EU-28 Intervention Stocks Update – Jan ’18
Executive Summary
Market tools including private storage aid and intervention schemes have been made available to European dairy producers and processors since the announcement of the Russian dairy import ban in Sep ’14. Highlights through the final quarter of 2017 include:
SMP PSA stocks reached a record high of 75,000 tons during Sep ’16 but have been drawn down to a three year low of 2,000 tons during Dec ’17. PSA for SMP has been closed since the end of Feb ’17. SMP PSA stocks have declined over ten consecutive months since the closure of the scheme.
PSA has historically been made available for only butter and SMP however PSA for cheese was reopened during Oct ’15, allowing for a maximum of 100,000 tons of cheese to be put into storage at subsidized rates, with additional volume limits for individual member states also in effect. Since opening, EU-28 PSA cheese stocks have not exceeded 33,000 tons. PSA for cheese has been closed since the end of Sep ’16 and stocks have been fully withdrawn since Apr ’17.
Intervention Schemes
Intervention schemes, involving selling quantities of products into government owned storage to help stabilize prices, have also been made available to EU-28 dairy producers. Intervention schemes are similar to PSA, as both help to stabilize markets by removing excess supply when prices decline. This can be temporary, where the product is later re-released for sale within the EU, or permanent, where the product is eventually exported from the EU.
Under intervention schemes, the European Commission purchases up to a designated volume of butter and SMP and, if exceeded, a tendering process takes place for additional volumes. Intervention schemes can be seasonal or in response to exceptional market conditions. The intervention scheme is typically open from the beginning of March until the end of September each year, although the 2016 intervention scheme for SMP was extended until the end of Dec ’16 due to adverse market conditions. Similarly to PSA, the intervention scheme for butter closed at the end of Sep ’16. A new SMP intervention campaign was opened at the beginning Jan ’17 but closed at the end of Sep ’17.
The trigger price for butter intervention is €2,218/ton ($1.23/lb equivalent using a 0.82 USD/EUR exchange rate), while the SMP intervention trigger price is set at €1,698/ton ($0.94/lb equivalent using a 0.82 USD/EUR exchange rate). As of the mid-Jan ’18, average European butter prices were 85% above the intervention trigger price however average SMP prices were 20% below the intervention trigger price. A new SMP intervention scheme will open at the beginning of Mar ’18, however purchases will be made through a tendering procedure on a case-by-case basis and without a fixed trigger price.
EU-28 butter prices approached intervention trigger price levels during Apr ’16 but have since rebounded significantly, reaching record high levels throughout Aug ’17 prior to declining but remaining significantly above intervention trigger prices over more recent months. SMP prices declined below intervention trigger prices over the first half of 2016 however prices rebounded to above intervention trigger price levels from the beginning of Aug ’16 until late Mar ’17, when prices briefly dipped below the intervention trigger price. SMP prices once again fell below the intervention trigger price during Sep ’17, prior to the scheme closing at the end of the month.
EU-28 SMP offered into intervention increased significantly over the first half of 2016 as prices remained below the intervention buy-in trigger price over much of the period. The intervention schemes originally allowed for up to 60,000 tons of butter and 109,000 tons of SMP to be brought at the designated intervention prices. After the SMP intervention limit was reached in Apr ’16, the European Commission raised the volume ceiling for the 2016 campaign to 218,000 tons, citing ongoing market difficulties. The 218,000 capacity was reached by Jun ’16, when the ceiling was again raised, this time to 350,000 tons of SMP.
Throughout the second half of 2016, SMP intervention purchases approached the 25 year high of 260,000 tons experienced during 2009. 2016 SMP intervention ending stocks of 256,000 tons were in addition to 78,000 tons of SMP bought in via tender during Apr ’16 and Jun ’16 when offers exceeded the previous ceiling levels. SMP intervention stocks reset in Jan ’17 with a new limit of 109,000 tons and 30,600 tons were offered into the 2017 intervention scheme as of the closure of the scheme at the end of Sep ’17.
Significant quantities of SMP intervention stocks purchased throughout 2016 continue to hang over international powder markets. The European Commission began to offer SMP intervention stocks up for sale during Dec ’16 via a tendering process however just 0.2% of the product sold. 15 additional tendering processes have taken place since, with just 2.1% of the total offered product being sold. Bids have been rejected as they were too far from the prevailing market prices. The most recent tender which took place on Jan 16th, 2018 resulted in 1,864 MT selling at a minimum fixed sale price of $0.64/lb.
Total combined EU-28 intervention and PSA SMP stocks have declined 11.7% from the Sep ’16 highs but remain significant overall. The current high SMP stocks levels contributed to the European Commission’s decision to re-open the SMP intervention scheme at the beginning of Mar ’18 through only a tendering process and without a fixed trigger price. Such a process will allow the European Commission to limit or avoid any further stock accumulation.
- EU private storage aid stocks of butter, cheese and skim milk powder continue to be drawn down following the closures of the schemes in late 2016 and early 2017. Combined private storage aid stocks of butter, cheese and skim milk powder were drawn down to virtually nonexistent volumes through the end of Dec ’17, finishing 98.9% below the highs experienced during Aug ’16. Private storage aid of butter and cheese has been closed since the end of Sep ’16 while the skim milk powder private storage aid scheme was closed at the end of Feb ’17.
