Wednesday, December 16, 2009

FAO Outlook

Dairy products prices rebound sharply

The FAO Dairy Price index of international dairy product prices has been rising rapidly in recent months, and in November reached 209, an increase of 82 percent from its low of 114 in February 2009. The Index rose by a full 32 percent in November alone, sparking speculation about a repeat of the large price spike that took markets by surprise three years earlier. All dairy products are showing signs of strong recovery to levels not seen since August 2008. The largest increase has been displayed by butter, the price of which has doubled since February to USD 3 688/tonne. However, prices for both skim milk and whole milk powder have also increased by over 90 percent to USD 3 375 and USD 3 525/tonne respectively. The causes of this rapid price rise are not fully clear at the writing of this Outlook, particularly in view of the large public stocks for both butter and skim milk powder available in the European Union. However, stock retention combined with reduced milk output in the European Union and the United States, and lower growth than expected in Oceania's milk output may be contributing factors to tight export supplies. The economic recovery underway in large Asian countries and in certain oil exporting countries may also be an important factor in renewed import demand. The sustainability of the rise in prices is uncertain, though contingent on the responses of the European Union and other exporting countries which hold dairy product stocks.

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