World demand for high-protein whey products continues to be robust, but the shift in world markets as high prices trickle down to end users and consumers could accelerate into the summer. Some changes could simply be opportunistic. Some could be permanent as manufacturers look to milk protein concentrates (MPC) in their existing and new formulations.
U.S. whey exports have benefited from strong global demand for proteins and constrained supplies this year. As a result, U.S. whey protein exports were much higher in March 2014 than they were a year earlier, according to the most recent trade data released this month by USDA’s Foreign Agricultural Service. Whey protein concentrate (WPC) and whey protein isolate (WPI) exports with more than 80% protein rose 55% to 5.1 million pounds in March. Similarly, March exports of WPC with less than 80% protein were 24.5 million pounds, 28% more than the prior year. WPC 34 represents a large portion of lower-protein WPC export activity, and WPC 34 exports were extraordinarily robust as manufacturers looked for substitutes to higher-cost nonfat dry milk (NDM) and skim milk powders (SMP). However, in recent weeks world market prices for NDM/SMP have been tumbling and that could encourage manufactures to switch away from WPC 34.
As competition for whey proteins increases, some companies are looking to MPC to fill the growing void. During 2012, nearly 40% of recent product launches that included MPC (40-70% protein) as an ingredient were in the yogurt category. For products using higher-protein MPC/milk protein isolate (MPI) with 85% or higher protein, meal replacement and beverages accounted for 50% of new product launches followed by sports nutrition offerings at 25%.
In 2009, USDA began reporting production data for MPCs. Between 2009 and 2013, U.S. production of MPCs had a compounded annual growth rate of 2.3% with production in 2013 reaching 101.7 million pounds, just 0.6% behind the 2012 high of 102.3 million pounds. Reliance on lower-protein imported products has waned as the United States has become a more reliable supplier of quality MPC. Since 2006, U.S. MPC imports (<80% protein) declined from 190.9 million pounds to 121.3 million pounds in 2013. U.S. imports of MPC (<80% protein) in March 2014 were 8.5 million pounds, the lowest March imports for the past two years. U.S. MPC (<80% imports) imports for the first three months of 2014 were down 32% vs. year-ago levels, suggesting greater reliance on domestic manufacturers.
That said, U.S. imports of MPC (>80% protein) have been relatively consistent for the past eight years. In 2006 U.S. MPC (>80% protein) imports were 15.1 million pounds. In 2013 they were 13.8 million pounds. Except for the extremely low milk price years of 2009 and 2012, U.S. MPC (>80% protein) imports hardly varied from year to year. Through March 2014, year-to-date MPC (>80% protein) imports were 14% greater than last year. Despite increased MPC production, demand growth could still outpace current higher-protein production capabilities domestically.
Even with strong world demand for proteins, though, high prices will eventually cure high prices. For months healthy milk checks have encouraged farms around the globe to increase output. Additionally, consumers are seeing higher prices at restaurants and stores as companies reduce promotion dollars and increase prices, and consumers are beginning to curb spending as expected. The system is currently in the process of restoring supply-and-demand balance, and as a result prices are beginning to ease. Since the start of the year, NDM/SMP prices have tumbled: German prices have fallen 9.9%, Dutch prices are down 15.5%, New Zealand prices are off -13.4%, and U.S. prices have dropped 2.9%.
Despite eroding dairy prices, sizable uncertainty still faces the 2014 dairy markets. Demand is still growing for dairy products at current price levels, and dairy has once again become affordable for many nations. Weather, which drove the last cycle, is once again on the table as a wildcard as winter transitions to summer in the Northern Hemisphere, and signs of El Niño are on the horizon. Growing drought conditions in the southwestern United States are also an increasing concern. And China’s continued rollout of policy to improve the safety of its domestic milk supply and the resulting implications for foreign suppliers are also concerning. On the other hand, milk production is on the rise throughout the world. Even in China, milk output appears to be on the upswing. The big question is which one of these items will be the next driver of markets.