Fat-filled powder still offers higher return than SMP or WMP

Published 28 June 19

Fat-filled milk powder (FFMP) is still offering a milk equivalent value higher than both skimmed milk powder (SMP) and whole milk powder (WMP), although the premium has reduced significantly over the last year.

FFMP is particularly attractive to processors when butter prices are high, and SMP prices are low, as it allows them to add value to the SMP, while still gaining a return from the fat. Last year, we reported on the growing appeal of FFMP that was allowing processors to offer a more affordable alternative to WMP.

However, in the last year the markets have shifted considerably. EU butter prices have come back from record highs, while SMP prices have risen after the clearing of intervention stocks.

The difference these price shifts have had on returns from each milk powder (as well as butter and buttermilk powder) can be seen in the chart below. This shows the estimated gross milk price equivalent; the return in euro cents per litre of milk based on commodity prices and product yields, but excluding any production costs. 

 FFMP grossMPE

By these estimations, the returns from producing SMP/butter or FFMP/butter both fell in line with falling butter prices, which outweighed any increase in powder value. In contrast, the return from producing WMP has increased. As a result the increase in gross return from producing FFMP compared with WMP has fallen from 6.2€c/L to 3.6€c/L.

The calculation does not take into consideration the cost of production. The cost of producing FFMP will vary greatly depending on the process used. If SMP is re-constituted before blending with oil and re-dried, the total processing costs for FFMP could be significantly higher than that of SMP or WMP. Under such circumstances, the current premium for FFMP could easily be diminished.

 

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