Butter
Downside pressure expected in EU and APAC
Europe
Quiet – before the storm?
After a few hectic weeks in July when the effects of the heatwave rippled through, the EU butter market has now reached a holiday mode. At the price level of EUR 3800 ex works the larger sellers in the EU start – a little reluctantly still – to offer volumes. A large part of the buyside can afford to wait as they are generally well stocked. Overall retail demand in the EU is modest. Export orders are also not easily obtained at the current price level. Further downward price movement can therefore not be ruled out.
Americas
A lot of volatility in a segmented US butter market
In addition to the overall strong price volatility throughout most of July, prices in the West versus the Midwest are at quite different levels in early August. Cream availability in the West is quite strong which results in a cream multiple as low as 1.10-1.15 whereas the multiple in the Midwest is in the range of 1.30-1.35. High internal freight rates prevent prices from aligning again. It is actually more profitable to take California butter to selected overseas markets than to sell it as cream internally to shortage regions like the Midwest. The overall market fundamentals currently indicate largely range bound butter prices at a level of USD 1.49/lb (3275/t) ex works, with both exports and imports being significantly higher than last year in the first six months of the year.
Asia-Pacific
Oceania AMF prices soar
The milk fat prices in Oceania are high compared to the other origins. During the flush months Oceania needs to be able to sell butter and AMF to the world market. Right now though butter in APAC is with a price of USD 5250-5350 FOB the most expensive of the three origins we track. The AMF price is even more out of line; it sells at USD 6580 ex works, which amounts to a significant premium over US and EU AMF. It is probable that a correction will occur quite soon, the futures curve indicates this as well. Investments in butter production capacity and sales have boosted the strategic importance of butter as an outlet for fat. However, now that competitive pressure from US and EU butter is increasing, AMF is generating better returns again and more production capacity shifts towards AMF.
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