March 22, 2019
Sam Green

Butter price returning to normality

Butter prices have gone mad, are we finally returning to sanity?

The dairy industry is one of New Zealand’s largest export industries, with $14 billion of dairy products shipped around the world over the past year. The strong presence of New Zealand in the international dairy market means the price we pay in New Zealand is tied to the price our producers receive for their exported goods.

In the market for dairy products, the base prices of milk and cream would be expected to drive the prices of dairy-based products including butter, cheese and yoghurt. Butter is almost entirely made of cream, but the price of butter relative to the prices of these products don’t seem to reflect this relationship. As seen in the following chart, butter prices are much less stable than the prices for cream.

Historically, butter prices followed a similar path to the price of cheese though cheese was more expensive. The difference in price between cheese and butter gradually reduce until 2016, where the price of butter, cheese and cream were all comparable prices for 500 grams. Subsequently, cream and cheese have maintained similar price levels, while butter skyrocketed. An international butter shortage in 2016 resulted in global prices of butter rising, with a ‘butter crisis’ reported Europe. Now the normal retail price of butter in New Zealand ranges from $5 to $6 for 500g.

The latest food price index data released by Statistics New Zealand show that the retail price of butter has fallen ten percent in the month to February 2019, to the lowest price since July 2017. This may signal that butter prices are returning to reasonable levels.

Again as a butter exporter, the price in the international markets can give us an indication of where the future prices in New Zealand will be heading. The Global Dairy Trade auctions in late 2018 had very low butter prices, hitting a low of USD 3,600 per tonne, from a peak of USD 5,800 in May 2018.

For butter lovers hoping for a return to the low prices of pre 2016, their hopes may be futile. Since the lows of November 2018, international butter prices at the global dairy trade auctions have started to rise once again, increasing 27 percent in five months.