Analysis Butter
Butter market is aiming high for 2022
A new price record is not yet within reach on the butter market. Still, the odds are (historically speaking) very high. It also doesn't look like the market will fall any time soon. For 2022, selling parties are aiming high. This is not out of luxury, but dire necessity due to the expensive cream.
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Since the summer, butter prices have risen sharply, just like the major dairy products (cheese and milk powder). The DCA quotation for butter rose almost to the level of €5.500 per tonne at the beginning of November, then fell back a bit and then resumed its upward trend. Butter is trading between €5.400 and €5.500 per tonne in mid-December. This is almost €2.000 per tonne more expensive than last year. Due to tightness, the market is moving back to the extremely high levels that were common in 2017 and 2018.
Nevertheless, these are challenging times for butter producers - without their own milk supply. Due to the extremely tight milk supply, cream prices have risen even faster than butter prices in recent months. The 'gap' between cream and butter is currently almost €1.500 per tonne. Under normal market conditions this is half. Cream prices were expected to fall from mid-November, reflecting rising seasonal milk supplies. This does not or hardly happen yet.
Futures market over physical market
De futures contracts on the EEX, with settlement in 2022, are currently above physical prices. This indicates that the floor under the butter price is quite firm. Market participants expect further price increases. In a sense, this is special, since the market is still supported by the traditional Christmas demand. However, within a few weeks it flew. In addition, the seasonal milk supply in Europe is also increasing again, although the gap with previous years is large in many important production countries.
Butter producers are aiming high for delivery in the generally weak first quarter before the new year. Prices are aimed at in a range of €5.600 to €5.800 per tonne. Such high prices at this time of year are unique. The fact that producers require a premium is not a luxury, but a necessity. Due to the high cream prices, producers' margins are under pressure. For the time being, they are failing, buyers are not yet prepared to do business at these levels. The game is on, the closing stages of 2021 and the start of 2022 certainly don't promise to be boring.