European Skim Milk Powder (SMP) Prices Held Firm Amid Tight Supplies and Subdued Milk Output

Skim milk powder (SMP) prices in Europe continue to be on the upside since January. At the close of trading last Friday, nearby prices settled at €3645/mt a (+€95) increase over the month. SMP is trending higher alongside other stronger dairy commodities. The last few days have however seen prices trading flat at €3645/mt. Tight SMP supplies continue to dominate the headlines, amid weakening milk collections and a higher spot milk price.

Production of SMP in the EU27 at the end of December 2021 was 112,000 mt, 9000 mt less than what was produced in the same month the previous year. In addition, a lot of the slated quarter 1 production has been already sold. Germany, for example, has its orders almost entirely booked for the coming months and new orders are not getting responses on the back of less feedstock availability to make the product. Market sources talk of the non-availability of milk to dry to make skim milk powder (SMP). This is quite ironic because not long ago, there was so much excess SMP in the EU market that the EU Commission had to bring in the Intervention Programme for stability.

Global demand for dairy is also showing no signs of abating. Currently, strong demand is coming from some Asian buyers, albeit cautious while some North African countries are reported to be making enquiries. Market players are all anticipating good milk collection numbers to take out some pressure off the market heat. In Germany, France and the UK, although collections in January are reported to be high in line with the seasonal trend, Tridge Engagement Managers there report they are at a decreasing rate. Yield for week ending 20th February in Germany is reportedly 0.5% down YoY while in the UK, collections in January were down 1% YoY.

Higher energy and feed cost are other underlying factors pushing the market up. In addition to that, reports from Germany indicate staff shortages owing to high sick leave among staff in dairies and within the transport sector. If the fundamental picture in European dairy activity does not change to put a bearish slant, prices may remain elevated going into the spring flush.