The price of butter in Europe hit a new record high in September at around $4 per pound (€7,950 per metric ton). The previous high was about $3.60 per pound (€7,478 per metric ton), which was recorded back in June 2022. The bad news is butter prices across the major dairy exporters are much less correlated than powder prices, so it is unlikely the strength in Europe will pull U.S. butter prices up to $4. Still, the high price of fat in the European Union (EU) will be supportive to U.S. dairy prices in a couple of different ways.
With U.S. butter prices at $3.20 (or lower in recent days) and Europe at $4, this will open up some export opportunities for the U.S. In 2023, the 27 EU countries plus the United Kingdom exported about 29% of the globally traded butter and anhydrous milkfat (AMF). Much of their exports go to the Middle East and Northern Africa (Morocco) where they have logistic advantages and long-term relationships. Those buyers have a strong preference for EU fat, but given how wide the price spreads are, we could see a little more U.S. fat going that direction.
Somewhat surprisingly, about 25% of the EU and U.K. butter exports come to the U.S. As far as we can tell, this is primarily branded butter (Kerrygold) coming from Ireland. Kerrygold is the second largest branded butter sold in the U.S. today, with Land O’ Lakes holding the top spot. The fact that EU butter prices are much higher than U.S. prices probably won’t slow the imports into the U.S. much, but it might limit retail promotional prices on the imported butter and maybe help U.S.-produced butter gain a little market share back. At the end of the day, though, I don’t think this will do much to support U.S. butter prices; the impact will just be too small.
Movement on the cheese side?
I think the biggest impact is going to be on the U.S. cheese market. The EU industry can more easily move milk between butter/powder and cheese/whey than we can move milk in the U.S., so if cheesemakers (and cheese end users) want product, they have to compete against the very strong return on butter/powder right now. This has pushed cheese prices in Europe significantly higher during September, too. EU young Cheddar is around $2.50 per pound, and Mozzarella is around $2.35 per pound.
EU butter and cheese prices are expected to trend down once we get on the other side of the year-end holiday related demand and milk production and inventories start to expand seasonally, but forward prices of EU Cheddar for the first quarter of 2025 are still high, around $2.38 for Cheddar and $2.23 for Mozzarella. That should push importers toward the U.S., where the first quarter cheese futures are trading around $1.93. The U.S. has a lot of new cheese processing capacity that should be coming online in the first quarter and there has been some concern that the higher cheese availability could collapse U.S. cheese prices. That is still a risk, but we should be building a decent export book into that quarter given where the price spreads are, and that could keep U.S. cheese prices from falling as far as some people fear.
The tightness in the European dairy market should be supportive for U.S. dairy prices, particularly for cheese and possibly butter. The counter argument would be that cheese and butter prices in New Zealand are weaker than the U.S. right now. If buyers are just looking at price, New Zealand will be the first place they go before they book heavy out of the U.S., but any hiccup in New Zealand milk production could quickly send buyers to the U.S.
