The Good and Bad of the Global Powder Market
Just as the global skim milk powder (SMP) and nonfat dry milk (NDM) markets appeared to be staging a recovery, India is planning to enter the world market with surplus powder.
“For years, burdensome milk powder inventories have weighed on SMP and NDM prices, pressing dairy producer incomes lower around the globe,” says Sarina Sharp, analyst with the Daily Dairy Report. “Demand has finally started to chip away at inventories in Europe and the United States, and prices have started to recover.” At the same time, though, India’s plan to export more SMP has complicated the product's outlook, she adds.
Looking at Europe first, the European Commission, which has been selling SMP from its Intervention program since December 2016, is now offering product out of Intervention twice a month, and stocks have declined significantly. As of last week, 485 million pounds of SMP remained in Intervention, down from more than 800 million pounds a year earlier, according to the European Commission.
In North America, a recovering peso relative to the U.S. dollar has boosted Mexico’s buying power. “Mexico has been buying U.S. milk powder in huge volumes, and demand from south of the border is expected to remain high,” Sharp says. In August, U.S. exporters shipped 79.5 million pounds of NDM to buyers in Mexico, according to USDA trade data. U.S. exports of NDM and SMP to Mexico are still duty free.
“August shipments of NDM to Mexico were the second-largest monthly total on record and 64.2% larger than in August 2017,” Sharp says. “That boosted total U.S. NDM exports to 137.4 million pounds, up 26.3% from August 2017. While August exports were not as high as they were this spring, they were much higher than they were in June and July and represented the largest total ever for the month of August.”
Turning to one of the world’s largest and fastest-growing milk-producing nations, India increased cow’s milk production at a compound average growth rate of 5.7%, compared to 3% in Canada, 2.1% in Europe, and 1.6% in New Zealand and the United States. Sharp calculated these figures using USDA estimates from 2013 to 2018 featured in the bi-annual Dairy: World Markets and Trade report.
“While India has soaked up much of its milkfat, the country is awash in skim milk solids and the glut has stoked fears that India will dump SMP on an already well-supplied global market,” says Sharp.
According to a recent Reuters article, India's SMP exports are forecast to rise to 100,000 metric tons (MT) in fiscal year 2018-19, which began April 1. By comparison, India exported only 11,476 MT of SMP in fiscal year 2017-18. When prices in India are low enough, the country can enter the global market in a big way, Sharp says. For instance, in fiscal 2013-14, a year when global SMP prices climbed, India exported 129,872 MT of SMP.
“This year, the Indian rupee has fallen more than 16% against the U.S. dollar to all-time lows. But even that has not overcome the gap between Indian and global SMP prices,” Sharp notes. “To help chip away at its rapidly-growing stockpile, the central government and two state governments will begin subsidizing SMP exports.” However, those subsidies could eventually be challenged at the World Trade Organization (WTO), she adds.