Dairy Processing - November/December 2022 - 60

COMMODITIES
riding
the recovery wave
Dry milk powder prices are largely driven by global supply and demand.
by Nate Donnay | nate.donnay@stonex.com
T
here are a wide variety of milk powders, each with their
own supply, demand and price dynamics. For instance,
rennet casein prices are still at or near their record highs
while dry whey prices are near two-year lows.
In general, milk powder prices have been trending lower
over the second half of 2022 as milk production recovers from a
period of decline and demand has pulled back. The US exports
more than half of the milk powder it produces, so prices are
largely driven by global supply and demand dynamics.
NFDM AND SMP
This is the main milk powder produced in the US and Europe.
In the US, the FDA sets the specification for nonfat dry
milk (NFDM), which is typically around 36% protein, but
internationally CODEX sets the standard for skim milk powder
(SMP), which is usually around 33% protein. Otherwise, they are
effectively the same product, and the US does produce both.
The powder is exactly what it sounds like, remove the fat
from the milk and dry the remaining solids into a powder. NFDM/
SMP is typically used in food applications like yogurt, cheese, ice
cream and dry baking mixes. From January to September, the US
exported 72% of its NFDM+SMP production. However, exports
were weaker than expected in the second and third quarter
which has allowed inventories to build a bit in the US and EU,
which has weighed on prices.
From a long-term perspective, inventories aren't heavy, but
they were up about 5% from last year in September in the US
and up an estimated 2.5% in Europe. Buyers have been sitting on
the sidelines as prices have trended lower. The odds of prices
moving sharply higher in the first quarter look limited, but
inventories aren't heavy.
DRY WHEY
Dried whey is typically around 12% protein, and the food
applications are often the same as NFDM/SMP.
From January to September, the US exported 50% of its dry
whey production. The price peaked at a record high in February
and has been trending down since. The biggest single use of dry
whey in the world is for feeding pigs in China. The dynamic zeroCOVID
policies in the country have reduced food service sales
this year, which is hurting pork demand in the country. Dry whey
prices in the US and Europe have stabilized in early November
and could start to recover as Chinese whey demand improves.
WHEY PROTEIN CONCENTRATES AND ISOLATES
The protein level can range between 25% to 89% for whey protein
concentrates (WPC), while whey protein isolates (WPI) are
typically 90% or higher. WPC/WPI is sold directly to consumers
as a supplement, used in processed foods to increase protein
content, and used in some dairy products.
Domestic demand for these products bounced higher last
year as gyms reopened, which tightened stocks and drove
prices to new record highs during the first half of 2022. The
high prices have encouraged more production and hurt
demand. Inventories of high protein WPC and WPI have been
building and prices have been weakening in late 2022. There is
likely more downside for prices as we get into early 2023.
There are a whole variety of other milk powders out there
like lactose, dry permeate, casein, caseinates, buttermilk
powder and whole milk powder. Maybe the biggest driver of all
is Chinese import demand. Stronger domestic milk production
in China, cooling economic growth and changing consumer
patterns have been a drag on global dairy demand during 2022.
Late in the year it looks like the demand is stabilizing, which
would generally be positive for milk powder prices going into
2023. But it's also possible the recent stability we've seen in
Chinese imports late in the year is only temporary and we could
still see imports (and prices) drop again in early 2023.
Editor's note: This material should be construed as market
commentary, merely observing economic, political and/or
market conditions.
Nate Donnay is the Director of Dairy Market Insight at
StoneX Financial Inc. and has been applying his expertise
in large complicated systems and statistical analysis to the
international and US dairy markets since 2005.
DAIRYPROCESSING.COM | NOV-DEC 2022 59
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Dairy Processing - November/December 2022

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