Butter prices in Europe have been trending higher since the start of May, but sentiments from market sources are differing. While some report larger butter availability in the market and lower retail demand, others also talk of the widespread dryness prevailing in Europe.
Some argue that this is pushing through the cream and butter markets and defining dairy market sentiments. The European EEX butter index moved higher over a fortnight to €4805/mt on June 14, up €52. While price edges up, albeit at a marginal rate, traders are also trying to figure out the main driver of the dairy commodity market this month.
In Germany, butter has traded up from €4650/mt at the end of May to €4675/mt in mid-June, likewise in the Netherlands where butter has traded higher to €4780/mt in the same period. The French EEX index has also followed a similar trend moving higher from €4880/mt towards the end of May to €4960/mt in mid-June.
Although current butter production is reportedly firm on the back of more cream being sent into churns, available data supplied by Italian dairy economic consulting firm CLAL reports EU butter production fell 342 thousand mt from the previous month to 166 thousand mt in February. The news of the increase in butter production is clearly still fresh, and with data on it unavailable, it might take some time for the sentiments to be priced in.
Also, considering the recent GDT Auction, which saw its overall price index fall 0.9% while butter gained 0.5% with a selling price of $5088, it is another indication that butter may be bucking the trend of other dairy commodity products and moving its own route.
The passing of the spring flush when milk production is seasonally high owing to cows having a lot more spring pasture and good weather conducive for grazing may be a reason for butter prices to be holding higher. Although most parts of Western Europe have not reported a dip in the level of production, an earlier increased dryness in Eastern European countries has affected milk collection output. In some areas around the Mediterranean, dry weather and excessive heat were observed towards the end of May, which has kept milk collections in check in those countries.
It's quite difficult to tell which direction the market will go from here. However, across the continent, continuous dry weather going into the summer will keep grass growth levels below the mean kilogram dry matter per hectare per day (KDM/Ha/day) levels pushing milk collections numbers down. This would push farm-gate milk prices slightly up before entering butter markets.
It may sound like a long process, but the transmission into cream and butter pricing may happen quicker than expected. Buyers are thus better off taking some cover going into the third quarter of the year to reduce their exposure to any upside risk to the minimum.