World market prices fell sharply in August, particularly for powder. The results of the second Fonterra internet auction produced a 15% drop in the WMP price for October supply compared to the September price, with increasing amounts of WMP being put into the auction. This reflects the beginning of Oceania’s production season with milk supplies expected to be as much as 8% up in 2008-09 in New Zealand. The strengthening of the US dollar, with the €/$ rate up by 8% in four weeks, also reduces prices from non-US sources onto the world market. With prices slipping, buyers are believed to be reluctant to buy until the market settles down.

The US is currently the world’s biggest exporter of SMP, exporting 234,000t in the first half of 2008. US SMP market prices are now falling (having risen steadily since early March) with indications that sales are slowing (which in turn affects world market prices). EU SMP prices are now competitive on the world market but exports have yet to pick up. SMP prices are 40% below their peak last summer but they are still at historically high levels.

The US makes little WMP and provides no real competition in that market. There is now a significant gap between WMP and SMP prices whereas in 2006 and 2007, prices were close. The results of the second Fonterra WMP auction were disappointing, and world WMP prices have fallen sharply as a result.

World butter prices have also begun to drop, reflecting the rise in the value of the US$, but they are still above levels of a year ago. In the first five months of 2008, the US exported nearly as much butter as the EU and US domestic prices rebounded to new highs in August. US butter supplies have been competitive on world markets since the autumn of last year despite different product standards. EU butter is beginning to be competitive at the lower end of the EU price range but exports have yet to pick up.

Cheese prices reached a peak in December 2007 but they have fallen back since. EU exports are down on levels of a year ago but US Cheddar became competitive on the world market at the end of 2007 and exports have increased from a low base. Prices in August were unchanged.

$/tonne	AUGUST 2008	1 month before	12 months before
Butter	3,600	3,850	3,200
SMP	3,300	3,550	4,900
WMP	4,000	4,400	5,100
Cheddar Cheese	5,000	5,000	4,500

WMP = Whole Milk powder; SMP = Skimmed Milk Powder
Source: DIN Consultancy

Please note that prices can vary markedly within each market sector: the prices above are intended to give a guide to trends in price changes, but the absolute values experienced in the market place may differ from those shown.