Butter prices softening from record high levels

Tuesday 7th November 2017

Butter prices are forecast to soften on the GlobalDairyTrade platform overnight as buyers balk at high prices, although analysts say the price is set to remain elevated due to the underlying strong demand and limited supply.

The GDT Butter Price Index has declined at the past two auctions after hitting a record high on Sept. 19. The next GDT auction is scheduled for tonight and ahead of that, November butter futures on the NZX last traded at US$5,600 a tonne, 7.9 percent weaker than the equivalent contract at the last GDT auction on Oct. 17, indicating the auction price will decline.

Butter demand has soared this year, stoked by a surge in the popularity of natural products in first world markets like the US and Europe, which has seen fast food chain McDonald's switch to using butter instead of margarine, and fashionable cafes in the US offer coffee with a dob of ‘grass-fed’ butter. Butter demand has also been rising in Asia with the increased popularity of European-style pastries and croissants.

Meanwhile on the supply side, increased demand for full-cream milk rather than skim milk is reducing the amount of product available to produce butter and cream, and manufacturers are reluctant to significantly increase their supply of butter due to weak prices for the skim milk by-product.

"Certainly butter has come back in all markets," said AgriHQ senior dairy analyst Susan Kilsby. "We are seeing a wee bit of a back off from the extreme highs but that underlying demand we don't really see it disappearing anytime soon."

Kilsby said major commercial users of butter had already made the switch to alternatives where they could, and consumers were the last in the chain to substitute other products as supermarket prices lagged behind wholesale movements.

"We don't think the market is really going to crash from where it is," she said. "What we are seeing is a bit of a reaction coming off these excessively high prices but not a complete change."

(BusinessDesk)

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