Are we still in a three-year market cycle?

Published 8 November 17

The recovery in world dairy markets has been slower than in previous cycles so the question now is whether prices will move back to follow the three-year trend.

The start of 2007 saw a step change in the value* of dairy products on the world market, with the long-term average return from butter and SMP doubling from around $0.2 per litre to $0.4. However, this increase in average values has come with a significant increase in the level of volatility.

3 year cycle of markets Nov17 

Price swings followed a relatively uniform three-year cycle from 2007 until the start of 2016. It was at this point we would have expected to see global markets start to recover. However, the removal of milk quotas from the end of March 2015, led to an increase in milk production across the EU. That, combined with demand reductions from China, and the Russian import ban, meant the ‘normal’ recovery part of the cycle was delayed.

The key question going forward is whether prices will move back to follow the three-year trend, or whether the delayed recovery means the overall cycle will shift back 6-12 months. In 2010 and 2011 prices failed to rise as quickly as the three-year cycle would have predicted. As a result, the low suffered in 2012 was not as deep or long as previous troughs.

The continual increase in global dairy consumption should offer some support to prices going forward. The key question is how much global milk production will rise to meet that demand. Certainly, following the severe lows encountered through 2015 and 2016, many producers across the globe are still in need of an extended period of recovery.


* World butter and SMP prices from USDA have been converted into a milk price equivalent in US cents per litre based on AHDB’s AMPE calculation. AHDB’s AMPE is an estimate of the actual milk price equivalent of butter and SMP prices taking into consideration an estimate of production costs and product yields. For more information see here.