No end in sight to SMP Intervention stocks

Published 28 December 17

The EU Commission have outlined two working scenarios for the future of SMP in intervention. Under both scenarios, the EU Commission are expecting to continue to hold significant quantities of SMP in intervention for the foreseeable future, with the knock-on impact on SMP market prices. However, over the long term, growing demand both domestically and globally is expected to support the SMP market and lead to a recovery in average SMP prices to above €2,500/t after 2020.

There are currently 375 million tonnes of SMP in intervention, built up during a period of strong increases in production, and demand slowing significantly from China and Russia.

Production of SMP dropped by 5% in 2017 whilst exports were boosted by nearly 40%, and domestic use increased steadily. Intervention stocks did not reduce during this period, but the Commission believe that private stocks of SMP are now very low.

The first working scenario assumes SMP is released from intervention over the next three years with no additional purchases being made. It is assumed that milk prices remain relatively high thanks to sustained butter prices. Cheese production remains more profitable than butter/SMP, so SMP production only increases marginally. Assuming exports remain at their current high level, intervention stocks will release 140,000 t onto the market. Under this scenario, the Commission expects SMP prices to remain low over the next 2-3 years.

The second working scenario is that no SMP is released from intervention in 2018. Assuming higher milk production than in Scenario 1, more fresh SMP will be produced, reducing the need to buy from intervention stocks. Under this scenario, the Commission see the lack of sales from intervention putting upward pressure on SMP prices later in the year. 

EU SMP end of year stocks Dec17