It is a worrying time for bakers that still need to cover their butter requirements for the crucial Christmas period. The price rises currently being seen in the market - already at levels unheard of over the last 10 years - will likely rise even further. UK prices have moved quickly through the £3,000/t barrier and there is already talk of £3,500/t.
The real worry is not the price, but whether the butter will be available. Declining supplies of milk, huge demand from export markets and lack of stocks within the EU have led to unprecedented butter prices across an European industry that has long been accustomed to over-supply. Recent growth across emerging markets has lead to the EU being almost the sole supplier to world markets across the first half of 2007. This is on the back of reduced supplies from the previous season from the southern hemisphere, notably Australia.
For the new season, starting around September, New Zealand has already made noises that it will be unable to fulfil normal quantities of supply.
For the UK, supplies are already tight and even non-existent from some manufacturers who themselves are already behind on existing commitments. One manufacturer has stopped manufacturing bulk butter completely as it will use its milk for other products.
As we progress further into the trough of production, processors are reluctant to offer forward prices past one month for fear of not having the milk available.
Gary Norcoot, commercial director, Staple Dairy Products