Global Markets

The benchmark for global dairy commodity markets is the biweekly Global Dairy Trade auction, held in New Zealand. Overall prices at GDT auctions were largely stable over the summer but fell sharply in five out of six events during the final quarter of the year. The overall index did rise in the first auction of 2018, amid concerns about New Zealand production due to adverse weather conditions.

The recent decline in the overall GDT index was largely due to a sharp fall in auction prices for butter, which dropped from over US$6,000 on 19 September to just under $4,500 in the final event of 2017. Butter prices have been boosted by reduced production and strong demand from key importers, notably Russia and China. In addition, there has been some growth in butter consumption in developed economies as consumer health concerns turn to sugar rather than fat. Increased production as the year has progressed have taken the edge off prices but they remain above historical norms. Prices for other commodities have also eased but to a much lesser extent, while powder prices, particularly for Whole Milk Powder (WMP), did pick up in the latest auction, leading to the slight improvement in the overall index.

The pattern of butter prices peaking in the summer, at record levels, and then falling away sharply was also apparent across the EU (and to a lesser extent in the US). Trends for other commodities were also similar to those in the UK, with SMP prices at a particularly low ebb. As well as fundamental supply and demand factors, the SMP market is depressed by the high level of intervention stocks. A large quantity of SMP was bought by the EU when milk prices were very low and will need to be sold back into the market at some stage.

In response to low prices, global milk production dropped back last year but as the market recovered, production has responded. Growth has been most marked in the EU, although trends have varied between Member States. Big rises in countries such as Ireland and Poland, where herds were even expanding last year, have been offset by more constrained output elsewhere, including France, Germany and the Netherlands, as well as the UK. New Zealand production is also beginning to increase as they enter their spring flush but expectations have been scaled back to some extent due to concerns over dry weather conditions.