UK SMP prices being influenced by exchange rates

Published 8 August 19

The recent weakening in the value of sterling has meant UK prices for skimmed milk powder (SMP) have risen faster than those in the EU. With large portions of our SMP exported, currency movements have a big impact on UK prices.

EU SMP prices have seen large increases since the start of 2018, with prices in June up by €632/tonne (45%). The reduction of intervention stocks over the last year or so, along with lower production, has led to increasing prices as supplies become tighter.

UK prices typically track trends in the EU as the markets are closely integrated.  Recently however, currency movements have meant UK price trends have diverged from what is happening in the EU.

Exchange Rates

In the second half of 2018, sterling weakened in value relative to the euro due to uncertainties around Brexit outcomes. As a result, UK prices rises saw larger increases than EU prices rises.

This changed in the first few months of 2019, when sterling strengthened in value, particularly in the weeks approaching the 31 March deadline. In contrast to the small increases seen in EU SMP prices, average prices in the UK SMP eased off.

Since the extension of the Brexit deadline, sterling has weakened again with the now-increasing likelihood of a no-deal outcome. This has, once again, meant UK SMP prices have seen larger increases than those in the EU.

Alex Cook