Record in butter price opportunity or smokescreen?

Due to all the developments surrounding phosphate, there is less attention for the milk price. This means that the price of butter could rise to a record without being noticed. In 2007, a record of 4.370 euros per tonne was achieved, in week 19 of 2017 the price reached a level of 4.600 euros per tonne in the ZuivelNL quotation. The current price is already higher at 4.800 euros per tonne.

Price gets wings
The high prices are mainly supply-driven. An incorrect estimate of the milk supply has resulted in more product being sold in advance than is now available. The contracts must be fulfilled and have therefore given the price wings. 

A development that is not ignoring the spot market, because the cream price has also taken off. Prices for week 19 continue to an average of 5,625 euros per kilo ex works. It all sounds very nice, but at the same time skimmed milk powder still disappears in intervention.   

Intervention and record butter price?
It turns out to be the second half of an explanation of the situation in which the milk market finds itself. In 2007, skimmed milk powder reached an absolute record at 3.830 euros per tonne. The price currently does not exceed 1.790 euros per tonne and intervention has prevented the price from falling below 1.700 euros. 

Due to the poorer results in milk powder and skimmed milk concentrate, processors largely chose to avoid these manufacturers. This automatically reduced the supply of cream. In line with this, April did not produce any butter stocks, although that is usually normal, and the market started to rise. Add to this that several regions in the European Union are experiencing unusually cold and dry weather. As a result, milk supply is lagging behind forecasts.    

Higher price for Gouda
In recent weeks, other manufacturers have started to benefit from the disappointing milk supply and protein prices are picking up again. The cheese market also has to make do with fewer liters in combination with good demand. In Germany, the price of Gouda therefore rose to 3 to 3,20 euros per kilo. On the daily market the price rises to 3 to 3,10 euros per kilo. Inventories are negligible upon inquiry. It gives cheesemakers a comfortable starting point.  

Due to the higher prices for all products, the price for spot milk is also increasing. In the Netherlands, for example, the lower price rises to 33 euros with a higher price of 34,50 euros per 100 kilos of milk. This is delivered at 4,4 percent fat. It yields an average of 33,75 euros. In the north of Germany the price increases to 32 euros at 3,7 percent fat and in the south it yields 32,50 euros per 100 kilos of milk. 

Unusual weather
However, the basis is still fragile and players continue to watch the market with suspicion. The unusual weather in particular brings uncertainty, because how much milk will be produced when more growing weather eventually presents itself.

Another danger that looms in the butter corner is a loss of demand due to higher prices. It encourages butter users to look for alternatives. In 2008 and 2009 this heralded a price fall. After that, processors had little success in winning back customers.    

No final price yet
It results in a market with a predominantly positive undertone. Supplies remain limited and the market only records higher prices around the peak of milk supply. Higher milk prices are then almost inevitable, which in turn raises the question of how dairy farmers will respond to this. An increase in demand for dairy is what is needed for the market to definitively choose a course. However, the basis of the price is positive.  

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