June 24, 2005

World dairy prices likely to dip by end-2005

Although world dairy prices are expected to remain steady for 2005, prices may start falling toward the end of the year as production increases.

According to the Organisation for Economic Cooperation and Development (OECD), as the growth of world export supplies is projected to slightly outpace that in import demand over the medium term, prices are expected to continue to fall further for some years. New Zealand's dairy farmers can, however, expect a modest upward trend by 2008.

Dairy prices would be propped up by expected falls in skim milk powder and butter exports from the European Union, and lower skim milk powder exports from the United States.

Global prices would also be helped by sustained demand for dairy products resulting from population growth and rising incomes in major importing developing countries.

World milk production is projected to increase by just under 2 percent a year between 2004 and 2014, reaching 747 million tonnes in 2014.

Global milk cow and buffalo inventories are expected to increase modestly, but higher average yields would contribute most to increases in output. The EU, India, US, Russia, Pakistan, Brazil and China would account for more than two-thirds of total milk output.

Developing countries are expected to increase their world milk production rates from 55 percent to 58 percent in 2014, with India and China looking particularly strong.

Milk production in OECD countries would remain relatively stable but "substantial growth" was projected in Oceania and the US.

World production of whole milk powder, cheese and butter is expected to grow by about 20 percent, while skim milk production is projected to fall by 5 percent by 2008.

Meanwhile, the emergence of Argentina and some eastern European countries as major whole milk powder suppliers looks set to challenge New Zealand's dominance and shake up the global market.