EU-Oceania price gap for butter hits 10-year high

Published 18 September 18

According to USDA data, EU butter prices averaged $6,600 per tonne in August, $1,925 higher than the average for Oceania, the highest premium recorded since the middle of 2007. The question is, how long can such a large disparity be sustained?

 EU v Oceania butter prices Sep18

The EU reached significantly higher butter prices than Oceania in the 2017 summer, but this premium had virtually disappeared by the autumn as EU buyers stepped away from the market.

This year, butter prices increased across both regions in the spring and early summer. In the EU, prices rose further and then held up better, partly because of the hot, dry weather conditions and subsequent concern over milk volumes. With the immediate concern over volumes now reduced, commodity prices have reportedly started to come under downward pressure in the EU, while Oceania butter prices have been reducing since June.

Butter is a globally traded commodity, and higher prices in one part of the world attract interest from other regions. We have already seen this with Fonterra’s offer to sell butter into the EU. As a result, butter prices in the EU and Oceania will eventually come back together. How fast the EU market aligns to world price levels will depend on the knock-on impact the summer weather  has on EU milk supplies later in the year.