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.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 â€“ 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 0.75Â¢ 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.