Global commodity prices ticked up in September, according to ANZ Research, with the bank's World Commodity Price Index rising 0.6% from the previous month. The modest overall gain masked sharp divergences within the dairy complex, where skim milk powder jumped 9.2% while butter fell 5.1%.
ANZ, one of Australia's largest banks, compiles the index to track price movements across a basket of globally traded commodities. The September increase was driven largely by higher oil and gas prices and more expensive freight, which raise the cost of producing and transporting goods worldwide.
Why dairy is diverging
The contrasting moves in skim milk powder and butter reflect different market dynamics. Skim milk powder is produced by drying milk into a storable powder, a process that is energy-intensive. With natural gas and electricity prices elevated, the cost of that drying process has climbed, pushing up the price of the final product.
Freight costs also play a significant role because skim milk powder is widely traded across borders. When shipping rates rise, those costs quickly feed into the price buyers pay. ANZ noted that skim milk powder is up more than 41% over the past year and has been tracking oil prices more closely than butter has.
Butter, by contrast, is more tied to the supply of raw milk. ANZ said higher milk production in the Northern Hemisphere has weighed on butter prices, leaving them down more than 29% year over year. With more milk available, butter makers have ample supply, which keeps a lid on prices even as input costs rise.
What it means for your grocery bill
For everyday investors, the most direct impact may be at the supermarket. Skim milk powder is a behind-the-scenes ingredient in a wide range of processed foods, from baked goods and sauces to snacks and ready meals. Even if you don't buy the powder directly, its price can influence what manufacturers pay for dairy inputs, and those costs often show up in the final price of packaged goods.
That means a cheaper butter aisle doesn't necessarily signal broad relief at the grocery store. If manufacturers are still paying more for dried dairy ingredients, they may pass those costs along to consumers in other products.
The broader rise in commodity prices also has implications for inflation. When energy and freight costs climb, they can push up prices across many goods, not just dairy. That is a trend investors have been watching closely, especially as central banks weigh interest rate decisions.
Recent data on the US labor market has been mixed, with September jobs missing forecasts, which could cool expectations for further rate hikes. However, if commodity prices continue to rise, they could keep inflation pressures alive, complicating the picture for policymakers.
What investors should watch
For investors, the key takeaway is that commodity prices remain sensitive to energy costs and supply conditions. The divergence between skim milk powder and butter highlights how different commodities can move in opposite directions based on their own supply-demand fundamentals.
Investors with exposure to agricultural commodities or food producers should keep an eye on energy prices, as they are a major cost driver for processed dairy. Similarly, freight rates are worth monitoring, as they affect the competitiveness of exports and the cost of imports.
The ANZ index's modest gain in September suggests that, while commodity prices are not surging broadly, they are not falling either. That could mean continued pressure on food prices, even as other inflation measures show signs of cooling.
For those tracking the broader markets, the commodity move comes alongside other developments, such as corporate bond prices sliding and sugar prices hitting an 18-month high. These are all pieces of the puzzle for understanding where prices and the economy are headed.
In the end, the September data is a reminder that commodity markets are complex, and a single index number can hide significant variation underneath. For investors, the lesson is to look beyond the headline and understand the specific drivers affecting each commodity.
