The difference between NDM and Skimmed Milk Powder (SMP) is important. In some statistics, the two are combined which can make analysis difficult. See this prior post for a review of NDM vs. SMP.
Chart I below shows what has happened to NDM prices. During the years 2005 to 2014 NDM prices averaged $1.32 per pound. From 2015 to the most recent date, the price has averaged $.92 per pound, 30 percent lower.
|Chart I – NDM Prices from 2005 to 2021|
The largest U.S, dairy export product measured in tons is NDM. It is not driven by global demand, but by domestic supply.
|Chart II – Exports vs. Domestic Use of NDM|
From 2005 to 2021, the U.S. production of NDM and SMP has grown by 4.5 percent annually (Chart III). This is more than twice the growth rate of cheese production. What has caused the increase in production? One of the main elements is the growth of butter consumption, which has left an increasing amount of Class IV skim milk available. Also, the decrease in no fat and one percent fat drinking milk have left less available butterfat (See the February 11, 2021 post to this blog)..
|Chart III – Production of NDM/SMP|
Domestic Inventories of NDM/SMP have also increased (Chart IV). From 2005 to 2021, inventories of NDM/SMP have increased by 12 percent annually. The increase is well above the increase in production which was 4.5 percent annually. A shown in Chart V, inventories as a percent of production have doubled between 2005 and 2021. With rising inventories available, prices will be lower.
|Chart IV – Inventories of NDM/SMP|
|Chart V – NDM Inventory as Percent of Production|
There are essentially no imports of NDM/SMP. The challenge is to export what is excess in the U.S.
The international market for NDM and SMP is strongly skewed to SMP. The standards for SMP are set by the WTO. The U.S. is producing increased volumes of SMP (Chart VI), but it is still much smaller than production of NDM. The U.S. does not participate in the largest powdered milk market, Whole Milk Powder.
|Chart VI – U.S. Production of NDM and SMP|
WHAT DOES ALL THIS MEAN?
NDM prices are low, and the data above indicate that this will not be changing. The new formula for pricing Class I milk is now out-of-date. The $.74 adjustment in the new formula is out-of-date considering the continued lower prices of NDM. The lower Class I price resulting from the new formula is lowering the “uniform” price and contributing to low and negative Producer Price Differentials.