Spend Matters welcomes this guest article by Emma Jayne Smith of Mintec.
US skimmed milk powder (SMP) prices are at their lowest since May 2009 and have tumbled in price since the start of last year, down 54% year-over-year. The fall of SMP started in March 2014, when prices reached their highest level since 2007.
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SMP is a dairy product made from milk by removing the moisture content. SMP contains a maximum of 4% moisture and maximum 1.5% milk fat. Milk powders, including SMP but also whole milk powder (WMP), whey powder and anhydrous milk fat (AMF), have a far longer shelf-life than liquid milk and are used in a variety of applications. SMP tends to be used in the baking industries, confectionary, ice cream, processed cheese and animal feed. The US is the second largest producer of SMP, after the European Union, producing 0.93 million tons annually and exporting on average 0.47 million tons a year, with the main export markets being China, the Philippines and Mexico.
So, why is SMP at its lowest price since May 2009?
Milk production in Q2 2015 was up 1% year-over-year to 53.6 billion pounds, with milk production per cow matching last year’s record level and the number of dairy cows on farms being up 1% year-over-year. This increased production, coupled with the Russian ban on major exporting markets including the US and a drop in demand from China, has led to oversupply of SMP in the US and globally. This caused demand for US SMP exports to decrease which has been further exacerbated by the strengthening of the US dollar. The increased supply in milk has meant more SMP has been produced, due to longer shelf which has lead to easier storage solutions.
If milk production keeps increasing and exports continue to fall, will US SMP continue to drop in price? Or will these low levels increase domestic demand, increase exports and see a decline in production, leading to prices rising?
In the coming months, this is surely a market to keep an eye on.