- Similarly to private storage aid, the intervention scheme for butter closed at the end of Sep ’16. A new SMP intervention campaign was opened at the beginning Jan ’17 but closed at the end of Sep ’17, despite EU skim milk powder prices remaining below intervention trigger prices. SMP intervention stocks reset at the beginning of 2017 with a new limit of 109,000 tons and 30,600 tons were offered into the scheme as of the closure of the scheme at the end of Sep ’17. A new SMP intervention scheme will open at the beginning of Mar ’18, however purchases will be made through a tendering procedure on a case-by-case basis and without a fixed trigger price. Such a process will allow the European Commission to limit or avoid any further stock accumulation.
- Significant quantities of SMP intervention stocks purchased throughout 2016 continue to hang over international powder markets. The European Commission began to offer skim milk powder intervention stocks up for sale during Dec ’16 via a tendering process however just 0.2% of the product sold. 15 additional tending processes have taken place since, with just 2.1% of the total offered product being sold. Bids have been rejected as they were too far from the prevailing market prices.
SMP PSA stocks reached a record high of 75,000 tons during Sep ’16 but have been drawn down to a three year low of 2,000 tons during Dec ’17. PSA for SMP has been closed since the end of Feb ’17. SMP PSA stocks have declined over ten consecutive months since the closure of the scheme.
PSA has historically been made available for only butter and SMP however PSA for cheese was reopened during Oct ’15, allowing for a maximum of 100,000 tons of cheese to be put into storage at subsidized rates, with additional volume limits for individual member states also in effect. Since opening, EU-28 PSA cheese stocks have not exceeded 33,000 tons. PSA for cheese has been closed since the end of Sep ’16 and stocks have been fully withdrawn since Apr ’17.
Intervention Schemes
Intervention schemes, involving selling quantities of products into government owned storage to help stabilize prices, have also been made available to EU-28 dairy producers. Intervention schemes are similar to PSA, as both help to stabilize markets by removing excess supply when prices decline. This can be temporary, where the product is later re-released for sale within the EU, or permanent, where the product is eventually exported from the EU.
Under intervention schemes, the European Commission purchases up to a designated volume of butter and SMP and, if exceeded, a tendering process takes place for additional volumes. Intervention schemes can be seasonal or in response to exceptional market conditions. The intervention scheme is typically open from the beginning of March until the end of September each year, although the 2016 intervention scheme for SMP was extended until the end of Dec ’16 due to adverse market conditions. Similarly to PSA, the intervention scheme for butter closed at the end of Sep ’16. A new SMP intervention campaign was opened at the beginning Jan ’17 but closed at the end of Sep ’17.
The trigger price for butter intervention is €2,218/ton ($1.23/lb equivalent using a 0.82 USD/EUR exchange rate), while the SMP intervention trigger price is set at €1,698/ton ($0.94/lb equivalent using a 0.82 USD/EUR exchange rate). As of the mid-Jan ’18, average European butter prices were 85% above the intervention trigger price however average SMP prices were 20% below the intervention trigger price. A new SMP intervention scheme will open at the beginning of Mar ’18, however purchases will be made through a tendering procedure on a case-by-case basis and without a fixed trigger price.
EU-28 butter prices approached intervention trigger price levels during Apr ’16 but have since rebounded significantly, reaching record high levels throughout Aug ’17 prior to declining but remaining significantly above intervention trigger prices over more recent months. SMP prices declined below intervention trigger prices over the first half of 2016 however prices rebounded to above intervention trigger price levels from the beginning of Aug ’16 until late Mar ’17, when prices briefly dipped below the intervention trigger price. SMP prices once again fell below the intervention trigger price during Sep ’17, prior to the scheme closing at the end of the month.
EU-28 SMP offered into intervention increased significantly over the first half of 2016 as prices remained below the intervention buy-in trigger price over much of the period. The intervention schemes originally allowed for up to 60,000 tons of butter and 109,000 tons of SMP to be brought at the designated intervention prices. After the SMP intervention limit was reached in Apr ’16, the European Commission raised the volume ceiling for the 2016 campaign to 218,000 tons, citing ongoing market difficulties. The 218,000 capacity was reached by Jun ’16, when the ceiling was again raised, this time to 350,000 tons of SMP.
Throughout the second half of 2016, SMP intervention purchases approached the 25 year high of 260,000 tons experienced during 2009. 2016 SMP intervention ending stocks of 256,000 tons were in addition to 78,000 tons of SMP bought in via tender during Apr ’16 and Jun ’16 when offers exceeded the previous ceiling levels. SMP intervention stocks reset in Jan ’17 with a new limit of 109,000 tons and 30,600 tons were offered into the 2017 intervention scheme as of the closure of the scheme at the end of Sep ’17.
Significant quantities of SMP intervention stocks purchased throughout 2016 continue to hang over international powder markets. The European Commission began to offer SMP intervention stocks up for sale during Dec ’16 via a tendering process however just 0.2% of the product sold. 15 additional tendering processes have taken place since, with just 2.1% of the total offered product being sold. Bids have been rejected as they were too far from the prevailing market prices. The most recent tender which took place on Jan 16th, 2018 resulted in 1,864 MT selling at a minimum fixed sale price of $0.64/lb.
Total combined EU-28 intervention and PSA SMP stocks have declined 11.7% from the Sep ’16 highs but remain significant overall. The current high SMP stocks levels contributed to the European Commission’s decision to re-open the SMP intervention scheme at the beginning of Mar ’18 through only a tendering process and without a fixed trigger price. Such a process will allow the European Commission to limit or avoid any further stock accumulation.