July 22, 2008

Global prices for dairy products are expected to fall during 2008-09 as the US increases production and exports and the EU improve their availability in markets worldwide.

World prices for skimmed milk powder and whole milk powder are forecast to average about 13 percent and 6 percent lower at $3,650 and $4,275 per tonne respectively in 2008-09, according to the Australian Bureau of Agricultural and Resource Economics.

Global demand will continue to strengthen, especially in Asia and West Asia where income growth are high, ABARE said.

However, milk powder supplies are expected to be on the short side due to a slow growth in global milk production. Changing patterns of demand is also likely to push more milk into cheese production.

"Slow growth in production, together with exhaustion of EU intervention stocks, will limit the amount of milk powder available for export and contribute to world prices remaining at relatively high levels," ABARE said.

EU's milk production during 2008-09 is expected to increase 2 percent due to higher milk prices. However, output quotas under the Common Agricultural Policy in some member states would limit production.

Argentina will have little export growth due to export taxes imposed to mitigate inflation.

Meanwhile, ABARE expects New Zealand's milk production growth to remain slow as the country is now building its dairy herds, competing land uses and increasing compliance costs association with government regulation on effluent disposal.