EU starts selling off its milk powder stocks

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A tender procedure to release the first amounts (22,150 tonnes) of skimmed milk powder (SMP) out of public intervention stocks is now open.

According to the European Commission, the move reflects the encouraging signs of recovery being seen on the EU milk market, with an increase of about 10% of the average price paid to producers in the last three months.

Following a steady slow down, no more quantities of SMP have been put into public intervention since September 2016, even though this market measure remains open.

In order to test the market reaction, the quantity of product concerned by the tender procedure is limited, corresponding to only 6% of the total amount of 355,000 tonnes of SMP stored and taken off the markets since the opening of the measure in September 2014. Under this tender procedure, European operators will have until 13 December to submit their bids to national authorities.

Agriculture and Horticulture Development Board (AHDB) dairy analyst Kate Ward said the product being sold has been in store for quite a number of months, adding: “It seems that the Commission is seeking to sell off its dairy intervention stocks on a gradual basis. This will have the least damaging effect on dairy markets. So to that extent, it is a development that should be welcomed.”

Ward also confirmed that UK milk production levels are unlikely to increase in the near future.

“Despite the recent rise in farm gate prices, producers still have significant debts to clear,” she said.

“They are also facing acute cash flow problems. And given this scenario, it’s unlikely that farmers will be in a position to increase milk output levels in the near future.”

Meanwhile, a combination of leading farm lobby groups and Rabobank is putting pressure on the Dutch government to introduce a cow culling policy, which would see up to 170k animals taken out of the country’s national dairy herd. This number represents 11% of the Dutch national dairy herd. The proposal is part of an overall strategy which will allow the Netherlands to meet its EU Phosphate and Nitrate obligations from 2017 onwards.

“No final decision has yet been taken on the proposed cull,” said AHDB dairy analyst Kate Ward.

“But if it does go ahead the proportionate fall in milk output will be somewhat less than the 11% drop in cow numbers. This is because farmers will preferentially cull their least producing cows. But if the envisaged cull does come to pass, then there may well be a drop in Dutch dairy output.”

Ward admitted that any move to reduce milk output in Europe would have a strengthening impact on dairy markets.