Improved international outlook

The international dairy outlook improved significantly in 2016. International dairy product prices increased to record levels at the end of 2016. The trade-weighted index of dairy product prices of Global Dairy Trade is currently at 1 082, up 51% since December 2015 and at the highest level since July 2014. The main reasons for the increase in product prices are lower production in major exporting countries, a slow recovery of demand, especially from China, and a slow recovery of European demand.

Milk production decreased in many major exporting countries in 2016, compared to 2015. Based on 11 months’ data, New Zealand production decreased by 1,9%, Australian production was down by 7,2%, Argentina and Uruguay production decreased by 11% and Ukraine produced 3,1% less dairy. Although quotes were abolished in 2015, production in the European Union was only 0,5% higher than in the first eleven months of 2015. Production-limiting subsidies in the EU will probably limit production growth. In the United States production grew by 1,3%. Lower grain prices will probably ensure production growth in the USA in the rest of 2017.

European intervention and private stocks of dairy products increased from June 2015. Public milk powder sticks peaked at 360 000 tonnes in July 2016, and have since decreased slightly. Butter stocks decreased from 100 000 tonnes in July 2016 to 40 000 tonnes in November 2016 and cheese stocks decreased from 33 000 tonnes to 17 000 tonnes. Thus, while European stocks are still high, there was a significant improvement. It is also clear that the EU released surplus stocks very carefully to the market so as not to disrupt the market balance. As the EU’s production-limiting subsidies take effect, stocks will decrease further.