It claims the price of butter futures jumped by €349 ($389) per tonne to an average of €3,012 ($3,358) – an increase of 13%, between April 15, 2016 and May 24, 2016 on the European Energy Exchange (EEX).
And, at the most recent Global Dairy Trade (GDT) event May 17, butter prices rose by 3.8%, with butter milk powder increasing 16.2%.
10-year low
Ian Thomas, managing director, Greenfields Ingredients, said it means food companies are exposed to rising raw material costs, which could hit their profits further.
“Food manufacturers have become accustomed to the idea there is too much milk and prices will continue to fall. Until recently, that’s been the case,” he said.
“However, milk is a natural product and its production is particularly subject to climatic conditions and, when coupled with the current commercial pressures, prices can rise sharply.”
DR spoke with Thomas last month, and he said that with market prices for dairy commodities at a 10-year low, now is the time for food manufacturers in Europe to take advantage of a fixed-price deal for their dairy ingredients, using a long-term pricing model.
Thomas added that lower-than-usual spring temperatures and significant rainfall have prevented farmers from getting their dairy herds out on to fresh pasture.
Jump in prices
In addition, due to the poor returns they are receiving for their milk, they have chosen not to push production. The latest jump in prices is a direct consequence of these factors and prices have risen much earlier than expected.
“How long this price surge will last is unknown. However, food companies have the option of hedging against further volatility by using one of the fixed-term price models offered by Greenfields,” he said.
“Prices have risen already but it’s not too late to take action.”