As demand for butter continues to outstrip supply, and with the price differential between dairy proteins and fats at record high levels, a butter shortage could be on the cards.

Ornua’s Joe Collins says that the butter market has moved into a new area in recent months.

“Supply and demand have moved in opposite directions – supply has been curtailed by reduced milk output, weakness in skim milk powder (SMP) returns and the syphoning off of cream into full fat products (milk, yoghurt and cheese) before reaching the churn,” Collins said.

“Demand for dairy fats including butter and cream has experienced strong growth in most geographies and sectors (retail, food service, food ingredients) in recent years.

“The growth drivers are taste, functionality and health benefits. Butter has moved from being the ‘health villain’ to the ‘health virtue’.”

He said that this shift has coincided with negativity regarding butter substitutes – margarines and vegetable oil products – including issues with health, sustainable sourcing and taste.

The current spot butter market is very firm, with prices at record levels which are not sustainable, Collins said.

“Supplies and stocks are currently very tight in Europe and Oceania. Customers who expected the market to weaken post-Easter and Ramadan have been caught short.

“The risk is that the high prices will drive output while leading to demand burn-off in both domestic and export markets on the back of reduced consumption and substitution.”

The increased demand for butter will help underpin dairy markets, keeping milk prices stable for dairy farmers.

Conor Mulvihill, director of the Irish Dairy Industries Association, said that butter is currently trading at between €4,100/t and €4,500/t, while skim milk powder (SMP), the byproduct of butter, is trading in the region of €1,800/t.

Overhang

Two tonnes of SMP is generated from every 1t of butter produced. While volumes of SMP are trickling into intervention, there is still a significant overhang in the market which continues to cause concern to processors.

“That difference in price has never been at this level – it’s a record. Butter inventories are at their lowest since the 1980s. There is a general demand for butter, driven by the US.”

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Is there a butter shortage on the cards?

"Butter inventories are at their lowest since the 1980s. There is a general demand for butter, driven by the US."