ASB economists see soaring butter prices as possibly giving more upside to the milk price for farmers

Butter is hot again, and ASB senior rural economist Nathan Penny sees the latest rise in butter prices as offering some upside chance for the milk price to farmers.

Fonterra's price forecast for the current season is $6.55 per kilogram of milk solids. 

ASB has the same forecast price.

However, Penny says the latest  GlobalDairyTrade auction overnight, in which prices rose 2.7%, hinted at strong global demand.

"And with NZ production still relatively weak heading into winter, we expect prices, if anything, to creep a little higher over coming months.

"All up, the result hints at upside to our $6.55/kg milk price forecast for 2017/18 and also bodes well for a solid start to 2018/19.

"At this stage, we have pencilled in $6.50/kg for next season."

Penny says "the squeeze is back on" global butter prices.

"Butter prices have lifted 27% so far this year and are well ahead of the where they were this time last year.

"Moreover, butter prices are only 5% below the record levels set back in September 2017.

"Indeed, we anticipate butter prices will shatter last year’s records over coming months.

"This expectation is based on the fact that NZ is the world’s leading butter exporter, exporting more than 1.5 times the amount of butter of other leading dairy exporters (EU, the US, Australia and Argentina) combined.

"With this in mind, it’s no coincidence that butter prices peaked last year during the period where NZ production and exports are at their weakest i.e. over the NZ winter and early spring.

"All up, it still appears that the world faces an ongoing shortage of milk fat." 

See here for the full dairy payout history. 

Dairy prices

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7 Comments

With all the recent studies and vindication of saturated fat in relation to heart disease, there has been a huge resurgence in butter love worldwide. I've even heard American's recommending buying NZ butter where at all possible because it's grass fed and believed to be less contaminated by hormones, pesticides and antibiotics than USA produced butter.

Could that mean NZ is not an exporter of dairy commodities, but high value product? Looking forward with anticipation in that reflected in the milk cheque?

wait until the penny drops that its made from palm kernel, polluted waterways and fired on coal. Perhaps if they had listened to the greens, stayed grass fed or better still, organic, then we would have a very unique highy priced 'green' butter for the top end. But alas no.....theyre trend followers, not setters.

... wow ... how good is that , higher butter prices .... giving more upside to the salaries of the $ 8 Million CEO and other flunkies in the Fonterrible head office ...

No wonder they had to double the price of butter ....

... to fill in the salary package black hole .... and the $ 400 Million or so that these richly paid seat warmers bungled away on their ill advised investments in China ...

Like the world is running out of butter, USA from March this year.

"Butter inventories climbed 50.3 million pounds in February to just shy of 277 million pounds. That’s
the largest January -to- February stock build since 1992. Butter inventories are 2.6% greater than they
were a year ago and they represent the largest February stockpile since 1993. It’s not encouraging
to be reaching back into the early ‘90s –when low- fat products and neon windbreakers were in fashion
–for comparable butter trends"

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