Geo-Political Tension in the Black Sea is Causing a Shortage of Sunflower Oil and Margarine and Shifting Demand to Butter
A shortage in sunflower supplies and margarine- a product made from vegetable fat is shifting demand to butter according to market insiders. Butter production in Europe on the other hand is not picking up strongly to meet the emerging demand. Ukraine and Russia alone produce more than half of global oilseed sunflower output. Ukraine’s annual production is around 17.5 million mt while Russia produces 15.5 million mt. Ukraine, the world's largest sunflower oil producer goes further to produce 7.2 million mt annually while Russia follows with 8 million mt of sunflower oil. The geopolitical tension in the Black Sea region is restricting supplies of both seed and oil to Europe and the rest of the world.
Some ships and barges loaded with oilseeds have been unable to get out of Ukrainian seaports. Consequently, we are seeing a shortfall in available supplies. Demand for alternative fats and oils is thus upon the horizon. Amid interruptions in butter supplies in Europe and tight stock levels, a high side risk continues to be embedded in European butter prices. EEX butter at the close of trading last week was at €7230/mt up €747 MoM. Butter demand for nearby delivery is said to be strong, robustly marked by increased demand from the retail sector. Manufacturers of food products that use sunflower oil in frying are ramping up purchases or modifying their recipes. Some are also reported to be shifting to using butter for frying.
In addition, as spring weather appears and the asparagus season kicks in, demand for butter is exceeding supply, making it difficult for butter manufacturers to fulfil orders. The dairy industry has now shifted its focus to milk collections in April and the subsequent months, expecting the rate of seasonal increase to be strong. That expectation is shaky as colder than normal conditions have hindered the start of the spring flush. Recorded collections in Germany, France, and the Netherlands so far in the first quarter are below year-ago levels. According to data from the EU Commission, in Germany, deliveries from Jan-Feb 22 were down 1.3% against the same period last year while that of France was 0.1% down.
More so, is the situation where farms are cutting down on cow numbers to adhere to EU regulations on the acceptable level of nitrogen losses from their farms. Although the productivity of cows in Europe is up, herd size has reportedly fallen about 30%. Tridge’s expectation is for butter demand to remain firm and prices stable within the higher price territory.