July 9, 2018

Get Ready for the Whole Milk Powder Mountain

 |  By: Mike Opperman

Last week USDA released its Dairy Products report. While there some interesting movements in several product production and inventory categories, not one was more telling than the whole milk powder report.

WMP production was up a whopping 245% over last year, and inventories jumped 82.9% from last month. Nate Donnay, director of dairy insight with INTL FCStone, says these actions are noteworthy for two reasons:

  1. That’s a high percentage of milk going into WMP production.
  2. WMP is a product that is mostly sold into China.

“We will need to figure out where this supply will go in light of the downward price pressure on the Global Dairy Trade (GDT) auction,” he says. “Plus now there is a 25% tariff imposed on this product destined to China.”

Donnay says, tariffs notwithstanding, China hasn’t been buying as much dairy as it was earlier in the year when powder purchases were trending about 10% higher than 2017. That demand drove a positive dairy price outlook for the first half of the year. Unfortunately, that demand has cooled, Donnay says.

“Our expectation was that China would step up buying by mid-year, but it isn’t showing up in the trade flows yet,” he says. “The drop at the GDT auction last week suggests Chinese buyers are still on the sidelines.”

Since 52% of U.S. WMP production was sent to China over the past 12 months, a sideline position by China and a 25% tariff on U.S. WMP product means production will have to shift away from WMP or we’ll face a mountain of powder with no home for it.

“The U.S. can’t keep producing this kind of WMP volume without finding an outlet other than China for it,” Donnay says.

For the entire USDA dairy products report, click here.