Europeans are eating so much butter that the bloc's stockpiles are nearly empty, adding to a rush of demand that has sent global prices skyrocketing.
The US Department of Agriculture boosted its outlook for world consumption and downgraded production in a report this month.
In the European Union, one measure of reserves fell to 1,369 tons as at the end of May, a 99% plunge from the 92,548 tons held a year ago, the EU said.
Global consumption is forecast to climb 3.1% to a record 9.7 million tons this year, outstripping the 2.5% rise in production, the USDA said. Consumers are increasingly turning away from vegetable-oil alternatives such as margarine and now see butter as "safer", the USDA said.
Spot prices for butter fat in western Europe have doubled in the past 12 months to a record $7,212.50 per ton, and costs in the region comprising Australia and the Pacific Islands are at an all-time high of $6,150, according to USDA data going back to 2004.
Even as butter prices soar, it's not easy for supply to keep pace. Output in the EU - the second-biggest producer behind India - may dip 3% this year amid a drop in milk-fat content and higher processing returns from using milk to make cheese and whey, the European Commission said in a July report.
Some dairy farmers had to switch to cheaper feed during the earlier price drop-off, leading to the decline in milk-fat content used for butter, said Thomas Carstensen, senior vice-president of milk and trading at Arla Foods, a Denmark-based cooperative that's among the world's largest dairy companies.
While production is rebounding, it takes time. The European Commission forecasts milk supply to rise 0.7% this year. Milk is comprised of two key elements: protein and fat. Butter production only utilises the latter, and the rest is mainly processed into skim milk powder, said Carstensen. Butter's value in tandem with powder has been less than the combination of cheese, yogurt and fresh milk, he said.
Some grocery stores have been reluctant to raise retail butter prices, and there are already shortages of retail butter packs in some supermarkets, Alan Wyn-Jones, MD at South Caernarfon Creameries in Wales, said by e-mail. Cream demand is also strong, making it less available to boost butter production, he said.
The global dairy industry was built around milk-powder growth in recent decades, as demand for products such as infant formula rose from developing markets. Most herds are comprised of Holstein cows, a breed that produces high output with lower milk-fat content, said Tom Bailey, an executive director of dairy research for Rabobank in New York. Farms are now adding Jersey cows to boost milk-fat yields.
"Of course we see milk production picking up, but it's a slow process," Carstensen said. "We want to change it, but then you need to have new cows into the stable, you need to change the feeding to increase the yield and that's just a long process."
Bloomberg
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