Strong global butter sales to be maintained throughout 2017

Rabobank is projecting global butter prices to remain firm throughout 2017. This is in contrast to the persistent low value of skimmed milk, which is likely to remain weak, but stable.

Cheese and whole milk powder prices are also likely to remain stable.

“The spread between the elevated butter prices and skimmed milk powder prices, which continue to fall, has never been bigger and continues to widen,” said Rabobank Global Dairy Strategist Kevin Bellamy.

“As farmers slowly respond to higher prices, production will continue to rise, bringing more protein,” he said.

Bellamy added that markets will look to the European Commission to support EU skimmed milk powder prices and, therefore, global dairy prices.

“It now seems all but certain that intervention buying will be needed again in 2017. At some point in the year, the European Commission may find a destination for the aged stocks, which will ease the market overhang,” he added.

However, any solution for reducing high public stocks will be difficult, as it will need to be non-market-distorting.

Bellamy was commenting on the themes featured within Rabobank’s latest global quarterly dairy bulletin. The publication confirms that milk production in the largest seven export regions fell sharply in the second half of 2016, reaching a low point in October.

At the time, the bank thought that the strengthening US dollar and strong domestic demand would create headwinds which would prevent the US – the only region with increasing milk supply – from filling the export gap. In the event, US exports were able to fill some of the supply gap.

In fact, US exports increased by 25% in the second half of 2016 – compared to the same period in 2015. EU exports grew slightly year-on-year in the second half of 2016.

Overall, export surpluses from the largest seven exporters fell by 2.4% (2m tonnes) year-on-year.

This was far less than originally expected. But it was more than sufficient to lead a price rally, which raised prices of whole milk powder by 50% between June 2016 and February 2017.

However, Rabobank is now predicting that the upward movement of prices has run its course, as milk production levels start to recover against still weak demand.