Dairy markets: butter continues its retreat as milk supply grows

Europe’s butter market continued its rapid retreat this week. Quotes from the Dutch Dairy Board show prices have fallen a further €180/t this week to fall below €5,000/t for the first time since May.

The Dutch butter market has now corrected by more than €2,000/t in just over five weeks, which illustrates the significant shift in sentiment among dairy buyers this autumn.

However, at less than €5,000/t, it suggests the market may have over-corrected, especially given the fact there are almost no stocks of butter anywhere in Europe. The major driver of the negative sentiment in markets right now continues to be milk supply.

Farmers in the big producing countries in Europe – Germany, France and the UK – have started reacting to higher milk prices and milk supply is growing again. With farmers in a more positive mind-set, dairy markets are expecting a lot more milk to come.

For September, UK milk production increased over 5% year on year to 1.1bn litres. This brings UK milk production for the first nine months of the year to 10.8bn litres. In Ireland, September milk supplies were almost 11% ahead of last year at 642m litres. At this rate, Irish milk production will be comfortably above 7bn litres for the full year.

In New Zealand, very wet weather in September resulted in milk production falling almost 2% to 2.4bn litres. October is the month for peak milk supply in New Zealand and will be watched closely by markets.