June Dairy Market Update


June 9, 2014

U.S. manufacturers’ stocks of nonfat dry milk (NDM) powder rose to 239 million pounds at the end of April, this highest level during the past five years. Despite manufacturers in 2009 and 2010 maintaining lower inventories than today, in those years NDM stocks topped out at 397.9 and 272.2 million pounds, respectively when government held stockpiles are included. With the new farm bill the support price program and therefore government held stocks of dairy products has been discontinued. This means going forward manufacturers could sustain higher inventories during market downturns as there is no longer a government outlet for the product.

june NDM pic 2

NDM stocks typically reach their highest point in May or June each year. The late onset of peak milk production throughout much of the country, could result in rising NDM stocks over the next two Dairy Products reports. Although weekly National Dairy Product Sales Reports (NDPSR) volumes have been running elevated weekly sales volumes throughout the month of May suggesting manufacturers are actively working to keep stocks in line or bring them down.

U.S. NDM stocks could have been substantially higher had it not been for a strong export month in April. During the month the United States exported 117.2 million pounds of NDM and skim milk powder (SMP) reaching a level not seen since May 2013. U.S. NDM/SMP export top destinations were Mexico (27%), Philippines (14%), Vietnam (9%) and Algeria (8%). Exports to Mexico, the United States’ largest dairy export partner were off again in April, down 5.2% vs. March on a daily average basis and 15.8% less than a year ago. This was more than made up by volumes to Middle Eastern and North African countries including: Algeria, Morocco and Egypt. The Middle East and North Africa (MENA) region is becoming import trade partners for U.S. dairy companies. That said, increased exports to Algeria does not typically reflect particularly strong market conditions as purchases are coordinated via government tenders.

june NDM pic

Despite rising stock levels, U.S. NDM prices are climbing as well suggesting exports had more influence over near-term price than stock levels. At the start of June, both CME and NDPSR NDM prices are moving up once again. The NDSPR NDM price for the week ending May 31 was $1.8901/lb., up 7.58¢ from the prior week. Similarly the weekly average CME for the same period was $1.8244, 3.29¢ more than the previous week. International SMP prices have been converging in the mid $1.70’s and have started to show signs of a near-term support at these price levels as buyers . That said, U.S. prices moving substantially higher than comparable world prices is unusual and could impede export opportunities as European and Oceania sourced powders are comparably lower cost for international buyers.

Heading into summer exports and stocks will continue to influence domestic NDM and SMP prices which in turn will impact milk protein and whey protein concentrate prices as well. Rising U.S. prices could be short-lived as New Zealand and Australia’s 2014/15 season restarts later this summer. Strong milk and related powder production in Europe will also pressure to U.S. prices overseas as buyers have alternatives. Although holding out for substantial product discounts in the next few months could prove unrewarding as international prices appear to be well supported and are encouraging restocking.