As if to prove my last blog about volatility in the market place, news has emerged that the EU Commission has removed export refunds for a number of dairy commodities in response to fast-firming prices.
Following a decision in October to suspend refunds for skimmed milk powder, last week Brussels took similar action in respect of whole milk powder, condensed milk and cheese. Butter export aids were also cut by 62%.
The market rebound has been more akin to a bungee jump than a yo-yo. Whole milk powder sold by New Zealand co-op Fonterra moved up 13% at last week's auction to average $3437/t. That's an 88% increase in just four months!
World skimmed milk powder prices have also forged ahead to top $3000/t and are now well above year-ago levels, as lower production in New Zealand and Australia starts to bite.
Butter prices have also soared, with world prices jumping $600/t in the past four weeks to $3200-$3500/t. This compares with just $1600-$1700/t for the January to August period.
For all three products, prices are still short of 2007 peak levels, ($4300/t for WMP, $3500/t for SMP and $4000/t for butter), but are seemingly closing fast.
Of course it will take a while for all this to feed through to farmgate levels. But the fact that global markets have turned around so quickly and so dramatically is welcome and alarming in equal measure....
The danger now is that markets will overheat. This will encourage dairy farmers the world over to turn the taps on full blast in 2010, while higher prices will stifle the ongoing recovery in demand. The current boom could just as quickly turn to bust.
One thing that will be crucial is the rate at which butter and skimmed milk powder stocks are released from intervention in the EU. Last week the commission only went so far as to say it was following things closely and would not do anything to hinder recovery.
But EU dairy body Eucolait is worried that, if the commission leaves it too late, many food processors will switch out of dairy fat and into vegetable oil - and the opportunity to reduce stocks will be missed.
It's a difficult balancing act, but one the commssion has to get right if the dairy sector is to enjoy any kind of stability.
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