U.S. milk production in March was 17.7 billion pounds, up 4.2 percent from a year ago, according to the U.S. Department of Agriculture. First quarter output was also 4.1 percent higher than the same quarter last year — adjusted for leap day. This represents the largest quarterly growth since Q1 of 2006. Of course, this has led to a jump in NDM inventories; at the end of February, U.S. NDM stocks were 196.3 million pounds, up 59 percent from last year.
Meanwhile, market signals clearly indicate a growing global supply glut, according to U.S. Dairy Export Council analysts. Market CME spot NDM prices recently fell to their lowest levels since March 2010, GDT auction prices for SMP fell below $3,000/ton for the first time since August 2010 and Oceania SMP export prices are off nearly 30 percent from a year ago.
For the U.S. dairy industry, weaker market conditions are compounded by significant lost share in Southeast Asia, one of the primary destinations for U.S. powder, in the early part of 2012, USDEC says. In the January-February period, U.S. NDM/SMP shipments to the region were down 34 percent (again, adjusted for leap day) from last year. Suppliers to the region are pricing aggressively to clear current season production. Buyers will continue to seek SMP, while U.S. production is mostly geared for NDM.
“In our assessment, growing powder stocks will hang over the market for most of 2012,” USDEC analysts note.