Butter
Abundant supply improves opportunities for buyers
Europe
Sell side and buy side are not on the same page
The EU butter price dropped by another 15% compared to early September, when it had already lost 10% on early August and the end of the decline is still not in sight. At the current spot price of EUR 5300 ex works there remains more butter on offer than on demand for nearby delivery. The demand side is already covered for the remainder of this calendar year but processors, who are faced with atypically large quantities of cream, seek an outlet for their butter right now. Most of the buy side is more than willing to buy for Q2 and beyond at prices of EUR 5400-5500 but at those delivery dates the sell side is not yet interested. And thus, the power balance in the EU butter market has shifted in favor of the demand side, after quite a prolonged period of supply tightness and high prices.
Americas
There is simply too much cream
Last month we stated that we thought that all butter market fundamentals were priced in and that this would mean price stability at the USD 2.00/lb level. However, things turned out to move even further away from the normal circumstances and as a result the price of butter dropped to the current spot level of USD 1.67/lb (3690/t) ex works. The availability of cream has never been this high in 50 years. Milk prices remain profitable for farmers which keep volumes and fat content levels high. This strong supply of cream means that all retail butter is produced fresh, rather than through micro fixing, which is the practice of transferring bulk butter into retail formats, usually good for an absorption of about 20% of the bulk butter stocks at this time of the year. As a result, there is a big supply of bulk salted butter that struggles to find a home. It is not exportable and as domestic demand for it is slower than usual it is threatening to become a burden with every month that passes, because after February it will all become old-crop butter. On the demand side the retail consumption remains good but exports are beginning to suffer a bit with the drop in butter prices all across the EU. Asia remains the main destination but the volumes are smaller than they were these past several months. In summary this all means that there may well be further downward price potential for US butter.
Asia-Pacific
Oceania butter prices relatively stable
In APAC the butter price drop has been modest compared to the US and the EU. This is largely because of the strength of the demand in China, where branded butter continues to be sold at a premium. Because of China’s dominance in the early October GDT session the price dropped no further than USD 6800 FOB, a decline of 3.5% versus the September Market Watch. The price spread with AMF is beginning to normalize because of its relatively low availability. The AMF spot price is now USD 7150 FOB, which is 2.1% higher than our early September quote.
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