In a very large bowl, beat peanut butter, honey, oil and egg with an electric mixer on low to medium speed until combined. Add dry milk powder, cracker crumbs, oats, wheat germ and baking powder; beat until combined.
Add flour to beaten mixture; beat on low speed, stopping to scrape bowl as necessary (mixture will be crumbly). Add as much of the water as needed, 1/4 cup at a time, beating until the dough clings together. (Dough should be moist but not sticky.)
Remove dough from bowl. Turn dough out onto a well-floured surface. Knead dough gently 8 to 10 strokes until nearly smooth. Form dough into 4 balls, then shape each ball into a 1-inch thick rope about 8 inches long. Wrap each rope in plastic wrap; chill for several hours.
Cut dough ropes into 1/2-inch pieces.* Place pieces on greased baking sheets. Bake in a 300 degree F oven for 15 to 20 minutes or until edges are firm and bottoms are browned. Cool on wire racks. Let stand, uncovered, on racks overnight before packaging.
Store at room temperature in airtight containers up to 3 weeks. Or, label containers and freeze for up to 3 months. Makes 64.
*For smaller pets, cut ropes lengthwise into quarters before slicing.