Due to a combination of a solid milk supply, weak demand in the EU and a relatively low price level for exports, the butter market continues to feel weak. Extra solid stocks are also detrimental to pricing. Nevertheless, the butter quotation has been able to recover somewhat in the last few weeks and the butter price on, for example, the Global Dairy Trade (GDT) is relatively more resistant to pressure.
According to traders, butter stocks in the hands of various private parties have increased considerably. This is confirmed in a report by the European Milk Market Observatory (MMO). Traders and producers indicated that butter supplies had already reached their highest point in four years in April this year (200.000 tons+). Since then, stocks have increased even further.
Nevertheless, there have been fairly good butter exports compared to previous years, helped by the prices that have now fallen again. Both to Asia and to the Middle East and North Africa. However, Europe did encounter increasing competition in many export markets, particularly from New Zealand. Due to decreased sales of whole milk powder to China, that country has started producing and selling more skimmed milk powder and butter to other destinations. But even despite this situation, the EU has still been able to export a relatively large amount of butter this year.
Dairy produced more butter
The problem is that EU producers also produced relatively more butter and skimmed milk powder this year, because they thought it was an attractive combination of value creation. Now, thanks to the relatively low butter price (especially compared to last year), bakers have bought more butter again, but there is still a fairly large supply hanging over the market. A small windfall for butter suppliers from the Netherlands, Belgium and Germany is that the pressure from Irish and Polish suppliers in particular appears to be slightly less. Their prices are now also more in line with the prices of providers in our region.
It remains difficult to say how the market will develop in the coming weeks. Much depends on what has been agreed in the contract negotiations between German retail and dairy there. The new German butter prices will form a strong beacon in the market. At the latest Global Dairy Trade auction this week, the price index for butter fell by 3%, but this meant that butter held its price better than the other dairy commodities on offer.