Welcome to our weekly market update, in which we will tell you about the developments in dairy the past week and our expectations for coming week.
Welcome to the OpenDairy weekly market update on this Friday the 13th.
We have been reporting about the dynamic of high farmgate prices and lack of demand for the past weeks, and the correction of commodity prices has only accelerated over the last week. We don't see any significant changes in these dynamics anytime soon, but when bargains are around, buyers return to the market. Isn't that right?
Today we will look at demand from a different angle. Inflation and price elasticity are interesting factors to predict demand for products in a certain country or region.
In the large producing regions like the US and the EU, dairy demand is not very elastic, meaning that and increase in prices doesn't lead to the same decrease in consumption. In most of the importing countries in the world, this is a different story.
On this slide we have looked at the inflation development of some important dairy regions in the world. Nowadays, the way the inflation is built up differs around the world. Half of Europe's inflation is caused by the recent spike in energy prices, whereas the rest of the world shows a mixed bag, including food inflation.
The dairy exports are relying on many countries with limited GDP per capita. Double digit inflation numbers combined with price elasticity could cause dramatic declines in demand. At the same time, energy cost is a big driver of food prices as well.
So where does this leave us? The high gdp countries sigh a breath of relief as the spike of energy prices seems to be behind us. China's consumers have been saving money during the past lockdowns and are ready to spend this outside of their homes. On the flipside, we see other important demand regions with low GDP suffering from high single, or even double digit inflation numbers leading to a significant drop in demand for dairy products.
As we have seen over the past years, a generalist view on the dairy market is not sufficient anymore. Everything we thought we knew is wrong, and different today. But elasticity also means that demand can pick up exponentially when prices reach more affordable levels. And the stock levels at destination, combined with the price levels determine when the buyers see a chance to step in. With a market dropping at this rate, this moment might come sooner than later.
Next week we will try to make sense out of the current stock situation at origin and at destination to complete the picture. Thank you for your attention and have a great weekend ahead. As always, we welcome your questions and remarks!