Dairy prices plunge 38% as Chinese demand dries up

The global benchmark whole milk powder (WMP) price has fallen almost 40% since February to $3,088 per tonne. WMP prices on New Zealand’s GlobalDairyTrade (the country is the biggest milk exporting country) have slumped as China works through large inventories following a stockpiling drive earlier in the year. Although China will eventually return to the market, the effect of China’s recent stockpiling could be felt for years to come. Amid the surge in demand and high prices over the past year, farmers in New Zealand invested in in bigger herds and nutritional supplements. According to Goldman Sachs annual global dairy output will exceed demand by 2 billion litres through to 2018 – enough to fill 800 Olympic-size swimming pools. In recent weeks consumer brands from Starbucks to Hershey’s have hiked prices, blaming rising dairy prices among other commodities for the rise.


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China pledges more ‘mini-stimulus’ measures

Yesterday China reported that second quarter GDP rose to 7.5% from 7.4% in the first quarter. However, there are signs that GDP may not be quite as healthy as the official figures suggest with electricity output and truck sales painting a much darker picture (h/t @TomOrlik for charts). According to CIMB Securities Ltd all the mini-stimulus measures to date this year have added one-third to one-half a percentage point to growth. Further mini-stimulus measures look to be in the pipeline. According to Reuters China’s State Council, or cabinet, pledged at a meeting on Wednesday to further promote targeted economic stimulus steps while also supporting railways, urban infrastructure and irrigation projects. All this mini-stimulus adds up to a lot of extra credit washing through the economy however – now estimated at over 200% of GDP. This increases the risk that it flows into unproductive sectors of the economy, already plagued by overcapacity such as steel production.