NDM/SMP the Bellwether for Milk Prices
US - Recent issues of the Daily Dairy Report have shined a light on nonfat dry milk (NDM) and skim milk powder (SMP) markets, according to Friday's Daily Dairy Report.
30 April 2012
2 minute read
As the most storable dairy commodities,
these products become the bell weather for
milk prices because the start of milk supplydemand imbalance tends to manifest in NDM
and SMP market instability. This means
changing stock levels of these commodities,
in the U.S. and European Union (EU), are a
strong indication of either a growing surplus
(increase in stocks) or excess demand
(decrease in stocks).
In late 2008, the contracting global
economy contributed to a decline in demand
for NDM/SMP products as reflected by lower
trade statistics. US exports of NDM/SMP
peaked at 101.9 million lbs. in May 2008, by
December 2008 exports fell to 44.6 million
lbs. At the same time, dairy farms around
the world were flush with milk production in
response to strong milk price signals from
late 2007 through mid-2008. These two
counteracting forces resulted in high NDM/
SMP stocks, government purchases of
product in the EU and US, and ultimately a
rapid erosion of milk prices in early 2009.
After 2009, demand recovered and milk
supply contracted, reversing the course of
markets – drawing down stocks of NDM/
SMP and driving prices higher as buyers
sent a signal more milk was needed in order
to satisfy current demand. As a result, milk
prices moved higher and stocks lower in both
2010 and 2011 as the system rebalanced
supply and demand.
In 2012, global demand for dairy products
continues to grow; however, milk supplies in
the major producing regions have outpaced
demand resulting in rising stocks and NDM/
SMP market instability. Once again the
system is working to rebalance supply and
demand as lower prices throughout the world
are signaling that less milk is needed -- at
least for the time being.
CME spot Cheddar block and barrel
prices closed the week on a positive note.
Blocks settled at $1.5350/lb., up 0.75¢ and
barrels were a penny higher at $1.4350/lb.
CME spot butter was unchanged at $1.36/
lb. but spot NDM prices continued to weaken.
Further Reading
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