European powder mountain sold by a hair

During the penultimate tender of the European Commission (EC), a big bite was taken from the powder mountain and now the last remnant seems to have been sold. The Netherlands Enterprise Agency (RVO.nl) reports that 18.154 tons of skimmed milk powder have been sold, with a minimum selling price of €158,50 per 100 kilos.

This does not yet buy up the entire mountain of powder, because there is still 3.070 tons in stock. This volume was not awarded during the last tender. This remainder may have been stored unfavorably from a logistical point of view, causing buyers to bid a price that the EC rejects. However, the remainder is less than 1% of the 381.000 tons that hung above the market 1 year ago.

Like snow in the sun
In a sense, the European powder mountain has now disappeared like snow in the sun, because 270.000 tons have been sold since October. This is approximately 20% of the volume produced annually by all European member states together.

The rapid sale is a clear signal that milk protein is in demand. Mexico is currently the most important market for skimmed milk powder. In the first 9 months of 2018, the European Union (EU) exported 267.000 tons to the country. That is almost 7% more than in the same period in 2017. Sales to China also increased.

The improved relationship between supply and demand is reflected in the price for skimmed milk powder. Compared to 1 year earlier, the ZuivelNL quotation is now approximately 50% higher. This week the quote rose by €3 to €191 per 100 kilos.

Futures contract in demand
The trade in the futures contracts for skimmed milk powder is also more popular. A record volume of contracts was traded on the European Energy Exchange (EEX) in Leipzig last year. However, this is relatively limited. Compared to 2017, an increase of 17% was visible to 13.431 contracts, good for 67.155 tons of product.

Compared to the volume produced in the EU (1,4 million tonnes in 2017), only 5% is hedged on the futures market. Although the number of contracts traded is growing, the price-risk instrument has hardly been embraced by the European dairy trade. The joint trading of the dairy futures contracts (butter, skimmed milk powder and whey powder) increased by 7% last year to 27.564 contracts.