On European dairy markets, butter continues to be the only show in town. For consecutive weeks now, butter prices have been increasing at an exponential rate at the same time as butter stocks across Europe have dwindled.

This week, prices have increased by a further €250/t, with butter trading above €5,500/t as buyers scramble to lay their hands on physical product.

Milk production on the continent has been hit by a dry and cold spring in many countries and butter production has not been as expected from some producers. And less butter means less skimmed powder (SMP).

Despite the huge intervention stocks, freshly produced SMP is thin on the ground at present, leading to a €200/t increase in SMP prices over the last month to close to €2,000/t.

The surging price of butter and improved price of SMP is shifting the dynamic in European dairy markets, so much so that returns from a butter/skim powder mix are now greater than whole milk powder (WMP) or a cheese/whey mix.

Product mix

This should lead to a shift in product mix across the continent, meaning more butter will begin to come on stream later in the season. However, with butter stocks all but disappeared across Europe today, there are legs left in this butter rally yet.

Market projections estimate butter prices could move higher towards the €6,000/t mark in the coming weeks, but the market should start to decelerate as we move into the back half of the year.

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