After a very long downward trend in the global dairy market, an upward trend was seen from April 2016 to September 2017. In the last few months following September, a downward trend has once again surfaced. The extent to which the prices of the different dairy products in the international market increased differs. The increase in the price of butter from the middle of 2016 to August 2017 was much higher than that of other types of dairy products, while the price of skimmed milk powder, a co-product of the manufacture of butter, remained much lower than that of other dairy products.
In this regard, it should be noted that:
- The nutritional value of butter and full cream dairy products, as well as the superior taste thereof, is increasingly acknowledged worldwide. As a result, the availability of butterfat, originating from the production of dairy products with less butterfat than full cream, reduced and thus the availability of butterfat for the manufacture of butter;
- The supply of skimmed milk powder in the world exceeds the demand and it is the reason for the low price of skimmed milk powder in the world. With European Union (EU) support, the stocks of skimmed milk powder in Europe increased and the existence of these stocks adds to the downward pressure on the price of skimmed milk powder in the international market;
- The available information suggests that the production of cheese, and its co-product, whey is more profitable for certain manufacturers than the production of butter and its co-product, skimmed milk powder;
- The price of butter in the international market decreased from September 2017 to October 2017. It is possible that this decrease signals the end of the strong upward trend in the price of butter in the international market.
Balanced supply and demand
It appears that supply of and demand for dairy products in the international markets, with the exception of the supply of and demand for butter and skimmed milk powder, are at present fairly well balanced. In the absence of new developments, dramatic changes in the price of the dairy products concerned in the international market should not be expected in the coming months (See Graph 6 and Table 1 of Annexure A). Obviously, the production of raw milk and dairy products in the peak production season in the Southern hemisphere, which normally commences in August, can significantly influence supply and thus the prices of dairy products in the international market.
There is uncertainty regarding the development of the international supply of and demand for the different dairy products in the next few months, due to the impact of climatic conditions on supply and the impact of the unusually high political instability and policy uncertainty in the world on demand and, as a result:
- Predictions regarding price movements in the immediate future should be viewed with great caution;
- Information regarding new developments in respect of supply and demand can result in volatile price movements in the international market. – SAMPRO