How America is to blame for the dairy market crash

US butter has fallen to $3.855 per ton, its lowest point since the summer of 2021. The decline began in both Europe and the US in mid-July. Since then, the US butter price has fallen to $1.758 per ton, a drop of over 30%. In Europe, the decline was greater in absolute terms, but smaller in relative terms, as prices there came from higher levels.

10% more production
The price drop is not so much a consequence of weakening demand, but is mainly due to the rapidly rising American milk production. This was more than 3% higher in September than last year and reached a new record. In addition, milk has increased over the years. increasingly fatter Butter production in July was almost 10% above last year's level. The rapid increase in production is partly due to additional production capacity built in recent years. For example, Dairygold opened its largest plant in the northwest US in June. Due to the rapid production, butter inventories in cold stores are also increasing, although to a lesser extent.

Netherlands major buyer
Part of the production increase is sold on the global market. From January to July, exports doubled to over 42.000 tons. Remarkably, the Netherlands became the second-largest market in the first seven months, importing even more butter than neighboring Mexico. In July, The Netherlands As much as 1.364 tons of butter, while in the same month a year earlier, only 5 tons were imported. In recent years, monthly imports have never exceeded 100 tons and have often been much lower.

The imported volume in July was almost 15% of Dutch production that month, which accurately reflects the volume. Not entirely coincidentally, the European dairy market showed its first cracks that month, culminating in a sharp crash. This began with butter and spread to cheese. 

The increase in imports is due to the large price difference and the strong euro. In the second and third quarters, the price difference amounted to the equivalent of almost $3.000 per ton. Price differences are common, but not of this magnitude. This made it extremely attractive for Dutch trading houses to import American butter, largely intended for industrial applications rather than retail sales. 

Incentive waived
Because the European and American butter markets are declining almost simultaneously, the price difference is still $2.500 per tonne in mid-October. This means that, on paper, importing American butter remains attractive. However, it remains questionable whether trading companies will continue to import large volumes from the US. The rapid price drops are currently making it difficult to manage transport times, which often take several weeks. Moreover, the shortages on the European market are a thing of the past for now, so the incentive has somewhat diminished.