butter
July 13, 2018

Softening Butter Prices Could Signify Temporary Demand Dip

 |  By: Fran Howard

Steaming butter prices appear to have melted the top off global butter demand, but a new food fad and a renewed appreciation of butter should keep butter sales strong for the near term. “Despite evidence of price sensitivity, butter remains popular around the globe,” says Sarina Sharp, analyst with the Daily Dairy Report.

Butter prices have been strong for years, due to both robust global demand for butterfat and a period when abundant skim milk powder supplies shifted milk away from butter-powder plants and into cheese vats, tightening overall butter supplies. 

According to the latest Global Dairy Trade (GDT) results, butter prices, while still strong historically, began to weaken in May. The weighted average price for butter at the July 3 auction fell 4% to $5,390/metric ton (MT), which was well below September 2017’s record-high of $6,026/MT but more than double the five-year low of $2,293/MT hit in August 2015.

“Butter demand in Europe appears to be slipping,” notes Sharp. “Last week, prices at Germany’s Kempten market ranged from €5,500 to €5,750/MT, down 4.3% from the previous week. At the prevailing exchange rate, that puts German butter below $3/lb. for the first time since early April, but European butter still commands a significant premium to product from other major dairy nations.”

She notes that the CME spot butter price on July 10 closed at $2.225/lb., or roughly $2.28 at 82% butterfat, the European equivalent. The average winning price for butter for the nearest delivery period at the July 3 GDT auction was higher at $2.46/lb., but still well below the price in Germany, she adds.

“In the past few months, European retailers have begun to pass higher butter prices on to consumers, which has inhibited demand,” Sharp says. “This month, several processors will negotiate new contracts with their retail customers and dairy suppliers. Buyers who previously rushed to secure butter at historically high prices are now a bit reticent, which has pressured prices accordingly.”

To help meet the world’s growing demand for butter, Fonterra, New Zealand’s largest dairy cooperative, recently announced that it is expanding output of sheet butter—which can easily be rolled into bakery dough—by more than 55% at its Edgecumbe facility. Fonterra pointed to “muddy buns,” also called “dirty bread,” for burgeoning butter sales. A muddy bun— basically a chocolate croissant filled with chocolate and cream—is coated with ganache and a generous helping of cocoa powder. While the muddy bun craze began in China last year, it has since spread to Singapore, Malaysia, Kuala Lumpur, and New Zealand, according to Glutto Digest. Muddy buns have even started to show up in a few West Coast bakeries in the United States.

“The buns may—or may not—be a passing fad, but Chinese butter demand seems poised to remain strong nonetheless,” says Sharp. According to Global Trade Atlas data, Chinese butter imports climbed 6.5% in 2015, 16% in 2016, and 4.6% last year. Looking at this year, China’s first-quarter butter imports have exceeded year-ago volumes by nearly a third, she adds.

Earlier in the year, Euromonitor International expected global retail butter sales to grow by nearly 3% in 2018 to $19.4 billion, while volume sales of butter were expected to increase nearly 2%.

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