A bit of background for those of you wondering what all the fuss is about :)
You might be wondering what dairy commodities are all about. Milk powder is for babies, right? And butter is unhealthy? Let us take you by the hand with a “dairy trade for dummies” blog!
Milk is a peculiar commodity. Compared to many other soft commodities, it doesn’t grow on land or trees. We need cows to produce it! These cows are nourished by dedicated farmers all over the world. Because happy cows produce more (and better) milk!
Milk is a source of valuable protein, and fat. And cows are only happy in moderate climates. Cold is not an issue, heat is. That’s why the majority of milk production is coming from EU, US, Oceania and South-America. India, Pakistan and Brazil are large producers as well, but typically self-sufficient. China is the opposite, they produce a lot but consume even more.
This production is seasonal. Due to the cycle of calving, a cow produces different amounts of milk during different stages of lactation. This combined with the seasonality of rain and grass growth results in a variable output throughout the year. In the northern hemisphere the milk output peak is April-May, in the southern hemisphere it’s exactly opposite.
Demand for milk products however, is quite stable. Consumer dairy is incorporated in the diet of many Western countries, and demand in 2nd and 3rd world countries is growing yearly. So we have a volatile and seasonal supply, with growing demand. That results in shortages and surpluses.
Surpluses in milk are inherent to the system. However, milk will go bad when stored for more than a few days. Also transporting all that water is not very efficient and planet-friendly. By simply taking the water out through the process of spray-drying, the milk turns into powder. All nutritious properties are retained, but the product stays good for 2 years.
This is what the main producing regions have been doing for years. Drying milk into powder, freezing butter and cheese and selling these to companies all over the world. But you can imagine keeping in touch with all those global customers is a lot of work. And you don’t always have something to offer them. Also, logistics is labor intensive and complex and you’d rather not extend customer’s payment terms too far because farmers want their milk money fast!
That’s why traders play an important role. Aggregating demand and aggregating supply, and linking these together. Combine this with the services of logistics and finance, and a one-stop-shop is created.
Today, technology allows us to recreate that model with automation, artificial intelligence and more efficiency in 1 simple marketplace. Do direct business, without worrying about the execution. The best of both worlds!