Due to the current high stock levels, the Commission have implemented a temporary change to the fixed buying-in price for SMP, reducing it to zero for the 2018 window (1 March - 30 September).
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The effect of this change is it allows the Commission to limit (or avoid) any further stock accumulation.
Typically, the Intervention scheme allows the European Commission to buy in 60,000 tonnes of butter and 109,000 tonnes of SMP between 1 March and 30 September each year, at set prices of €2,217/tonne and €1,698/tonne respectively.
The aim of the policy is to provide a minimum floor in the market during times of low pricing. After the volume limit is reached, product can be offered into intervention through a tendering process if proposed by the Commission.
At the most recent tender on 17 July, offers were made of the purchase of 27,768 tonnes. At the minimum sale price of €1,125/tonne set by the Commission, a total of 2,408 tonnes were sold. The Commission currently include all stocks which have entered into public storage up to 1 June 2016. The total volumes available for the 28 August tender is estimated at 118,907 tonnes.
Demand for SMP intervention stocks dwindled at the most recent tender, with only 2,408 tonnes sold at the minimum price of €1,125/tonne. This is the second lowest volume sold in a tender this year and a considerable drop off from volumes sold at the previous three tenders
Prices offered for the stock varied between €958-€1,200 per tonne, the narrowest range between bids seen this year. However, the small volume of sales suggests most of the offer prices fell below the minimum price set by the Commission.
The minimum price set by the Commission for intervention stocks has generally tracked movements in both fresh and feed grade SMP markets.
In the week of the July tender, movements in two markets diverged with feed grade SMP prices down 11% (€150/tonne) from the time of the previous tender and fresh product prices down by only 2% (€19/tonne).
Interestingly, the minimum intervention selling price fell by 6% (€70/tonne) from the previous tender, equal to the average of the movements in the two markets. ■