The stability of the international dairy market has been remarkable given the on-going turmoil in global financial markets and the deteriorating outlook for the world economy.

- Supply has increased in all major exporting regions as farmers respond to the positive price signals of the past two years. Nevertheless, demand for dairy products has absorbed the strong growth in global milk production.

Average prices at the globalDairyTrade auction of 1st February were down 0.9%. AMF was down the most at -3.5% with prices moving from US$4,084/t to US$3,942/t. Powder prices both decreased less than 1%. SMP moved in price to US$3,296/t from US$3,351/t. WMP was down marginally more at -0.9% and prices moved from US$3,562/t to US$3,533/t. Cheese prices descended by 1.1%, with the price changing from US$3,776/t to US$3,640/t.

Current Global Issues

Overall trade-weighted prices at the latest globalDairyTrade (gDT) auction on 17th January were up 1.5%. The SMP price was up 2.7% (from US$3,269/t to US$3,351/t) as was AMF at +2.8% (moving from US$3,982/t to US$4,084/t). Cheddar cheese prices also increased from the last auction; up 2.1% from US$3,598/t to US$3,776/t. Average WMP prices remained unchanged from the 3rd January auction (US$3,562/t). Worth noting is the reduced volume of product on offer. WMP volume decreased by 1,000 tonnes. SMP was down 900 tonnes and AMF had 495 tonnes less available.

Overall prices at the latest globalDairyTrade (gDT) auction held on 20December were down 1.6% - the first decrease since the 1November auction. Powder prices eased - SMP moved down 3.2% to US$3,312/t and WMP decreased 1.5% to US$3,589/t. AMF achieved a higher price (up 4.8% to US$4,183/t) as did cheddar cheese, rising 1% to US$3,601/t. This auction saw an increase in SMP volumes available, whilst WMP and AMF volumes on offer were the same as the 6December auction.

Prices continued to firm at the latest globalDairyTrade (gDT) auction held on 6th December where overall prices were up 2.6%. All commodity groups increased and the most marked were BMP (up 14.4% from US$3,039/t to US$3,410/t) and AMF (up 12% from US$3,571/t to US$4,013/t). SMP gained 2.6% and its price lifted from US$3,354/t to US$3,424/t. The WMP price was up 2% from US$3,574/t to US$3,637/t.

The latest globalDairyTrade auction held on 15th November realised the best average price since July, with the gDT weighted index rising by 2.6% - and indications that traders are becoming more optimistic about the commodity price outlook. Six of the seven products on offer recorded an increase in value; with MPC rising 11.3% to an average of US$6,247 /t; followed by AMF up 8% from the previous auction to US$3,571 /t. WMP rose 2.4% to US$3,574 a tonne; and SMP gained 1.7% to US$3,354.

The new European on-line dairy auction - Dairy Auctions Online - started trading in November. The first auction on 1st November sold 286 tonnes (t) of cheese, of which Gouda was 220t and Edam 66t. 110t of butter was also sold. More volume passed through the 8th November auction. Gouda sold 176t, with 110t for the earlier delivery date of December 2011 selling at US$4.29 - 4.32. The January 2012 delivery was 66t and sold between US$4.20 - 4.22. Edam sold 88t, with the December delivery of 44t selling at a price of US$4.39. The Edam January deliveries also sold 44t at a price range of US$4.18 - 4.21. 80t of cheddar was withdrawn as bids did not reach the minimum selling price, and cheddar will be offered again at the next auction. Butter sold a total of 330t, with frozen product at 220t (price US$4.83 - 4.84) and fresh at 110t (price US$4.87). Both butter products were for a December delivery date.

EU-27 milk production for the year ended 31 March 2011 was 134bn litres and 5.5% below the available quota. Despite this, five countries incurred ‘super levies’ for exceeding their production quota limit – Denmark, The Netherlands, Austria, Cyprus and Luxembourg. Most of these countries are quite small producers within Europe, with the exception of The Netherlands which was the 4th largest producer with 11.4bn litres earning it a fine of €39.1m (AUD$53.1m). The top producers all delivered milk volumes under quota with the largest Germany at -0.7% (28.3bn litres), France was -5.1% (23.3bn litres), the UK was -9.7% (13.4bn litres) and Italy was -2.4% (10.3bn litres). Whilst the quota system is set to end in 2015, countries must still abide by its rules until that time.

Dairy exports from Argentina for YTD August have increased over the same period 2010 by over 60%. WMP and whey powder are their biggest commodity groups and both are up nearly 70%. A lot of the extra product has gone to its biggest market of Brazil with volumes up nearly 30%. Venezuela and Algeria are two other large destinations and their Argentinean imports have more than doubled.