Ceasing the Global Dairy Trade (GDT) will not solve the supply and demand imbalance said the Managing Director of Fonterra Global Ingredients Kelvin Wickham on Twitter recently.
His reaction came after the GDT auction results fell for the tenth consecutive time with the results being 50% lower than the high reached in February 2014.
Wickham said that the GDT is not the reason for low prices, which have occurred as a result of increased milk production.
“No one likes low prices but it is important to remember that GDT has not caused low prices, they’re a reflection of what’s happening in the market.
“And to those calling for GDT to be suspended, that’s not going to solve the supply and demand imbalance,” he said.
He added that nearly all of the products sold on the global dairy trade were sold to willing buyers, but the fall in GDT is as a result of excessive supply.
Wickham said that this fall has occurred as a result of increased European and US production and reduced purchasing by both China and Russia.
“Particularly, constraints on demand from big dairy importing countries (China slowdown and inventories, Russia import bans) and milk supply continues to grow in Europe and USA which is spilling over into soft global demand.”
He added that Fonterra are doing everything to move powder and other commodity products into higher value contracts to achieve higher margins.
This Friday August 7, Fonterra is set to review is 2015/2016 milk price forecast. Most market commentators expect the price to fall to circa $4.00/kg, with risks that it goes lower.