Powder Exporters Drop Prices to Spur Demand
Last week, CME spot nonfat dry milk (NDM) prices dropped to 69 cents per pound, a price level that has been seen only one other time in more than four decades. The only other time was in August 2015.
“The 69-cent price level marks the all-time low in nonfat dry milk prices since nonfat dry milk began trading at the CME before the turn of the century,” says Sarina Sharp, agricultural economist with the Daily Dairy Report. “Current spot nonfat dry milk prices are likely the lowest since 1977, when the support price for nonfat dry milk was 68 cents per pound.”
In last week’s Dairy Market News report, USDA noted that U.S. nonfat dry milk production has been heavy and buyers have been willing to press sellers for discounts. “Current CME spot market prices suggest there is plenty of inexpensive powder to be had,” says Sharp. “But neither U.S. output nor stocks of nonfat dry milk appear to be abjectly burdensome.”
According to USDA’s monthly Dairy Products report, combined production of NDM and skim milk powder (SMP) of 184.8 million pounds in February was 2.6 percent lower than a year ago, but 3.9 percent larger than the previous month, on a daily average basis.
Despite the growing month-to-month production of NDM, U.S. stocks of NDM have been declining. According to the latest Cold Storage report, NDM stocks at the end of February were 10 percent below the prior year at 216.6 million pounds. Compared to the previous month, ending stocks in February were 4.5 percent or 9.9 million pounds lower.
“By contrast, over the past five years, nonfat dry milk inventories from January to February increased by an average of 17.6 million pounds,” notes Sharp. “This past February’s healthy decline in stocks implies that both domestic use of milk powder and export sales were strong. It appears manufacturers were able to keep product moving in February.”
U.S. exports of NDM of 91.16 million pounds in February were an all-time high for the month. On a daily average basis, exports in February were 3 percent higher than in January and 12 percent larger than the prior year.
“To step up sales, however, it appears that milk powder merchants had to drop prices,” says Sharp. “The average value of NDM exported in February was 92.8 cents per pound, down from more than $1.03 in January and from 2015’s average export price of $1.13. Demand for bargain-priced milk powder has helped the United States keep inventories from reaching burdensome levels.”
However, Sharp says, despite the moderate inventories and decent demand in the United States, domestic prices will not be allowed to rise substantially until global stockpiles begin to erode, and there’s plenty of global skim milk powder, particularly in the European Union.