November 24, 2016

Butter Exports Pick Up as Imports Dwindle

 |  By: Fran Howard

Now that U.S. and European butter prices are more aligned than they were just months ago, U.S. butter exports have picked up, but Japan will not be looking to the United States this year to help stem what has been seasonal end-of-the-year butter shortages in the island nation.

Looking at September, U.S. exporters shipped 3 million pounds of butter to overseas customers. “September monthly exports were the highest in 13 months and more than triple what they were in September 2015, when shipments were paltry,” says Sarina Sharp, economist with the Daily Dairy Report.

U.S. exports of butter and other milkfat products were nearly double year-ago volumes in September, and since April, Canada has accounted for more than one-third of U.S. exports of butter and milkfat products, according to USDA’s Foreign Agricultural Service’s Global Agricultural Trade System (GATS).

“In the first three months of 2016, Mexico stocked up on U.S. butter but then was largely absent from the market this past spring and summer,” says Sharp. “Shipments to Mexico perked up a bit in September, but they remain much smaller than first-quarter volumes.”

Once the largest purchaser of U.S. butter, Saudi Arabia has dropped to a distant third this year due to a sustained decline in oil prices that has pressured the Saudi economy and its butter purchases lower.

“While Saudi Arabian butter purchases from all sources are probably down from last year, looking at U.S. butter exports to Saudi Arabia alone exaggerates the decline because the kingdom has been buying more from Europe,” notes Sharp.

For much of the year, U.S. butter prices were well above those in Europe. This fall, U.S. butter prices fell below EU prices, so the volume of U.S. butter exports is likely to continue to climb, notes Dorland. For the same reason, butter imports have tumbled. In September, the United States purchased 4.2 million pounds of butter, a 15% decline from September 2015 imports.

September was the only month in 2016 that year-over-year butter imports declined, but there are likely more declines to come, says Sharp.

Exports to Japan are also softer. Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle, notes that for the past several years, Japan has experienced an end-of-year butter shortage. “But Japan may be nearing a point where the market regains balance,” she adds. “Higher butter production and imports are starting to rebuild stocks in Japan and butter consumption is slowing.”

Butter utilization in Japan declined 3% in the first eight months of the year, while butter production through September grew 4.6%, according to according to USDA’s Foreign Agriculture Service’s latest Dairy and Products Annual for Japan.

“This change is starting to impact imports—the lever used to rebalance markets,” Dorland notes. Although Japan’s butter imports for the first eight months of the year were 10% higher than in 2015, by September volumes had fallen 29% behind the previous year, according to the report. In September 2015, Japan imported 4,445 metric tons of butter compared to only 696 metric ton this year, which suggests that 2016 stocks are sufficient to meet end-of-year demand.

Similar to other developed markets, the number of dairy farms in Japan continues to decline, while the remaining farms expand and efficiency improves, factors that helped to increase Japan’s milk production this year, according to USDA.

“This year, Japan used additional milk to produce more butter and milk powder rather than cheese and whey products,” Dorland notes. “Manufacturers did this to reduce the possibility of another butter shortfall this year and because cheese imports were both plentiful and cost-effective.”