International prices continue downward trend

International dairy product prices continue to decrease. At the latest Fonterra sale on 1 October, prices were 7,3% down on the previous sale. The global dairy trade index is now at 782, the lowest level since May 2012. Global prices as quoted by the US Department of Agriculture are substantially lower than at the beginning of 2014.

According to a recently released report by the Australian Dairy Corporation, the main reasons for lower prices are the increase in production in major producing countries as farmers took advantage of higher producer prices. Milk production in Europe moderated as milk prices adjust to global market movements. Tighter margins in Oceania will in time result in slower production growth. Russia’s boycott of European imports further aggravated the problem. The Australian Dairy Corporation expects current depressed world prices to continue to the fourth quarter of 2014.

The decrease in international prices did not have the same effect on South African import prices as the weakening rand to an extent buffered us against lower global prices. Based on an exchange rate of R11,30 and latest international prices as quoted by the USDA, import parity based on skimmed milk powder and butter still equals R4,46 per litre, slightly higher than the South African producer price.