Europe wins battle with Oceania over butter prices - for now

06.09.2017

Europe has appeared to win the latest tug of war with Oceania over butter prices, but the outcome of a battle in whole milk powder markets appeared less certain, results from the latest GlobalDairyTrade showed.

The first Global Dairy Trade (GDT) auction of September saw prices overall show a small gain, of 0.3% - the first headway since mid-July at the event, which is run by New Zealand dairy giant Fonterra.

The headway reflected in part a revival in butter values, which gained 3.8% from the previous event, in mid-August, to stand at $5,954, returning just $50 a tonne from the record high at the auction, set in July.

The gain appeared to resolve in favour of bulls – for now - a growing disparity in butter values, which has seen them continue to make ground in the key European Union market, while easing back in Oceania.

'Butter prices continue to soar'

"In Europe, butter prices continue to soar," the US-based Milk Producers Council said at the weekend, noting a disparity with a "beleaguered" US market too, where spot values on Tuesday dropped to a two-month low of 250 cents a pound.

Fonterra itself, in the run up to the auction, flagged "strong demand for butter that has driven a product mix change" at the co-operative, to making more of the product, at the expense of anhydrous milk fat.

Indeed, Fonterra last week cut by 5,050 tonnes, or 6.5%, its forecast for anhydrous milk fat volumes sold through GDT because of the clamour for butter.

Milk powder price decline

However, GlobalDairyTrade values of whole milk powder, which account for most of the volumes traded at the auction, eased by 1.6% to $3,100 a tonne.

That underperformed the price performance forecast by spot futures on New Zealand's NZX exchange.

"Futures are pointing to a hefty rise in whole milk powder prices at the auction," said Tobin Gorey at Commonwealth Bank of Australia ahead of Tuesday's event, although adding that a lack of read through from futures to GDT "has been the case for the past few auctions".

'Tend not to linger long'

However, the small decline left somewhat unresolved the relatively large premium of EU wholesale milk prices, which held at E312 per 100 kilogrammes into latest August, over GDT ones.

Writing before the auction, Mr Gorey noted that whole milk powder futures trading had seen the emergence of "hefty price premiums in European spot prices against those in Australasia".

He added that "hefty price differentials are not unprecedented, but they tend not to linger long".

Gaps within Europe too

Still disparity in butter values even within the EU is growing as a talking point, with the Irish Creamery Milk Suppliers Association (ICMSA) warning of a "hugely concerning" price differential between Irish values and those in some other countries in the bloc.

"While milk prices in Ireland have obviously improved in 2017, the ICMSA would point out that Ireland is currently only in 12th position of the EU in terms of milk price," said Gerald Quain, chairman of the association's Dairy Committee.

"The internal market price of butter within the EU presently shows Irish butter prices lagging behind Dutch quotes by a staggering E880 a tonne, and Irish butter prices are also E200 a tonne below the EU average, as stated by the EU Milk Market Observatory."



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