Will Butter Price Survive Bitcoin-Like Crash?

You can easily compare bitcoin, referring to the erratic price movements on both markets. The fact that this comparison is certainly not flawed was once again apparent in recent weeks when the price of butter fell. 

In the past 10 weeks, the DCA butter quotation fell to €2.550 per tonne, which represents a loss of 30%. Such low levels have not been seen since 2016. In the background, cream prices also plummeted. The reason for the unreasonable downgrade is the measures taken by governments to suppress the coronavirus. The loss of sales to the food service is a major loss. The additional sales to retail cannot nearly compensate for this.

Ample stocks
But even before the corona crisis, the butter price already felt weak. Supplies are depressing, both in Europe and the US. According to the United States Department of Agriculture (USDA), 300 million pounds of butter were stored in February, significantly more than in previous years. In addition, stocks continue to rise until June, paralleling seasonal milk production. In Europe, stocks are - unfortunately - not actively monitored, but friend and foe agree that they are sky-high. Fueled by ever-increasing production, there was 2014% growth across Europe between 2019 and 10 to 2,2 million tonnes.

Finding storage space for butter is increasingly a problem. After all, due to the corona crisis, meat and fries sales have also fallen sharply, making it urgent for cold stores. As a result, storing butter is becoming increasingly expensive, traders and producers indicate.

Little prospect of recovery
After a significant downgrade, an upward correction often takes place. That has now happened, the DCA listing increased this week by €100 to €2.650. However, looking at the EEX Futures, a recovery is not possible. Traders also currently believe that the butter price has little potential for increase. Partly because cheese prices are also under considerable pressure and processors are therefore fleeing to other products, including butter.

Although finding storage space for butter is difficult, aged cheese has to come off the shelf at some point. That is even more urgent. Due to a lack of sales, butter stocks are likely to increase further in the coming months, hand in hand with the seasonal peak in milk. The growing butter consumption in many (non-Western) countries cannot possibly compensate for this.

Does intervention provide relief?
Market parties can sell butter to the European Commission for €2.220 per tonne. That is not much less than current market prices. It is therefore not unlikely that there will soon be formal intervention stocks. The question also arises as to whether this will provide any relief, given that the intervention only applies to a fairly limited volume of 50.000 tons. In addition, intervention stocks are often a hindrance when prices pick up again.

While European processors choose to process the milk into basic dairy products during this time of crisis, various American and Canadian processors let the milk run down the drain due to a lack of sales. This feels a bit uncomfortable from an ethical point of view, but the market can probably recover more quickly once the corona crisis is over.

While bitcoin is now on the decline after the corona crash, all signals are still red for the price of butter. For now, all eyes are on a possible support package from Brussels, although some market parties doubt whether that is where the solution should come from.