Spend Matters welcomes this guest post from Thomas Reilly of Mintec.
US butter prices experienced their biggest fall in 18 years during October, on the back of a massive price increase during 2014. Shipment after shipment of butter has been arriving on US shores to meet high demand and having a huge effect on the price.
As we discussed in an earlier article, high export demand, strong US consumer demand and reduced supply from one of the biggest dairy producing countries caused US butter prices to rise throughout 2014. However, as we predicted, the prices have now fallen back to the level seen at the start of the year, down 32% in 2 months.
Imports of butter into the US rose during the summer, with August imports doubling from the previous year due to high domestic demand. This influx of butter has amplified the supply within the US especially since exports of butter from the US fell in August 2014 by 60% year-on-year. This fall will include exports to Russia, which imposed a ban on US products coming into the country. The market should reshuffle, meaning that another country will supply Russia, and the US will supply somebody else. All of these factors have caused the sharp price drop since mid-September.
This year has seen a growing demand for butter across the globe, specifically from the Chinese and Middle Eastern markets. Traditionally, China bought 15-20% of the world’s dairy produce, but at the turn of the year, it jumped to 25% due to a series of food scandals and Chinese consumers increasingly looking for products marked “Made in America” as a sign of quality. In the Middle East, more and more younger consumers are demanding dairy products. Fast food has reached the Middle East, and the pure convenience of it has been met with massive popularity. Several US fast food franchises have expanded into the Middle East, including the Cheesecake Factory and Papa John’s.
The rise in global demand coincided with issues in New Zealand, one of the world’s biggest producers of butter, and dairy products in general. 2013 saw one of the worst droughts in New Zealand’s history, largely affecting the north island. New Zealand farmers had to take their dairy cattle to the slaughter a lot earlier than they normally would; meaning less milk can be produced in a cow’s lifespan. This reduction in supply from New Zealand meant that the most obvious destination to turn to for production was the US. However, as the New Zealand production cycle replenished tight global supplies, exports from the US have fallen.
US butter prices are likely to remain low till the end of the year due to New Zealand being in their peak production period and good global supply.