January 18, 2018

EU Intervention Powder Already Factored Into Milk Prices

 |  By: Anna-Lisa Laca

Countries around the world use different tools to balance the volatility of the milk market. In the U.S. one of those tools is the Cooperatives Working Together (CWT) program. In the EU, the best known program is the public storage aid program commonly known by global market analysts as EU Intervention. Essentially the EU takes skimmed milk powder and butter off of the market and puts them into public storage to be sold at a later date. This helps boost their domestic milk prices. The U.S. dairy export council estimates there is 352,000 metric tons of skimmed milk powder currently in intervention storage.

“The Intervention Program was established to act as a floor when milk prices are weak,” explains Mike North of Commodity Risk Management Group. “The commission is allowed to purchase 60,000 metric tons of butter and 109,000 metric tons of skim milk powder between March 1st and September 30th each year at fixed prices. When ceilings are reached, added inventory is offered on a tendered basis.”

A recent skimmed milk powder sale by the EU Commission, which is the governmental body that regulates the program, signals more powder could make its way out of storage and onto global markets.

“Provisional information released this morning is reporting that the EU Commission sold 1,864 tonnes of SMP out of Intervention in their latest tender (number 16) that closed on Tuesday (16th Jan),” says Peter Meehan a market analyst with INTL FCStone. “It is reported the lowest price accepted in this tender was €1,190/tonne.”

At roughly 66 cents per pound, Mary Ledman, a global dairy strategist with Rabobank, says what’s most significant about this sale is that it’s the largest volume at the lowest price level the commission has been willing to sell so far.

“It appears that the EU Commission is recognizing that it needed to lower its price expectation in order to move the powder,” she says.

In a market that is currently drowning in milk, it’s critical to note that most analysts, including Ledman, think intervention powder is already factored into both current milk prices and the futures prices represented on the board.