Powdered milk is an excellent export product. By removing the water and the butterfat from milk, it will weigh about 90% less and it will not require refrigeration. Therefore, fat free dried milk can be shipped economically and delivered where refrigeration is not practical.
The US produces two types of fat free milk powder.The traditional product is identified as nonfat dry milk (NDM), and the other is skim milk powder (SMP).
The two are very similar, with one important difference. To meet the classification of SMP, the product must contain a minimum of 34% milk protein. If it is less than 34%, it cannot be classified as SMP. The US has typically produced NDM primarily for domestic use. This is changing.
The global market for powdered milk is SMP. Therefore, to compete in the international market effectively, dried milk powder needs to match the standard for SMP. The major two ingredients in powdered milk are protein and lactose. In warm weather, protein production can drop nearly 10%, however lactose production remains constant. Meeting the 34% minimum can be difficult.
International prices for SMP have been good in 2013 and the US has been able to take advantage of these prices.
For the first 10 months of 2013, the US has exported 58% of the NDM/SMP produced. This is a 21% increase over 2012. The market for US manufactured milk powder is now clearly dependent on exports.
To compete effectively, the US has had to expand production of SMP
For the year 2013, over 30% of the powdered milk produced in US will be SMP.
This is a significant change and about a 50% increase from prior years. In October 2013, US production of SMP exceeded 40% of the total NDM/SMP production for the first time ever.
While skim milk production has significantly expanded, the majority of powdered milk is still characterized as NDM. Some of this may be over 34% protein, but nevertheless it is still sold as NDM.
As the US dairy industry becomes more aligned with the global dairy markets, the growth of SMP will continue to add pressure on dairy producers for higher milk protein production.
John Geuss (left) is the editor of US dairy commodities blog, MilkPrice.
To see John's in-depth month-by-month examinations of American dairy commodity movements, visit MilkPrice.