Skim Milk Powder Gains a Premium Over Whole Milk Powder

International dairy prices have moved into an unusual pattern, with Skim Milk Powder (SMP) trading at a premium to Whole Milk Powder (WMP). SMP prices on the Global Dairy Trade platform and in spot markets have risen faster than WMP benchmarks, which have traditionally received stronger returns because they retain milk fat.

Manufacturers of food and drinks, clinical-nutrition products and sports-nutrition goods are seeking concentrated milk proteins for their formulations. This has increased the value placed on non-fat milk solids, which have generally been treated as a secondary stream. Demand for these ingredients is now influencing prices across several international trading centres.

China has provided an additional source of demand. Domestic milk-powder inventories there are estimated to have fallen by 40% to 50% after an extended period in which surplus stocks were absorbed. Lower collections from domestic farms have also reduced local supply. Regional buyers have consequently returned to international markets for spot SMP cargoes.

Export availability in the northern hemisphere has also become less certain. Summer drought and heatwaves in major European dairy regions have reduced milk-component yields. Farmers have begun using winter feed reserves earlier than usual, while European co-operatives have had less surplus milk available for drying into powder. The resulting reduction in export-grade SMP supplies has added to market pressure.

Commodity analysts said the price relationship creates manufacturing incentives for integrated processors, including Fonterra and European dairy co-operatives. Processors can allocate milk pools to skim-powder production while separating cream and producing higher-value anhydrous milk fat. This approach allows them to manage the returns from different milk components and maintain farmgate milk prices.