SMP Market Unfettered by Stocks
The once burdensome nonfat dry milk (NDM) market quietly and steadily moved higher over the past few months as demand picked up, global inventories dwindled, and milk supplies in Oceania weakened. In mid-November, the CME spot NDM price hit a high of $1.235/lb., a price not seen since November 2014. Likewise, skim milk powder (SMP) prices at the Global Dairy Trade (GDT) auction have also been rising.
Sara Dorland, analyst with the Daily Dairy Report and managing partner in Ceres Dairy Risk Management, Seattle, says many factors have contributed to higher milk powder prices. “Depletion of EU Intervention stocks tops the list,” Dorland says. “At the end of November last year, the European Commission reported that Intervention stocks were 219,989 metric tons (MT). Today, Intervention coffers are empty.”
Until recently, lack of demand and burdensome SMP supplies, which began in 2015, were suppressing global SMP and NDM prices. “Over the past two years, milk production in Europe and the United States slowed, while demand for SMP and NDM picked up. Intervention stocks were thus needed to backfill lagging supplies,” Dorland notes. “Once stocks were gone, prices had to lift to encourage more production and ration demand.”
Slowing milk supplies from New Zealand could also be part of what has driven NDM and SMP prices higher. October milk production in New Zealand of 3.2 million metric tons was 2.6% less than a year ago. However, Dorland notes that production was still the second highest on record, following 2018 and 2014, which tied for the highest ever milk volume. “Ideal milk production circumstances in New Zealand last year led to substantial year-over-year gains that will prove challenging to replicate this year,” Dorland says.
She notes that rising U.S. and global NDM and SMP prices have started to encourage a shift of milk out of other products and into milk powders, but prices have not climbed high enough yet to ration demand.
“Under most settings, slowing production in New Zealand alone might not be enough to send NDM prices higher, but given robust milk powder imports from China and New Zealand’s position as a significant supplier, slowing New Zealand output could cause milk powder markets to rise further.”