Milk and dairy product prices have been a driving force behind food inflation, and high dairy product prices appear to be impacting demand, at least marginally. But milk and dairy product prices could moderate soon without hurting milk production if farm margins remain decent as expected, said Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aires.
In June, robust butter prices were a main factor driving the Dairy Price Index (DPI) up again. Reported by the Food and Agriculture Organization of the United Nations, the DPI rose 0.5% from May levels to hit 154.4 points.
“The index has been moving higher almost continuously since late 2023 and now sits just 3.8 points shy of the record high notched in June 2022,” Ganley said. “While butter prices were the main culprit behind the increase in the dairy index, appreciating cheese prices also played a role. And while whole milk powder and skim milk powder values fell in June, the declines were insufficient to offset the price increases posted for the other dairy products.”
June’s overall Food Price Index (FPI) rose 0.5% to 128 points after dipping modestly in May. According to the index, food prices in June were 5.8% more expensive than a year ago, but they remain well below 2022’s record highs. Meat and cooking oil prices were also up, while sugar and cereal prices fell.
“Although higher food and dairy prices have the potential to negatively impact consumer demand, lower values could be on the horizon,” Ganley noted. “Milk volumes have risen across the world’s key milk-producing and exporting regions as favorable weather and margins have encouraged production growth. At the same time, geopolitical conflict and U.S. trade policy uncertainly could keep demand subdued over the balance of the year.”
While year-to-date milk collections in the EU-27 and the United Kingdom were up only 0.2% in the first four months of this year, output in the United States and New Zealand has been strong, and production in many South American countries has been making a comeback.
“Significant risks to the price outlook persist, but global dairy prices appear poised to at least moderate in the coming weeks and months, especially if consumers continue to cut back on spending.”
