EU-28 Intervention Stocks Update – Aug ’16
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. Throughout the first quarter of the ’16-’17 production season, stocks have remained above seasonal levels as excess production continues to be stored away. Highlights through the first quarter of the production season include:
• EU private storage aid stocks of butter and skim milk powder continue to trend higher, increasing on a YOY basis for the 20th consecutive month during Jun ’16. Combined butter and skim milk powder private storage aid stocks of 139,000 tons finished at a seven and a half year high.
• In addition to butter and skim milk powder, private storage aid was also opened for cheese during Nov ’15. Cheese stocks within private storage aid have remained relatively flat since the reopening of the scheme, however, remaining at approximately 24,000 tons through Jun ’16.
• Skim milk powder prices declined below the intervention trigger price throughout the past several months, resulting in a sizable increase in volumes entering the scheme. Butter prices approached intervention trigger prices during Apr ’16, but have since rebounded.
Private Storage Aid
The European Commission reopened private storage aid (PSA) for butter, skim milk powder (SMP) and cheese during Sep ’14 in response to the expectation of price volatility generated from the sudden announcement of the Russian dairy import ban. PSA is a payment made by the European Commission to processors in return for keeping products in storage and withdrawn from the market for an agreed period of time.
In PSA schemes, processors retain ownership of the product but receive payments from the European Commission in return for keeping agreed quantities in storage and off the market. In return, processors are paid a rate of aid set by the European Commission that takes into account storage costs, normal depreciation of quality and any foreseeable increase in the price of the product. Temporary storage costs comprise of a fixed rate per ton, plus a set daily amount per ton. The product remains the property of the operators, who are then responsible for selling it when it comes out of storage.
PSA has historically been made available for only butter and SMP. PSA made available for certain types of cheese in Sep ’14 was repealed less than a month later due to a disproportionate surge in offers from cheese producing countries not traditionally exporting significant quantities of cheese to Russia. In the 18 days that the scheme was open, over 100,000 tons of cheese were offered, 84% of which was from Italy. At the end of April, only approximately 16,000 tons remained in storage under the scheme.
Most of the European Union’s additional production of dairy products is being directed into either butter or skim milk powder to utilize the PSA support provided from the European Commission. Combined butter and SMP volumes within PSA remained higher on a YOY basis for the 20th consecutive month during Jun ’16 as volumes reached levels not experienced since Sep ’08. Individually, butter PSA stocks finished up 32.6% YOY during Jun ’16 while SMP PSA stocks finished 122.7% above the previous year volumes.
Butter stocks within PSA reached 99,000 tons during Jun ’16, slightly below the recent high experienced during Aug ’15, while SMP stocks within PSA of 39,000 tons reached the highest figure on record during Jun ’16. In addition to butter and SMP, PSA for cheese was reopened during Nov ’15, allowing 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 remained fairly flat. Over 28,000 tons of cheese was initially put into PSA during Nov ’15 however, after peaking at 33,000 tons during February, volumes in storage have declined over recent month, reaching an eight month low of approximately 24,000 tons during Jun ’16.
PSA for butter and cheese is set to remain open until the end of Sep ’16, however the European Commission recently authorized extending PSA for SMP through Feb ’17. PSA schemes have been extended several times since being reintroduced in Sep ’14.
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 2015 scheme was extended until the end of Dec ’15 due to adverse market conditions. A new intervention campaign was then immediately reopened in Jan ’16, with volume limits reset.
The trigger price for butter intervention is €2,218/ton ($1.12/lb equivalent using a 0.90 USD/EUR exchange rate), while the SMP intervention trigger price is set at €1,698/ton ($0.86/lb equivalent using a 0.90 USD/EUR exchange rate). As of Aug 5th, average European butter prices are 44.3% above the intervention trigger price however average SMP prices are just 6.2% above the intervention trigger price.
EU-28 butter prices approached intervention trigger price levels during Apr ’16 but have since rebounded. SMP prices declined to below intervention trigger prices for the majority of 2016 and continue to accumulate as the low end of the market price range remains below the trigger price threshold.
Since the beginning of 2016, EU-28 SMP offered into intervention has risen dramatically as prices remained below the intervention buy-in trigger price. 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.
Similarly to PSA, the intervention scheme for butter is set to remain open until the end of Sep ’16, however the European Commission recently authorized extending intervention for SMP through Feb ’17. SMP intervention purchases are rapidly approaching the 24 year high of 260,000 tons experienced during 2009. Current volumes of 247,000 tons are 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.
Butter stocks within PSA reached 99,000 tons during Jun ’16, slightly below the recent high experienced during Aug ’15, while SMP stocks within PSA of 39,000 tons reached the highest figure on record during Jun ’16. In addition to butter and SMP, PSA for cheese was reopened during Nov ’15, allowing 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 remained fairly flat. Over 28,000 tons of cheese was initially put into PSA during Nov ’15 however, after peaking at 33,000 tons during February, volumes in storage have declined over recent month, reaching an eight month low of approximately 24,000 tons during Jun ’16.
PSA for butter and cheese is set to remain open until the end of Sep ’16, however the European Commission recently authorized extending PSA for SMP through Feb ’17. PSA schemes have been extended several times since being reintroduced in Sep ’14.
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 2015 scheme was extended until the end of Dec ’15 due to adverse market conditions. A new intervention campaign was then immediately reopened in Jan ’16, with volume limits reset.
The trigger price for butter intervention is €2,218/ton ($1.12/lb equivalent using a 0.90 USD/EUR exchange rate), while the SMP intervention trigger price is set at €1,698/ton ($0.86/lb equivalent using a 0.90 USD/EUR exchange rate). As of Aug 5th, average European butter prices are 44.3% above the intervention trigger price however average SMP prices are just 6.2% above the intervention trigger price.
EU-28 butter prices approached intervention trigger price levels during Apr ’16 but have since rebounded. SMP prices declined to below intervention trigger prices for the majority of 2016 and continue to accumulate as the low end of the market price range remains below the trigger price threshold.
Since the beginning of 2016, EU-28 SMP offered into intervention has risen dramatically as prices remained below the intervention buy-in trigger price. 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.
Similarly to PSA, the intervention scheme for butter is set to remain open until the end of Sep ’16, however the European Commission recently authorized extending intervention for SMP through Feb ’17. SMP intervention purchases are rapidly approaching the 24 year high of 260,000 tons experienced during 2009. Current volumes of 247,000 tons are 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.