Reeling economy sinking dairy product prices, dry milk sold at support level

by Ron Sterk
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KANSAS CITY — Gloomy economic conditions and uncertainty about financial markets in the coming months, along with higher milk production, domestically and globally are pressuring prices for most dry milk products, especially nonfat dry milk (N.D.M.).

Burdensome and aging supplies of N.D.M. were being sold to the Commodity Credit Corp. of the U.S. Department of Agriculture at the government support level, which ultimately serves as a price floor, the U.S.D.A.’s Agricultural Marketing Service said last week.

"There were support price sales of N.D.M. to the C.C.C. at the support price of 80c per lb." the U.S.D.A. said. "Trade sources indicate that offerings will continue in the near future to help clear product."

In its Oct. 10 supply/demand report, the U.S.D.A. projected 50 million lbs of N.D.M. would be sold to the C.C.C. in 2008 and none in 2009. The last C.C.C. purchases were in 2006.

At the same time, buyers held back placing orders as prices have declined steadily since early September as well as because of the "bottom-end" sales price to the C.C.C.

"Speculation on the amounts of N.D.M. being sold to the government at the 80c support price has curtailed buying activity because when support prices and volumes are figured into upcoming price averages, this could translate into lower spot market prices in the near future," the U.S.D.A. said.

A combination of strong export demand, the result of a weak U.S. dollar and tight supplies in other major producing regions of the world, and good domestic demand, pushed prices for N.D.M., as well as several other dry dairy products, to record highs last year. Low- and medium-heat

N.D.M. peaked just over $2.50 a lb (high end of the price range) in early July 2007 and held above $2 through October of last year.

But higher global milk production, larger supplies of dry dairy products, a stronger dollar and overall uncertainty about economic conditions combined to sink N.D.M. prices, with values falling especially hard the past few weeks.

Last week the U.S.D.A. quoted low- and medium-heat N.D.M. in a price range of 80c to $1.25 across the country, with the lowest level reflecting sales to the C.C.C. Prices on the open market generally were from $1.10@1.25 a lb in the Central and East regions and 90c to $1.15 in the West. Since early August prices have fallen 20% to 25% in the Central and East and 25% to 35% in the West, with more than half the decline coming in the past two to three weeks.

The U.S.D.A. forecast N.D.M. prices would average $1.38½ a lb for all of 2008 and from $1.45½@1.52½ in 2009 compared with about $1.71 in 2007.

"Demand growth across all major products appears to be slowing," the U.S.D.A. said in its latest Livestock, Dairy and Poultry Outlook. "Butter and N.D.M. had benefited from strong export sales, but exports are forecast to taper off toward the end of 2008 and decline slightly in 2009. A slowing global economy, the dollar strengthening against the euro and other currencies and increasing foreign production underpin the export forecast."

"Of special note is that declining oil prices may affect a number of major N.D.M. importers (Mexico and Algeria among others)," the U.S.D.A. said.

Production of edible N.D.M. totaled 1,022 million lbs in the first eight months of 2008, up 14% from the same period last year, the U.S.D.A. said in its latest Milk Products report. Shipments in August were up 18% from August 2007 but down 12% from July 2008, while Aug. 31 stocks of 157 million lbs were up 10% from a year ago.

This article can also be found in the digital edition of Dairy Business News, October 2008, starting on page 4. Click here to search that archive.

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