Lowering price trend means butter is ‘finding its new normal’ – DII

The Irish Creamery Milk Suppliers’ Association (ICMSA) has cited the re-profiling of butter to “a healthy product” as one of the reasons for its current price unpredictability on world markets.

Industry expert Conor Mulvihill of Dairy Industry Ireland (DII) says the commodity is “finding its new normal” after reaching “a high” around three years ago.

Speaking to AgriLand, ICMSA’s dairy committee chairman Ger Quain said the price unpredictability was also occurring because of the link between butter and skimmed milk price (SMP).

He pointed out that one of the main reasons for butter price volatility over the last few years has been the depressed state of powder prices.

These prices have been suffering under the overhang presented by the-then very large levels of SMP in intervention.

Quain also spoke about the successful series of SMP sales out of intervention and its success in terms of the situation that has developed in respect of butter price on current world markets.

“Almost 380,000t of product has been sold and that means that minimal stock is left in storage – which is positive,” he continued.

“We think that going forward butter and SMP prices should be on more of an even playing field market-wise. SMP has been rallying since last summer.”

Quain went on to say that there was, what he described as, “a large overhand of SMP in 2017 and 2018” that had reduced butter production in certain areas.

“This was because skim was seen as a butter by-product, but we also think that the re-profiling of butter as a healthy product moved price upwards and put it in a better long-term marketing space,” he said.

“We feel that a butter price in the mid €4,000/t is sustainable and we note spot markets rallying around butter price in the last month.”

Separately, the European Commission graph below highlights butter, SMP and cheddar cheese price trends from January 2003 to January 2019.

‘Finding a new normal’

Mulvihill, meanwhile, says the current butter price unpredictability is part of a natural occurrence, and that after years of being at a high, the commodity is simply “finding its new normal”.

The director of DII also cited the divergence of butter fat and butter protein two years ago as one of the factors influencing today’s trends. Mulvihill also pointed to SMP price which, he added, increased by 19c/L during that time.

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“Three years ago butter was coming in at around €6,000/t; there was a time when butter and cheese were at around €2,000/t and then we had a butter boom,” he added.

Two or three years ago butter was at the heart of ingredients; baking and cookery programmes became very popular and then protein prices – personified by SMP – collapsed.

“All of that happened on the face of extreme supply after quota.”

Mulvihill went on to say that the last 12 months have seen butter “coming down” from the price peaks of previous years.

“The last year has seen butter come down from these highs – from €6,000/t to €3,000/t – you could say now that it is at the new normal,” he confirmed.

“Butter collapsed in price over the last year and right back down to supply-normal levels and at the moment it is around the €4,000-€4,500/t.”

Brexit

Mulvihill then spoke about the unpredictability of butter price compared to the price stability of cheese.

He also said that while Brexit will have a massive impact on one, it will have little or no impact on the other.

Two billion litres of milk from Ireland goes into the cheddar cheese market in the UK and this is where Brexit comes in.

Mulvihill continued: “Brexit isn’t having an impact on butter to be honest with you; butter is in high demand across the world at the moment with one quarter of produce going into the UK market.”

He went on then to point out that DII is confident – at this stage – that even a hard Brexit will not impact negatively on world butter markets.

The industry expert concluded: “Even if there is a hard Brexit we will find markets around the world for butter.

“It’s a bit different for cheese because of our dependency on the UK market – it’s Ireland’s only market for the product and Brexit is going to be an issue in relation to that.”

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