Corrections and Returns to Sanity

Roiling Dairy Industry

In Australia, the mining industry is in crisis.  Well, no, not really.  It's in a cyclical downturn which has been seen so often, it's boring.  Anyone who thinks that industries do not cycle up and down has blinkered himself to centuries of data.

Every year ten pupil (that's fourth form, folks) learns that markets--where goods and services are bought and sold--are subject to supply and demand.  If the supply increases, prices will fall as demand becomes satiated, and tails off.  That "economic law" cannot be broken.  Often raw commodities face this market reality more than other goods.  There is very little "value add" possible in raw commodities--not without substantial investment in processing and manufacturing--which often only serves to makes the proposition even more risky.

In New Zealand, we are facing the same market reality now in dairy.  Milk prices have slumped.  There is an over-supply of milk on the world market.  Too many cows, too many litres of milk being produced. The result is falling milk prices.  In time this will correct as marginal producers go out of business, unable to make profits in a low-price environment.  Supply will fall.  Prices will stabilise then begin to rise again.  It is brutal.  There are many sad cases down at the farmgate to come to light.  But it is the real world.