Exports have been strong this year, providing strong support for higher butter prices. Butter stocks are down 7% compared to 2009. The feeling was that price pressure would ease after the Easter/Passover demands and with churns keeping fairly active schedules due to increased cream supplies caused by the strengthening spring flush. But that hasn't been the case. Manufacturers are building inventories, believing cream supplies will tighten, resulting in higher butter prices later in the year.
04/30/10 - National Dairy market at a Glance (usda.gov)
BUTTER HIGHLIGHTS: The CME cash butter price remains firm and closed the week at $1.6200. Churning schedules across the country are seasonally active. In most regions, cream volumes are building for churning due to increasing milk volumes and slow Class II demand. Overall butter demand is fair at best with most orders being placed for near term needs. Some buyers that have inventory capacity are procuring additional volumes for future needs. Retail orders are steady while some food service accounts are ordering a little heavier in preparation of the upcoming Mothers Day holiday. Typically, restaurants see a heavier traffic flow during the Mothers Day weekend and anticipate this to be the case again this year. Butter inventories are often trailing last year comparable levels. According to the NASS monthly cold storage report for March, butter holdings at 196.6 million pounds are 7% (15.9 million pounds) lower than last year and 3% (6.7 million pounds) less than February.
INTERNATIONAL OVERVIEW (DMN): Milk production is growing seasonally in Western Europe. Weather conditions in Europe have turned more seasonal. European traders and handlers are questioning what impact the recent announcement from China regarding the impending (May 1) blocking of dairy product imports from the U.S. might have on European markets and export opportunities. Concern remains over whether or not there will be an adequate supply of some manufactured products this season to fulfill commitments, particularly whole milk and butter/amf. The current milk production projection for New Zealand has volumes for the current season unchanged to just slightly above the previous season. Some milk is being shifted from cheese to butter/skim or whole milk production to better cover commitments and/or additional demand. Many herds have been dried off early due to the drought in parts of the North Island. The drought continues over the North Island of New Zealand, though rain is expected soon. In the southern part of the South Island, some flooding has been occurring. Supplies of finished products are mainly committed and the forecast is not to have much extra product available until very late in the year. In Australia, the late season continues to run strong with the seasonal milk production total still below last year, though the gap is narrowing due to the better weather and pastures for milk production. Overall, fat supplies are tight and there is a strong demand for both amf and butter. Concern over butter/amf availability may last as reports indicate supplies elsewhere in the world may also be limited. Cheese prices have firmed slightly as some milk supplies have shifted to butter and/or whole milk. Rain in Australia has aided late season pastures and added volumes to depleted reservoirs though overall levels remain low. Improved milk prices for producers, combined with lower grain prices, makes supplemental feeding more effective. The recent announcement that China will not take additional U.S. sourced product due to a disease concern may shift some demand to other countries after the May 1 deadline.
Looking forward it's difficult to predict the next direction. In the last several trading sessions there have been buyers but no sellers. Message? Either no product available to sell on the market or creation of inflated pricing to protect inventories. In 2007 supplies were at a similar level and the butter price peaked at a $1.62/lb in late May and tapered off as supplies increased over the summer. In 2008 butter pricing slowly increased to $1.75/lb in late October before tapering off.
Looking forward, until inventories are built up we will probably see more upside to this market.