Spend Matters welcomes a guest post from Mark Kozlowski of Mintec.
Butter prices in the US, the world’s third largest butter producer behind India and the EU, hit a record high in July as production failed to keep up with the current high levels of export demand.
Butter production in the US was forecast to increase in 2014 by 1 percent year-over-year, to 855,000 tonnes. However, production in the first half of the year was down by 3 percent year-over-year, at 445,000 tonnes. During the same period, US exports rose by 42 percent to 53,869 tonnes. California is the largest butter producing state in the US, accounting for 35 percent of total production. California is also the largest milk producing state in the US, accounting for over 20 percent of all milk produced.
The increase in exports was driven by the US butter price being lower than other major exporters such as the EU and New Zealand at the beginning of the year. This led to a surge in export demand, particularly from emerging markets in the Middle East and Asia. In the first six months of 2014, the Middle East was the largest importer of US butter, importing 22,174 tonnes during this period, up 7 percent year-over-year.
This high level of demand pushed the price of US butter higher, while prices in the EU and New Zealand have been falling due to favourable weather conditions and subsequently excellent levels of milk production. This led to US butter exports declining in Q2 2014, as importers began to look elsewhere. Total US exports fell to 17,350 tonnes in Q2, down 35 percent compared to Q1, moving against the seasonal trend for butter exports. However, this was still up 5 percent year-over-year.
As US butter prices have continued to increase, contrasting with the falls in prices seen in the EU and New Zealand, export demand for US butter is expected to continue to fall in the second half of 2014. This would lead to reduced demand, potentially leading prices to begin to fall back from the highs currently experienced.