Butter market appears to be susceptible to Irish price pressure

The DCA quotation for butter was recently well above €7.000 per tonne, but has now fallen back to recently above €6.000 per tonne. For delivery in the new year, the price is at least €500 lower. The butter price has clearly taken a turn for the worse. The decline started a month ago, although such a large price drop was not yet in the air at the time.

Inventories are running out
Producers are annoyed by the sharp price drops and see their stocks rapidly decreasing in value. They often point an accusing finger at trading houses that have shaken the market in Northwestern Europe with cheap products from Ireland. This indeed seems to be one of the causes, but it is not the only one.

Until recently, butter supplies on the European continent were still described as tight, but that tightness is a thing of the past. Stock building is also obvious in the coming months, now that the milk supply will increase again seasonally. In addition, dairy producers process a lot of milk into butter. In the first 8 months of this year, Dutch butter production increased by 2,7% to just under 100.000 tons. 

The butter market cannot escape the price pressure that is affecting the dairy market across the board. This is fueled by concerns about possible loss of demand as a result of high inflation. Another point that puts pressure on the butter market is the sharply lower prices for vegetable oils that can be a substitute for cooking butter. In short: the butter market is facing headwinds, although the pastry industry will not be adversely affected by this. In mid-November the price pressure appears to level off somewhat. Buyers are in little hurry to hedge, as the market is too fragile for a renewed price rebound. Selling parties are also reluctant to make offers and thus put further pressure on the market.

American butter prices are also breaking
In the United States, butter prices have held up well in recent weeks at record levels above $7.000 per tonne, but last week the market fell through this psychological limit. In addition to a lower physical butter price, the futures market in Chicago also fell sharply. This appears to be a correction to the high prices. Butter inventories in the US are at their lowest in 4 years and 18% lower than last year. This has driven prices in stores to great heights. Overall US food inflation was 11% in September, while butter prices were up more than 25%.

The shortage is expected to decrease, now that the American milk supply is showing growth figures again. The butter price had already been significantly discounted on the Global Dairy Trade, which means that product from New Zealand has suddenly become interesting again for buyers in Europe.