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Rabobank: Surging Global Butter Prices Leave Australian Dairy Farmers Behind

Australia 09.07.2024
Source: The DairyNews
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Despite global butter prices reaching unprecedented heights, Australian dairy farmers are poised to miss out on potential gains, according to a report by Rabobank.
Rabobank: Surging Global Butter Prices Leave Australian Dairy Farmers Behind
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The Oceania spot price for butter has soared by approximately 35% this year, crossing the $US7,000 per tonne mark, equivalent to over $A10,400 per tonne, setting a new record.

Australia, though home to a significant dairy industry, remains a net butter importer, having brought in a record 47,500 tonnes last year. This position complicates the benefits Australian farmers might derive fr om these soaring global prices. Michael Harvey, Rabobank’s senior dairy analyst, highlighted a combination of supply and demand issues that have driven butter prices to what he described as "eye-watering levels." Key among these is the increased consumption of high-fat products like ice cream in the Northern Hemisphere, particularly Europe, which is currently in its peak consumption season.

This surge in demand tightens the market for cream and subsequently elevates butter prices globally, creating volatility due to the lean inventory cover that compels buyers to purchase on a spot basis. Harvey warned Australian consumers to brace for higher butter prices at checkout and also anticipate price hikes in various products reliant on butter.

Furthermore, the escalating butter prices pose challenges for food and bakery manufacturers who depend on butter as a key ingredient. The situation is exacerbated by the expectation that cream and butter prices could climb even higher if the global price levels persist.

The dilemma extends to dairy farmers in Victoria, wh ere despite the high butter prices, Dairy Farmers Victoria reported that around $500 million would not be accrued by dairy farmers this season. This shortfall comes after milk processors reduced opening milk prices by 10 to 16 percent, citing pressures yet leading to what the organization deems an over-correction. Mark Billing, president of Dairy Farmers Victoria, expressed the need for a more equitable sharing of risks with processors, advocating for a milk price that doesn’t disproportionately burden farmers.

While Harvey acknowledged that the record butter prices could offer opportunities for Australian dairy exporters and potentially benefit farm gate prices if global highs continue, the overall impact remains diluted. He pointed out that other dairy commodities like cheese, skim milk powder, and whole milk powder have not seen similar price spikes, underscoring the need for improvements across the broader dairy manufacturing complex to fully realize benefits for farmers.
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