It is very interesting to see the recent price trends in the US, where lactose prices have headed in a different direction to whey products and especially non-fat dry milk (NFDM). The reported discount selling by Leprino of late is no surprise given that inventories have been increasing throughout the year, causing the decline in monthly production since June.
All in all its been quite a year for the US dairy industry, as strong milk supply seen in the first six months has progressively weakened to levels below those in 2011 – September’s production was estimated to be 0.5% lower than the previous September. This year’s figures will likely be marginally up on last year's figures as a result and the picture for 2013 is very uncertain.
The performance in Q1 will be key, but reducing cow numbers and constrained yields set the scene. This has had a major impact on the industry’s product mix – skimmed milk powder (SMP) production reduced prior to a strong recovery, while NFDM became less attractive as supplies reduced.
A significant proportion of the milk production reduction witnessed since July has been in California – the recovery timing there will be critical for NFDM production. The Continental Dairy Facilities, which is a dairy processing plant located in Michigan, is finally running, but the bottom line is that US milk powder exports could be significantly impacted.
The reported Leprino position, combined with the industry’s future plans for capacity extension, raise significant questions about possible US overcapacity in lactose going forward, especially in light of other options for standardisation being under consideration at Fonterra.