The FAO price index for a basket of dairy products traded internationally, which is an important indicator of the macro conditions in the international markets for dairy products, decreased from the record high level in February 2014, with 53.8%to reach a level in April 2016 lower than in the 83 months before that date.
This decrease was the third major decrease of the price index for dairy products of the FAO in the last decade. The previous two decreases were followed by major increases. The prices of raw milk in the major raw milk producing countries of the world followed the abovementioned downward trend of the prices of dairy products in the international market.
The downward trends were the result of global supply which outstripped demand. The downward trends were triggered by high supply (production) globally, and the trends continued due to weaker demand and continuous high production.
Returning from the bottom
The downward trend of the FAO price index for dairy products ended in April 2016 and from April 2016 to September 2017, it increased with 76.3%, to a level which is 18.5%lower than the record high level achieved in February 2014. The prices of raw milk in major dairy countries followed the upward trend of the prices of dairy products in the international market.
The upward trend in the FAO price index is the result of the lower production of the two biggest suppliers of dairy products to the international market, namely the European Union (EU) and New Zealand, and stronger demand. Production increased, and it is expected that the production in 2017 and 2018 in major dairy countries will be higher than in 2016.
From September 2017 to October 2017, the FAO price index for dairy products decreased with 4.9%. This decrease does not necessarily mean the end of the upward trend, but it is noteworthy that the upward trend from May 2016 to September 2017 covered a period of 17 months and that the durations of the three previous upward trends were 15, 25 and 20 months respectively.
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. – SAMPRO