Dairy Processing - November/December 2023 - 70

COMMODITIES OUTLOOK
record high
by Nate Donnay | nate.donnay@stonex.com
B
uyers have been burnt by butter twice in a row now.
The CME spot butter price rallied to nearly $3.27
per pound in early October of 2022 due to weak
production and some retailers who were short on butter for
year-end sales.
Improved production in early 2023 helped to push the
price back down in the first half of the year, but a rebound
in domestic demand pushed the price to a new record high
above $3.50 in early October of 2023. End users we talk to
don't want to see their purchasing budgets blown up for
a third consecutive year and they are looking at tools that
would allow them to lock in the cost of their butter (or cream/
milk) for the second half of 2024 right now.
PRODUCTION AND CONSUMPTION
To understand what has happened in the butter market the
past two years we need to look at the seasonal pattern of
production and consumption of butter. Milk production trends
higher over the winter and into the spring, which results in
surplus milk that gets turned into storable dairy products like
cheese, butter and milk powders.
As the weather warms up and the cows become
70 NOV-DEC 2023 | DAIRYPROCESSING.COM
uncomfortable, milk production drops in the second half of
the year and butter production drops, too. At the same time,
the strongest months for consumption are November and
December during the year-end holidays. As a result, there is
a pretty stark seasonal mismatch between production and
consumption of butter that can lead to very volatile butter
prices in the second half of the year.
The price spikes in 2022 and 2023 were driven by different
circumstances. In 2022, we started the year with weak milk
(and butter) production, which helped to keep the price of
butter high. Everyone (especially retailers) had reluctance
about locking butter volumes and prices at mid-year because
the expectation was that production would increase and
prices would come down. Instead, butter production turned
out weaker than expected in Q3 and retailers had to scramble
to buy enough butter to match year-end holiday sales, which
pushed the market to new record high prices.
LESSONS LEARNED?
It appears rtailers learned from their experience at the end
of 2022 and they were more aggressive in purchasing butter
mid-year during 2023. Maybe even too aggressive. Retail
prices
Domestic demand has pushed butter prices to new high.
©JoLin-stock.adobe.com

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Dairy Processing - November/December 2023

Table of Contents for the Digital Edition of Dairy Processing - November/December 2023

Dairy Processing - November/December 2023 - Intro
Dairy Processing - November/December 2023 - 1
Dairy Processing - November/December 2023 - 2
Dairy Processing - November/December 2023 - 3
Dairy Processing - November/December 2023 - 4
Dairy Processing - November/December 2023 - 5
Dairy Processing - November/December 2023 - 6
Dairy Processing - November/December 2023 - 7
Dairy Processing - November/December 2023 - 8
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Dairy Processing - November/December 2023 - 11
Dairy Processing - November/December 2023 - 12
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