Demand drives up butter price
Commodity passes US$6000 per tonne
Consumers face higher butter prices after the commodity broke through US$6000 per tonne at the latest Global Dairy Trade auction — the highest since the trading platform was established in 2008.
Food price index data showed prices paid by consumers for butter in June hit a record $5.05 for a 500g pack, compared with the previous record a month earlier of $4.80, and up from $3.38 in June last year. Today, the cheaper end of range is about $5.30 per 500g on shop shelves.
Prices on the Global Dairy Trade (GDT) platform are used to formulate Fonterra’s farmgate milk price, which it is forecasting at $6.50/kg of milksolids for the 2017/18 season, up from $6.15/kg the previous year.
“Generally . . . you tend to see prices move up gradually and they do tend to mirror the milk price,” said ASB rural economist Nathan Penny.
“Butter prices are already high and potentially they could go a little higher,” Penny said.
“It looks like demand is very strong and suppliers are really struggling now,” he said.
“What we have seen here is a sea change in demand for milk fat.”
There was generally a lag between the GDT price of dairy product and the retail price, Penny said.
At yesterday’s auction, butter hit US$6004 a tonne — up 3.4 per cent since the previous auction early this month and more than double the price paid this time last year.
Fonterra, the world’s biggest dairy exporter, now had the choice as to whether to produce more butter than its main product, whole milk powder.
“Fonterra’s recent added production flexibility means it can more easily optimise its production mix,” Penny said.
Whole milk powder — which is the key product for determining Fonterra’s farmgate milk price — gained 0.3 per cent in value to US$3114 a tonne. Prices overall continue to be in a holding pattern.
AgriHQ chief analyst Susan Kilsby said strong consumer demand for natural, full-fat products such as butter was here to stay.
“This strong demand along with limited supply is keeping buyers of dairy commodities paying current high prices — though they aren’t necessarily happy about [it]”, she said.
Cheddar gained 1.6 per cent at the auction, lifting to an average price of US$4112/tonne.
The volume of skim milk powder storage, including that in intervention in Europe, continues to put pressure on this part of the market. Susan Kilsby AgriHQ chief analyst
Kilsby said cheddar prices were expected to come under pressure as more product became available from Europe and the US. Skim milk powder prices fell another 3.2 per cent to US$2024 a tonne, reflecting stockpiles in Europe that were built up from earlier price support schemes.
“The volume of skim milk powder storage, including that in intervention in Europe, continues to put pressure on this part of the market,” Kilsby said.
Some private forecasters expect ongoing firm prices to translate into a $6.75/kg milk price as the season progresses.