Butter price and milk fat supply (all data by Clal.it)
Historically, in the EU, the availability of milkfat has a strong inverse correlation with the price of butter: when the availability of milkfat decreases the price of butter increases; in the presence of an increased milkfat availability the price of butter usually decreases.
By following the monthly trend of milkfat availability it is possible to understand the butter price evolution.
However, at the beginning of 2018 this correlation was broken. While EU milkfat deliveries increased, the price of butter rebounded upwards, close to EUR 6000 per ton.
How is this possible? Let’s consider the data.
Below is the monthly milkfat supplies in Eu-28.
By knowing the deliveries of milk and the fat content it is possible to calculate the seasonally adjusted EU milkfat supply (calculated on the rolling year).
To facilitate the analysis, the trend can also be converted into butter 82% (yellow curve in the next graph)
The graph compares the fat content of milk deliveries with the average European price for butter (green curve). In the summer of 2017 the inverse correlation between the two lines is evident.
In the summer of 2017 a slowdown in milk deliveries, combined with a lower percentage of fat content, led to a reduction in the supply of fat: the yellow line was below zero.
The shortage of fat led to a sharp rise in the price of butter, which then fell in subsequent months as supply picked up again.
At the beginning of 2018 the supply of fat was higher than in the previous year.
Supply increased significantly until March and then slowed down in April and May, while still remaining higher compared to the previous year.
As of the price of butter, instead of continuing the decline that started in October 2017 the price rebounded in February 2018 and then continued to rise until reaching the fairly high peak of June (European average price: EUR 5816 per mt).
At the beginning of 2018 there was consequently an increase in both fat content supply and the price of butter.
A possible explanation for the butter price increase could have been a lower than expected butter production.
And indeed the increased fat content was mostly absorbed by the production of cheese.
However, analyzing the balance for butter using the formula production + import – export, in the last 12 month there has been an increased butter availability of about 80.720 tons.
Given that no significant increase in butter consumption was found, it is likely that this greater availability was partially converted into increased butter stocks by EU producers.
Butter supply was therefore greater than demand.
The analysis suggests that although butter production was below expectations the main cause for increased butter price in the first months of 2018 may lie in expectations for higher earnings.
Butter range by Dairy UA – click here.
Milk powders and Whey powders range by Dairy UA – click here.
Sweetened Condensed Milk and Evaporated Milk range by Dairy UA – click here.
