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High butter prices not enough to rebuild stocks

Staff Writer | August 14, 2017
The latest EU short-term outlook report suggests that, despite strong demand, EU butter production could still fall 3% year-on-year during 2017, says AHDB.
High butter prices
Britain   A drop in the fat content of milk in the spring
This was attributed to a drop in the fat content of milk in the spring, and the assumption that better returns can still be achieved from cheese and whey processing.

With butter prices rising a further 25% since May, when the forecasts were produced, are they now high enough to attract more milk into butter production?

On the basis of estimated EU AMPE and MCVE values, cheese/whey production has historically offered better returns than butter/powder.

More recently however, the two series have converged as the exceptionally high butter prices have more than countered low prices for SMP.

It would be expected, however, that returns to butter production would need to remain at these levels for an extended period to draw the limited available milk supplies away from the more stable cheese markets.

Recent movements in futures contract prices for butter suggest the market is still rising, but at a slower rate. Meanwhile, SMP prices remain constrained by high stock levels.

It is therefore uncertain returns can out-perform cheese/whey returns for a sufficient time to drive any significant uplift in European butter production.