Butter prices at record highs but Australian dairy farmers are missing out on the cream

Global butter prices have surged to record levels but according to Rabobank, Australian dairy farmers are unlikely to cash in — and consumers are set to pay more.

The Oceania spot price for butter has risen about 35 per cent this year and has now gone beyond $US7,000 a tonne ($A10,400/tonne) for the first time.

Despite having a large domestic dairy industry, Australia is a net importer of butter and last year imported a record 47,500 tonnes.

Rabobank’s senior dairy analyst, Michael Harvey, said there were a range of supply and demand issues pushing global butter prices to “eye-watering levels”.

“The Northern Hemisphere, especially Europe, is heading into their seasonal peak of consumption of high-fat products like ice cream, which shorts their market for cream supply and drags the butter complex higher, which has knock-on effects,” he said.

“Also, buyers of butter globally don’t have excessive inventory cover, which means they are buying hand-to-mouth on a spot basis, which creates volatility.”

Mr Harvey said given Australia was a net importer of butter, consumers needed to “brace for higher prices of butter at the check-out” as well as various products that rely on butter as an ingredient.

“Rapidly rising butter prices will also be a headache for some food and bakery manufacturers who need butter in their products,” he said.

“There is a risk we’re going to see prices of cream and butter move higher if these [global] prices hold for longer, which is not what consumers want to see.”

So why are farmers losing $500 million?

Dairy Farmers Victoria said despite record-high butter prices, its research showed about $500 million “will not find its way into pockets of dairy farmers” this season, after milk processors cut opening milk prices by 10 to 16 per cent.

“We understand that milk processors have been under pressure, but we believe there has been a gross over-correction to farm gate milk price,” president Mark Billing told the Victorian Country Hour.

“We need to work together with processors to share the risk, and a milk price at the lower end of $8/kgMS is not sharing the risk, it’s putting all the risk on farmers.”

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Mr Harvey said record spot prices for butter presented opportunities for Australian dairy exporters and if global prices remained high it could flow through to the farm gate.

“Most of the major dairy processors have got flexibility [to make more butter] and we are starting to see some milk that’s not locked into contracts being moved into the butter stream,” he said.

“But you’ve got to look at the total commodity basket because cheese prices, skim milk powder, whole milk powder prices have not reached record levels and that’s all part of the manufacturing complex that will need to improve before you see the full benefit flowing back to farmers.”

Australia imports most of its butter from New Zealand.