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Summary:
During the first half of 1997, international dairy prices were heavily influenced by the rapid and seemingly unstoppable climb in the value of the dollar. In December 1997, concerns about the currency fluctuations and economic conditions in Asia, plus speculation relative to the impact of El Nino weather were affecting international prices. Currently, prices for NDM are $250 to $300 below early 1997, when NDM prices were trading in the $1,900 to $2,000/ton (FOB basis) range. In recent months NDM prices have generally been trending downward. In contrast, international prices for butterfat have been surprisingly firm, largely due to continued strong demand from Russia and short supplies in the EU. Cheese appears to have established a firm level at prices at $2,400/ton (Basis FOB North Europe Ports).
As mentioned, the two major unknowns in the price outlook for the first half of 1998 are the economic problems of Asia and the production effects of El Nino. If the production and trade estimates given in the tables are approximately on target, then international cheese prices will likely stay fairly flat, butter prices may move even higher due both to U.S. and EU domestic situations, while NDM prices fail to find the strength of butter and cheese.
Nonfat Dry Milk
The rising value of the dollar and sluggish world demand combined to depress NDM prices by some $250 to $300/ton since early 1997. End-of-December prices were $1,600-$1,700/ton (basis FOB EU ports). The outlook for early 1998 depends to a large extent on the impact of the economic problems that have affected most of the Pacific Rim Asian economies. If the general economic problems result in a severe downturn in demand for NDM, then supplies from Australia and New Zealand will need to find new markets during the months when shipments are normally high. Such a situation would probably have a strong negative influence on international prices.
Butter:
The outlook for world butterfat points to a stable or rising market during the first half of 1998. As earlier indicated, in both the United States and the EU the domestic butter situation remains relatively tight and it is unlikely either will have significantly more to export before spring weather boosts milk supplies. Imports by Russia continue at a strong pace, and, if they have not over-bought, should continue until spring weather helps its milk production. If NDM prices weaken further, Australia and New Zealand will have additional incentive to put more milk into other products rather than producing butter and NDM. Quoted EU butter prices are currently in the $1,900-$2,000/ton (FOB basis) range. Prices for butteroil are being quoted at approximately $100 per ton above butter.
Cheese:
International prices for Cheddar cheese have been fairly stable largely as a result of steady import demand and a decline in subsidized supplies from the EU. Under Uruguay Round export subsidy disciplines, the EU is only permitted to subsidize the export of 384,400 tons of cheese in 1997/98 (Jul/Jun) - down 21,000 tons from 1996/97. Current international prices are in the $2,300/ton to $2,500/ton (FOB basis) range. Cheese from Oceania usually makes up the lower end of the price spectrum while EU export prices make up the top end. Australia and New Zealand have maintained relatively low prices, despite the reduction in EU competition in order to move cheese rather than producing butter and NDM. For the first half of 1998, it seems likely that irrespective of EU price levels, Oceania will continue to maintain cheese prices at competitive levels in an effort to maintain growth in exports.
Whole Milk Powder:
Like NDM, the Pacific Rim Asian market Pacific Rim represents a significant part of the total market and is the major market for Australia and New Zealand. Thus, a sharp reduction in WMP imports in the middle of the Oceania shipping season could have major downward implications for international prices. If the fall in demand is in a more normal range, then WMP prices should probably remain relatively stable during the next 6 months. That is, the tendency for WMP to move lower if NDM falls should be offset by a tendency to move higher if butter prices stay strong as expected. Currently WMP prices are in the $1,800 to $2,200 (basis FOB EU ports) range.
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