Dairy Market Update: International Dairy Prices Drop Slightly

Although international dairy market prices are dropping from the peak levels of the past two years - echoing the pattern of U.S. dairy prices - they remain higher than the average price of the past 10 years. International demand for dairy products eased earlier this year, according to U.S. Department of Agriculture (USDA) analysts, leading to the lower prices.

World market prices for butter, which peaked last year around $0.99 per pound in Oceania and $0.91 in Western Europe, have fallen to $0.77 in Oceania and $0.87 cents in Europe, USDA reports. Skim milk powder prices, which are comparable to nonfat dry milk prices in the U.S., also have fallen to $0.94 in Oceania and $1.05 in Europe; they peaked last year at $1.04 per pound in Oceania and $1.07 in Europe.

Cheddar cheese prices in Oceania (the only world region reporting for this product) have fallen to $1.21 a pound, down from a high of $1.32 a pound last year.

Whey is the only product with higher prices this year, rising to $0.40 a pound this month, up from a high of $0.34 last year.

Milk production in the leading world exporting countries also is weakening compared to last year. In Oceania, where the "summer" peak milk production period has ended, Australia is expecting a slight decline for the year, and New Zealand may show a slight 2% increase for the past 12 months. With the peak season over, most manufacturing (non-fluid milk) plants have closed for the year, with dairy products inventories already committed to sales in the coming months, USDA reports.

Milk production in Europe remains below last year's level.

World analysts are puzzled as to why world dairy market prices for skim milk powder and dry whey remain above U.S. domestic prices. World market dry whey prices (reported by USDA for Western Europe), for example, have risen in recent months to about $0.40 per pound, but USDA's National Agricultural Statistics Service (NASS) reports that domestic dry whey prices have fallen from a peak of over $0.35 per pound in February to about $0.28 for the week ending May 20.

Also, while world market prices for skim milk powder have fallen in recent months, they remain far above the U.S. domestic price for nonfat dry milk ($0.94 in Oceania and $1.05 in Europe, compared to about $0.83 reported by NASS). In addition, USDA's Commodity Credit Corporation has purchased over 45 million pounds of nonfat dry milk at the dairy price support level of $0.80 per pound since March.

Total U.S. milk production last month showed a slight increase, 3.2%, over the same month last year, marking the first time since April 2005 that the monthly year-over-year increase was that small. At the Chicago Mercantile Exchange, the price of cheddar cheese in 40-lb blocks increased slightly for the week ending May 26th to $1.2250 per pound, while Grade AA butter ended the week at $1.1775.

Posted May 30, 2006