Analysis dairy business
German retail anticipates a sharp fall in butter price
The butter price has recently regained firm ground, but it was preceded by a free fall. Although the market is somewhat accustomed to volatility, this downgrade hit the dairy sector hard. Large German retail groups are processing the falling prices towards consumers in order to counteract the drop in demand.
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As has been known for some time, the combination of inflation and the sharply increased milk supply in Northwestern Europe are weighing heavily on the dairy market. Significant write-downs have taken place in all product categories in recent months. The market also fell rapidly in the generally weak month of January. Meanwhile, the DCA quotation for butter has stabilized, briefly below the level of €4.200 per tonne. Irish and Polish products are offered considerably cheaper. On balance, about 40% of the market value has evaporated since last summer.
Clogged volumes
The turnaround in the market is partly a result of speculative volumes that were reserved to benefit from higher, rising prices. However, when the market slips, these 'hidden volumes' are offered at an accelerated pace, reinforcing the negative price spiral. Especially when milk production increases significantly, dairy companies have very little ammunition to stop the price fall.
For butter customers, such as bakeries, the price development is a desirable development. After all, they see the cost price falling. Supermarkets have also made quite a stir in recent months by talking down prices by calling for as few (contracted) volumes as possible. Not incomprehensible, because they saw their sales volumes shrink due to the sharply increased butter prices on the store shelves. Large dairy groups such as FrieslandCampina and DMK publicly reported the drop in demand, while other parties off the record announce that the butter stocks are quickly piling up.
Aldi and Kaufland reduce butter prices
Due to the rapidly falling butter prices, supermarkets now have more room to breathe. This week, German discount retailers Aldi and Kaufland announced that they will reduce consumer prices by 20%. For example, Milsani butter at Aldi will drop from €1,99 to €1,59 per 250 grams as of February. The discounters aim to do this to stop the drop in demand. Whether this produces results is anyone's guess. For the time being, butter prices appear to have found a bottom, although the market still looks relatively unstable.