How America is responsible for the crash in the dairy market

Not only in Europe but also in the United States is the butter market taking a hit. Since the summer, prices in the US have fallen by more than 30% to the lowest level in over four years. This makes it attractive for European dairy traders to import American butter, a development that partly contributes to the recent price crash in the European market. Butter in the US has slid down to $3.855 per ton, the lowest point since the summer of 2021. The decline in both Europe and the US began in mid-July. Since then, the American butter price has lost $1.758 per ton, which amounts to over 30%. In Europe, the decline was larger in absolute terms, but relatively smaller, as prices here started from a higher level. 10% more production The price drop is not so much a result of weakening demand, but mainly due to the rapidly increased American milk production. It was more than 3% higher in September than last year and reached a new record. Moreover, the milk has gradually become fatter over the years. Butter production in July was nearly 10% above last year's level. The rapid increase in production is also due to extra production capacity that has been built in recent years. For instance, Dairygold opened the largest factory in the northwest of the US in June. The rapid production increase is also contributing to a rise in butter stocks in cold storage, although to a lesser extent. The Netherlands a major buyer Part of the production growth is being sold on the global market. From January to July, exports doubled to just over 42,000 tons. Notably, the Netherlands has become the second largest market in the first seven months, importing even more butter than neighboring Mexico. In July, the Netherlands imported no less than 1,364 tons of butter, while only 5 tons were imported in the same month a year earlier. In previous years, the monthly imports never exceeded 100 tons and were often much lower. The imported volume in July accounted for almost 15% of the Dutch production that month, which reflects the scale of the volume well. Not coincidentally, the European dairy market showed signs of cracks for the first time that month, resulting in a hard crash. This started with butter and spread to cheese. The cause of the increase in imports lies in the large price difference and the strong euro. In the second and third quarters, the price difference amounted to nearly $3,000 per ton when converted. Price differences occur more often, but not on this scale. This made it extremely interesting for Dutch trading houses to bring American butter here, mostly destined for industrial applications rather than for retail sales. Incentive diminished As both the European and American butter markets are declining nearly simultaneously, the price difference in mid-October is still $2,500 per ton. Thus, it remains on paper attractive to import American butter. However, there is doubt about whether trading houses will continue to import large volumes from the US. The rapid price drops are currently making it challenging to manage transport times of often several weeks. Additionally, shortages in the European market are temporarily in the past, reducing the incentive somewhat.