Li Dai and Peng Zhou
Dairy commodity price tends to be volatile with prospect to surge. This feature entails the necessity of obtaining the quantitative relationship to forecast the consequences following price change. Elasticity is employed to quantify the responsiveness between price and supply/demand. The dairy industry is inelastic in general, but elastic for some substitutable products, e.g. whole milk. Under volatile price fluctuations, information on elasticity, supply curve and demand curve of the segmented market of interest is more relevant than that of the overall dairy industry. Supply curve is upward sloping and elastic. The changes in production resulting from price fluctuations can be estimated based on the supply curve. Demand curve is downward sloping and inelastic. The changes in sales resulting from price fluctuations can be estimated based on the supply curve. Given the growing need in markets like China and India, high quality dairy commodities will be the future direction for investment.
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