Butter and cheese continue their upward trend as the world demands more dairy fat: USDA

According to the USDA report titled "Dairy: World Markets and Trade,"​ ​the price of butter peaked at US$8,140 per ton in the EU amid reports of butter shortages in some countries like France. However, major suppliers such as New Zealand and the EU have not been able to take advantage of the record-high international butter prices.

“What is particularly striking is the differential between butter and SMP underscoring the premium that milk fat now commands in response to changing consumer preferences,” ​USDA ​dairy market analyst Paul Kiendl said.

New Zealand exports decreased by 19% to 470,000 tons compared to last year and major suppliers have been reluctant to produce more butter at the risk of carrying “burdensome” ​supplies of its co-products (SMP or skim milk solids), the report stated.

The concern over finding a market for skimmed milk solids will likely temper butter production in the EU with output expected to remain largely flat in 2018.

A bright spot for the international butter market seems to be in shipping butter to China where demand for the high-fat dairy product has soared driven by rising income levels and adoption of butter as an ingredient in the baking industry.

US and cheese exports​

Exports of cheese, particularly in the US, have been steadily rebounding after two years of declining shipments.

Sales of US cheese exports were up 22% in 2017 (through October) compared to last year with shipments to Mexico, South Korea, and Japan rising by 10%.  By the end of the year, the USDA expects total US cheese exports to slow down slight (18% year-over-year) hitting 399,000 tons.

The USDA has forecasted that US cheese exports will continue its momentum into next year, at a 5% growth rate reaching 357,000 tons by the end of 2018.

“US exporters have faced strong competition primarily from the European Union. However, the recent strengthening of the euro vis-à-vis the U.S. dollar will likely boost US cheese competitiveness,”​ Kiendl said.

In contrast, US imports of cheese have dropped by 16% to roughly 139,000 tons with EU cheese imports down by 6% and New Zealand has fallen by 50%. This trend is forecasted to continue in 2018 as imports are forecasted to drop by another 5% to 132,000 tons, according to the report.

“The US cheese market has become more price-competitive and, anecdotally, it appears that there is a greater variety of US cheeses available to consumers,” ​Kiendl added.