Butter
Oceania butter appears overvalued for the time of the year
Europe
June butter prices moved down and then up again
In our graph the EU butter price for early July almost equals that for early June. This does however not do justice to the events of the past five weeks as the EU butter price tumbled down in the course of June by at least EUR 400 (over 10%) and then came up by the same amount in the past two weeks again. At the current price level of EUR 3800 ex works for Q3 delivery the buyside is quieting down again, but mid-June many buyers were eager to secure some volumes. Going forward the summer holidays keep demand subdued but at the end of August sentiment may change again. EU butter stocks are quite plentiful – in strong contrast to the situation in the US.
Americas
High demand easily absorbs strong supply
The US butter market remains under the influence of extremes. Butter production was record high in May, as was butter disappearance (domestic demand plus exports) whilst butter stocks are at historically low levels for the time of the year. US butter exports continue to flourish and show still no sign of drying up, even though at some point we would expect the US to return to their normal position as a net importer of milk fats. On the contrary even, butter suppliers have export contracts for the rest of the year, meaning that butter will continue to be shipped off irrespective of the domestic price developments in the next few months. Going forward the main question is whether production can stay strong enough to cater for the high disappearance. One thing that is distinctly different from last year is the cream availability, which is now tight instead of record loose. This puts a brake onto the butter production levels and we see micro-fixing starting to happen again, i.e. repacking bulk butter for retail sales. At the moment the US butter price is about USD 1.65/lb (3640/t) ex works, at which level is it easily the most competitively priced butter of the three regions we track in this report. Going forward there are arguments to be found for prices to move by about USD 0.15/lb upward or downward, depending on the strength of butter consumption versus butter production in these summer months.
Asia-Pacific
Seasonal pressure expected to increase
Butter prices are sliding down in all major production regions. Oceania butter usually trades at a discount to EU butter during Q3 and Q4, but at the moment Oceania butter continues to generate quite a premium. When New Zealand production increases in line with the new season, competition for export markets is expected to intensify. The futures curve has already priced in a further decline, to reflect the seasonally growing availability. In the past years Europe has been an attractive outlet for New Zealand butter and AMF when the local prices there were elevated. However, as the current price levels no longer support those flows, alternative export destinations will need to be found to absorb the seasonally increasing supply. The price levels at the moment are about USD 5600 for butter and around USD 6400 for AMF, both FOB NZ.
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