A booming world market and declining domestic production has allowed the EU to clear its once huge stocks of skim milk powder and slash export subsidies. Intervention stores, which traditionally have held at least 100,000t of SMP and often over 250,000t, are now empty. In addition, Brussels has been able to cut the export refund by two thirds since the beginning of August. Tight supplies mean that EU domestic SMP prices are now currently close to 50% above the official EU intervention price, which is currently equivalent to £1,240/tonne. Normally prices for the milk powder are held close to the intervention price by an oversupplied market. In all the buoyancy of the world market has meant the refund will have been more than halved since the autumn of last year from 90 euros/100kg to the latest level of only 40 euros/100kg. With dairy processors facing reduced raw milk supplies and continuing firm demand for liquid milk, fresh products and cheese, butter and SMP production has become relatively less profitable. The static butter and cream market means less butter and its byproduct SMP are being produced. Cheese production, which competes with SMP manufacture for milk solids, has also increased by 120,000t in the last six months. Overall this has meant a 40,000t reduction in SMP output in the period. The world market is unusually tight due to increased demand from Asia, reluctance of the US to subsidise the export of its SMP surpluses and the seasonal reduction in supplies from New Zealand and Australia. {{PROVISIONS }}

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