GlobalDairyTrade – how it works?
With the drought that the US has experienced in the last year global dairy prices have risen by 7.8% compared to the sale a fortnight ago. US prices are starting to reflect higher feed costs, which had risen as a result of the drought, and lower milk supply. The average winning price at the auction on Wednesday 15th August was US$3,054 a tonne. These prices are generated by the GlobalDairyTrade which is an auction platform for internationally traded commodity dairy products. How does it work?
GlobalDairyTrade trading events are conducted as ascending-price clock auctions run over several bidding rounds. In each auction a specified maximum quantity of each product is offered for sale at a pre-announced starting price. Bidders bid the quantity of each product that they wish to purchase at the announced price. If the price of a product increases between rounds, to ensure their desired quantity a bidder must bid their desired quantity at the new, higher price. Generally, as the price of a product increases, the quantity of bids received for that product decreases. The trading event runs over several rounds with the prices increasing round to round until the quantity of bids received for each product on offer matches the quantity on offer for the product (as shown in the diagram below). Each trading event typically lasts approximately 2 hours.
Bidders cannot join a trading event part way through: they must participate in round 1 and can only maintain or decrease their total bid quantities from that point. Products can be purchased over different delivery time periods, known as contract periods.
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