How Long Will Powder Prices Wallow in the Trough?

Recent reports on trade, production, and stocks have been weighing heavily on nonfat dry milk markets.

“Although world milk powder prices have been on the rise in recent weeks, hefty U.S. stocks could keep the lid on the domestic market for now,” says Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill.

CME spot nonfat dry milk (NDM) prices have been trending lower since topping out at $2.11/lb. in late-December 2013.

“Ample milk supplies across the United States contributed to a new record-high combined production of nonfat dry milk and skim milk powder in January,” says Ledman. January’s combined output of 207 million pounds was nearly unchanged from December 2014 production but 4.7 percent more than the prior year.

“Year-over-year nonfat dry milk output increased double digits from coast to coast,” Ledman notes. Output in the Atlantic region climbed 53 percent to nearly 30 million pounds. Production in the Central region rose 15 percent to 25.6 million pounds. And the West, which represented two-thirds of total January production, increased output by 13.7 percent to 110.4 million pounds in January.

California, the nation’s largest producer of NDM, produced 63.8 million pounds of NDM in January, or 17 percent more than in January 2014. The sharp increase in production occurred despite a 2.6 decline in milk production in January.

“California’s robust output of nonfat dry milk in January could be attributed to less skim milk powder production the prior year,” says Ledman. “And it’s likely that greater nonfat dry milk output in the Golden State in January offset some of the declines in other milk powders, including skim milk powder.”

USDA reported January 2015 SMP output at 41.2 million pounds, a 30-percent plunge from the prior year. Meanwhile, the California Department of Food and Agriculture reported that production of its “other” dry milk products category, which includes a number of powders, such as whole milk, buttermilk, skim milk, milk protein concentrate, among others, totaled 29.8 million pounds, a drop of 34 percent compared to January 2014.

Production gains and a slowdown in exports have contributed to building U.S. stocks of NDM. USDA pegged January 2015 month-ending manufacturers’ stocks at nearly 240 million pounds—a whopping 61 percent more powder in storage than last year’s lower-than-average stock level.

Stocks of NDM and skim milk power, however, did fall a modest 1.5 million pounds in January from December 2014’s record-high of 241.4 million pounds, which could indicate that manufacturers are doing their best to avoid carrying any more stocks.

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