end of their production season, New Zealand milk production was up 6% in May. Australia was up 4% in April. Both countries were reporting strong export sales this spring.
What to make of it all? Karen Witt, Vice President of Industry and Portfolio Insights for Northwest Farm Credit Services, sums up the 2018 dairy market outlook in a succinct 25 second audio bite here. In a nutshell, dairy fundamentals are sound but the uncertainty of tariffs loom large.