SMP demand to stabilise prices as peak milk production gets underway

Despite a predicted slight weakening in milk base prices in early 2018, demand for skimmed milk powder (SMP) could help stabilise prices as farmers approach peak production, UFU dairy chairman William Irvine has said.

Traditionally May is the biggest month for milk yield in Northern Ireland, with a bumper yield expected this year as many farmers ramp up production to take advantage of the strong prices.

Both November and December have been record-breaking months in terms of Northern Irish milk production.

‘Better returns than anticipated’

Irvine said: “Commodity prices in early 2018 are providing better returns than what was anticipated at the end of 2017, with butter seeing a €500/t increase in the Netherlands.

“Only skimmed milk powder showed a downward trajectory, and some in the industry have indicated that this, along with the 370,000t of SMP in intervention stores are providing an ominous overhang on sentiments as we carry on into 2018.

“Last week I attended both the COPA-COGECA Milk Working Group as well as the European Commission Civil Dialogue Group meeting on dairy, where I heard another angle on this story.

“There is no doubt that SMP prices are currently being impacted upon by the intervention volumes, with the European Commission acknowledging that there may be a short-term downward correction in SMP price.

“However, in relation to the NI product mix, unlike butter and cheese, SMP is not a significant part of the local mix and therefore, its price does not impact upon local farm-gate prices.”

Growing demand for SMP

With regard to the existing intervention stocks, there is “cause for optimism rather than gloom” Irvine said.

European Union export figures, as well as growing Chinese imports are showing a growing demand for SMP.

Irvine said: “According to the latest report from the Milk Market Observatory, 2017 saw record EU export levels for SMP.

This was reaffirmed by a senior European Commission official, when addressing a recent major dairy conference in Glasgow.

[A senior European Commission official] said that, should these export levels continue, it will only be a matter of time before the commission will have to access intervention stocks to meet demand.

“Added to this, EU SMP production was down 2.6% in 2017,” Irvine noted.

Meanwhile in China, SMP imports were also up by 41.7% in January compared to the year before – with  a figure of 46,493t.

Whilst almost 90% of the Chinese SMP import market is shared between New Zealand and Australia, European Union member states managed to increase their joint share to 5% of the imports and this will grow in 2018. 

The dairy chairman added: “In light of these facts, the UFU expects to see a stabilisation in base milk prices as we approach the spring.”