Butter prices plunged the most in 18 years as increasing shipments to the US ease tight supplies that pushed costs to a record last month.
Imports in August more than doubled from a year earlier, the second straight monthly increase, the latest data from the US Department of Agriculture shows. Supplies are rebounding as New Zealand, the world’s biggest butter exporter, enters its highest milk-production period.
Prices surged 89 per cent this year through September after demand for US exports jumped amid anaemic growth in milk production, spurring tighter domestic supplies that contributed to higher costs for buyers including Panera Bread Co. Gains for global milk output will help ease the shortage. As dairy production ramps up in New Zealand, shipments to the US will increase just as retailers are finishing up holiday purchases, according to Chicago-based HighGround Dairy’s Eric Meyer.
“There’s what has been referred to as a tsunami of butterfat coming to the US right now,” Dave Kurzawski, a Chicago-based senior broker at INTL FCStone Inc.’s dairy division, said in a telephone interview. “The expectation for a substantial increase in butter imports is weighing heavily on the market.”
Cash-butter for immediate delivery slumped 6.1 per cent to $2 a pound on the Chicago Mercantile Exchange on Friday, the lowest since 1 May. Prices plunged 29 per cent last week, the most since November 1996, and are down from an all-time high of $3.06, reached on 19 September.
Rising Consumption
Butter consumption in 2014 is expected to be the second highest ever, according to the USDA, partly as some consumers shift away from margarine. The gains have eroded inventories. While stockpiles in August climbed from the start of the year, they were still lower (37 per cent smaller) than in 2013.
Demand for US supplies has slowed. After exports in the first six months of the year were up 42 per cent from 2013, shipments declined for two straight months, falling 35 per cent in August from June, USDA data shows.
US prices are higher than those from other producing nations, signalling that American shipments will continue to slow. Butter costs $1.19 a pound at GlobalDairyTrade, the international dairy auction owned by New Zealand’s Fonterra Cooperative Group Ltd. On the CME, November futures traded near $1.92 a pound on Friday.
World Costs
World costs for dairy products have tumbled 29 per cent this year, according to the United Nations Food and Agriculture World Dairy Price Index.
New Zealand produces the most milk in October, or about 15 per cent of annual output, according to the Dairy Companies Association of New Zealand. Those supplies will translate to higher butter shipments to the US in the next six to eight weeks, HighGround Dairy’s Meyer said.
“With talk of imports and plenty of milk out there, there’s a really good chance they’ll churn that milk into butter,” Kurzawski, of INTL FCStone, said. “We’ll see some nice strides in the growth of inventories in the first quarter of next year.”
Bloomberg News, edited by ESM
