This year, European butter prices have indicated their direction gaining (€79) to finish the month of January at €5932/mt on the EEX. Prices came down to €5750/mt before the Christmas holiday period. Albeit low at €3750/mt, that price level is still high looking at the long-term trend. Market players were hoping prices would stay at that level for some time to allow buyers of the product that held buying earlier to re-enter the market, but prices went up again ending the year at the €5800/mt psychological price level. The reason for this price strength may be the ambiguity that often overcomes butter markets at the close of the trading year.
Entering the last quarter of 2021, data from the EU Commission put total EU butter production from January to November 2021 a little under 160,000 tonnes down 2.3% from the previous year. That may also explain the elevated price trend for most part of the year. There seems to be some tightness in the market as EU deliveries of most dairy products from (Dec 2020 to Nov 2021 versus Dec 2019-Nov 2020) fell. While butter edged down 1.9%, skimmed milk powder (SMP) and whole milk powder also fell (-5.1%) and (-8.9%) respectively.
The apparent relationship between milk deliveries, cream and butter markets begs the question as to what impact the evolution of milk deliveries in the EU had on prices and what effect they will continue to have going forward. Milk deliveries in the EU from January to November 2021 came to 133 million tonnes, a 5% decrease in deliveries in the same period of the previous year.
Looking at butter and dairy commodity prices already this year, there is a strong hope for milk deliveries to be stronger versus 2021 to encourage more churning of the feedstock into other dairy products. Already, Tridge Supply Engagement Managers in Germany and France confirm lower milk collections in January:although production is up in line with the seasonal trend, it is increasing at a decreasing rate.
The industry wishes for production in the spring flush to be robust which will normally ease dairy commodity markets, but higher energy, labour, and feed cost on the back of logistical and labour shortage difficulties is expected to disincentive farmers to drive higher yields. Adding to this sentiment is the most recent GDT Auction which point to stronger dairy commodity prices going forward: butter on the GDT was up 3.3% to $6,359 while skimmed milk powder (SMP) and Cheddar also edged up to $4,051(+2.1%) and $5,684(+2.4%) respectively. Butter milk powder(BMP), outperformed all other products at €6359/mt, a 9.7% increase from the previous event. Butter is thus expected to remain elevated until the spring flush when cream supplies become available to butter manufacturers.