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MILK
POWDER PRICES DIVERGE
The prices of whole milk powder (WMP) and skim milk powder (SMP) once moved in unison but for the past few years the prices of these two dairy commodities have
not been as closely aligned. Strong consumer demand for milkfat products, such as butter, is the key reason why the prices of these two milk powders products no longer move together.
Figure 1: Global dairy commodity prices
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Source: NZX WMP SMP Butter
Extremely high butter prices have encouraged additional butter production. But when more butter is manufactured then something must be done with the non-fat portion of the milk. The simplest long-term way of storing skim milk is to extract the water content and turn it into SMP (or non-fat dry milk). Non-fat dry milk and SMP are virtually the same product. Non-fat dry milk is what this product is typically named in the United States. Whereas the global market tends to trade in skim milk powder. minimum protein level whereas non-fat dry milk does not.
The growing demand for butter has not been matched by an equivalent lift in demand for skim milk powder. This has resulted in large stocks of milk powder forming in Europe and the United States. The excess supply, relative to demand, also means the price of this product has been low for an extended period of time – relative to other dairy commodities.
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26 | ADMISI - The Ghost In The Machine | July/August 2018
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