Analysis dairy business
Butter market is still in a thick fog at the beginning of 2023
The pressure on butter prices will also continue in the new year. Depending on the origin, market prices move at or just below the limit of €5.000 per ton. Cream prices – as a liquid raw material for butter production – are now climbing out of the Christmas slump. It is expected that cream and butter will become more distant from each other in the coming weeks.
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In the penultimate week of 2022, cream was even cheaper than butter, according to DCA quotes. Historically, that is a rarity. Liquid dairy prices, including cream, suffered extremely badly from the Christmas dip this year. Processing capacity in the dairy sector clearly slows down during the holiday period, but due to the increased milk supply in Northwestern Europe, there was and is a large supply of liquid dairy. Bargain hunters could therefore make their move.
New Balance
At the beginning of 2023, the fat market will again be looking for a new balance. The first steps to this end have already been taken. While butter prices continue to decline, cream prices are on the rise again. Although butter prices fell sharply in the fourth quarter, it is not expected that a bottom will be reached in the short term. Inventories are oppressively large and purchasing interest is limited. Moreover, speculators are absent. The market seems too unpredictable to take major risks, even for short positions. Due to the erratic price movements in 2022, trading houses have generally become more cautious.
Just like in the cheese and milk powder trade, the butter market is also in the grip of inflation. It is difficult to estimate to what extent higher prices will lead to a drop in demand. A shift from branded dairy to private label is also visible. FrieslandCampina, not a small player on the European butter market, gave late December publicly admits that sales volumes are under pressure. Other processors prefer to confirm this 'off the record'.
Global market
In the global market, New Zealand's product is the most competitive in dollar terms. Since October, American butter has been more expensive than product from Europe. However, the butter market is declining on all continents. However, the European butter volumes that enter the world market are limited. Ultimately, the market is dependent on internal European consumption, which is still very difficult to estimate at the beginning of January.