Continuing high whey protein prices driven by strong demand

Apparently it's not just a fad among food product formulators. If the current market condition is any indication, demand for whey proteins is here to stay.

At the beginning of 2000, whey protein concentrate (WPC)-34% prices were at rock bottom levels. But in the first half of 2000 they rose about 30 cents to the mid-70 cents per pound range, where they currently are. Demand — and along with it, prices — also has been strong for the more expensive WPC-80% protein, which is used in many nutritional products.

"We're starting to see the sports nutrition market going mainstream," says Chris Snyder, vice president, ingredients division, Proliant, Ames, Iowa, which deals with the high-end proteins.

While demand for the two products isn't lock-step or identical, the overall demand for whey proteins is affecting both products, as well as other forms of whey proteins on the market, industry leaders say. Jerry O'Dea, general manager, Glanbia Ingredients, Monroe, WI, says that part of the pressure on the WPC-34 price is because more production is going into the higher protein products, making less product available for WPC-34 production.

Gary Jacobs, director of purchasing, Century Foods International, Sparta, WI, also notes that this is occurring.

The demand isn't good just in the United States, either, he and others note.

High-end whey proteins from New Zealand and Australia that normally move into the U.S. market in the latter part of the year were significantly reduced, while demand in the United States and overseas continues strong as well, says Dennis Kasuboski, vice president of sales, Alto Dairy Cooperative, Waupun, WI.

"The whole dairy protein complex worldwide is strong," adds Jacobs.

"Protein is number one on our shopping list," agrees industry analyst Jerry Dryer of Chicago.

While nonfat dry milk (NDM) prices in the United States have been stagnant due to the price support program, the fact that NDM/skim milk powder is in high demand around the world and at higher prices than have been seen in the past is making WPC-34 an attractive alternative for many international buyers as well.

WPC-34 was once seen as an inferior substitute for NDM, but more has become known about the nutritive value and the improved functionality WPC can impart in many applications, O'Dea says.

In keeping with this proven functionality, a lot of Leprino Foods' customers are increasing their use of whey proteins, says Phillip Smith, director of whey products sales and marketing, Leprino Foods, Denver. While it's not completely possible to track whether it's new products the whey proteins are being used for or as a substitute for other proteins, Smith says it appears many of the whey proteins are replacing other milk solids.

Still, it's not just replacements for other dairy proteins but also new uses that's driving whey demand, Dryer says.

Rick Kaepernick, vice president and general manager-whey, and chief learning officer, Hilmar Cheese Co., Hilmar, CA, says that much more has become known about whey proteins. He also believes there is a lot of unearthed potential for them.

"I think we're just finding out the benefits. We've scratched the surface, but we have some more scratching to do," he says.

While it's clear that demand for the WPC products is good, the whey powder market (12% protein) also is seeing strong demand. Many industry leaders suggest that in part it could be a trickle-down effect due to demand for higher-protein products.

"It's all related. You're looking for those solids and one demand can pull up the other ones," says Kasuboski, who also notes that when prices are high some customers usually look to substitutions like lactose and permeate. But customers seem to be resisting that for now, he says.

On top of that, Jim Hahn, director of dairy policy, Land O'Lakes, Arden Hills, MN, notes that the low price of cheese has pulled some milk away from the vat, resulting in less whey as a by-product and further tightening the market.

In addition, recent international developments also appear to be increasing the demand for whey powder and WPC-34 on the world market. The European Union (EU) has agreed to ban the import, export and use of meat and bone meal for animal feed for at least six months due to the bovine spongiform encephalopathy scare. That in turn has boosted the demand for other proteins including whey solids, says Smith. A lot of EU product is staying in the EU, which means that others are looking to buy product that they normally sourced from the EU.

O'Dea expects the price of WPCs to stay strong for some time — at least through the second quarter. He further notes that market fundamentals suggest the market staying relatively strong through the year. That's assuming of course that there aren't changes in the government's approach to the price support program that could affect the NDM price and availability, he says.

Dryer believes all whey protein prices will continue as high or higher because of the shortfall of protein.

In addition, a lot of the world's markets are recovering and are demanding whey products.

"One point not enough people understand," Dryer says, "is that we are now a pretty significant player in the international business."

The United States, he notes, exported 13,644 metric tons of whey protein concentrates and modified wheys in the first nine months of 2000. In addition, 127,565 metric tons of whey were exported from the United States in the first three quarters of this year.

Snyder also believes that the market will stay strong, noting that demand for whey proteins has grown continuously since Proliant entered the business in the early 1990s. He notes that this will be an important year to watch how demand holds up if the U.S. economy slows down.

"But our best guess is that it will still fare well in a possible down economy," he says.

Jacobs agrees.

"The food industry is probably as recession-proof as anything," he says.

Kaepernick believes the longer-term future looks strong, too. Although there are several new plants being built in the West that plan to produce high-protein whey products, Kaepernick believes that the demand is such that it will be able to absorb that growth, particularly if the skim milk powder price stays high.

"It's not like we're all making the same product," Kaepernick says. "I think individual companies will find their market and what they're good at. If that happens, then supply will be balanced."

Smith believes there will continue to be a shortage this year. In the long run, though, he believes supply and demand will shift back into balance and buyers will become more selective. CMN

Other top stories in this week's issue of Cheese Market News:

• International dairy trade affected by both internal, external forces
• November cheese production dips below year-earlier level
• Bush's HHS, EPA picks will be key for dairy issues