Production spurt hits the butter market in the wheels

Butter prices are clearly in a downward spiral. Price pressure increased at the end of September and continues today. Since then, €1.500 has already evaporated. The ZuivelNl quotation is already below the level of €5.500 per tonne, the DCA quotation is still just above that, but will probably also drop below that limit. 

Significantly more production
Just like the cheese and milk powder market, the butter market is plagued by a lack of demand. This is a result of high inflation, which puts pressure on purchasing power. The weak demand is reinforced by increasing inventories. Butter production in our country is on the rise and fast.

In September, 11.757 tons were produced, an increase of more than 25% compared to the same month last year. This means that butter production is increasing much faster than the milk supply, which increased by just 4% last month. The extra butter production is mainly at the expense of whole milk powder. Never before has so much butter been produced in September as this year. Not even in 2017 when milk production almost overwhelmed Dutch processors.

The rapidly increased butter production can be explained by the high energy prices in the form of gas, which makes powdering milk expensive and therefore uninteresting. Furthermore, the butter price was still high in mid-September, while the milk powder market was already showing cracks. This development likely motivated processors with flexible capacity to process additional milk into butter.

Growing production means that tight inventories are a thing of the past. The supply will probably only increase further in the coming months, in line with the increasing milk supply that will only peak in May. This idea allows buyers to wait and see and wait for lower prices. Especially because a lot of winter butter, from Ireland and New Zealand, is currently offered relatively cheaply. It is still difficult to estimate at what price level the butter market can stabilize. Much will depend on the contract negotiations for the first half of 2023 that dairy products and retail are currently conducting.

Global market
On the world market, the price of European butter, expressed in dollars, is between the United States and New Zealand (Global Dairy Trade). New Zealand butter is by far the most competitive, which makes it interesting to ship it to Europe. The sky-high prices in the United States are now also falling again, after recent major shortages that were even reported in the national media. In the meantime, tight supplies have eased somewhat, according to figures from the American Department of Agriculture (USDA).