Since my last post on 6/16/2010, two weeks ago, the butter market price has increased $0.14/lb from $1.61/lb to $1.75/lb.
Cream supplies remain tight, but cream is still available. Butter manufacturers are choosing to fill current butter orders and sell the remaining cream to ice cream and cream cheese manufacturers. Very few plants are adding to butter inventories. Which is quite a change from two weeks ago when butter manufacturers were trying to secure as much cream as possible. Our take on this is that butter manufacturers are not willing to build inventory at these high prices.
July 4th is considered the turning point in the dairy industry when cream availability is at its lowest due to demand from all classes of dairy; cheese, ice cream, butter and milk. So does this mean that butter pricing has peaked at this time?
When cream is sold to a manufacturer it carries with it a multiple and basis premium that reflects the supply and demand of the cream. These multiples are now at 1.55, which is high. The other dairy classes, especially ice cream, will begin winding down there operations fairly soon, releasing more cream on the market. This will in turn ease the cream multiples and entice butter manufacturers to increase their inventories and put downward pressure on the butter price.
A good sign is butter inventories are up 3% from last month but down 16% from last year at this time. There is concern now that pricing has reached a point where retail and bulk/foodservice customers will begin to find alternatives.
The international markets seemed to have quieted down with some recent purchases on the European market coming in at $2.00/lb, down from $2.18/lb.
Moving forward we will see higher butter prices through the summer.