The Butter Market has Gone Crazy

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Spend Matters welcomes this guest post from Nick Peksa, opportunities director at Mintec.

Yes, the butter market has gone crazy. Normally these kind of rapid price movements are reserved for markets like vanilla, crude oil and currency, but not for shopping staples. At the end of May 2016, European butter futures had established a new monthly record for futures traded, with 1,382 butter contracts having been established. This phenomenon is not just confined to Europe; there has been an increased demand globally for all types of fats (people trending toward anti-sugar and organics).

The global market price of butter has close to doubled since early 2016, from under $3,400 per MT to over $6,150 per MT — again setting new price records.

Butter pricing at extreme times is very difficult to predict, as the dynamics of the dairy market are convoluted in comparison with a simple supply chain like wheat. The price of butter depends on the primary raw material, namely fresh milk and its supply and availability. In parallel, demand and availability of milk fats needs to be considered. Trade, herd sizes and the price of products competing for milk also play an important part in determining the price.

Normally around 5% of milk goes into production of milk fats (butter and cream) and currently we are experiencing reduced global milk availability. This, combined with higher demand for milk fats in Europe and tight supplies, has led to this record-breaking price movement.

I personally think the price bubble is about to burst. Milk supplies are forecast to recover; the U.S. looks healthy and supplies in the E.U. and China are slowly recovering. It’s all a waiting game now. When will we hear the pop of that bubble bursting?

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