Bakers and confectioners face higher butter prices

Manufacturers of bakery products and confectionery are facing higher prices for butter after a surprise rally on global commodity markets, a dairy company has warned.

The effects of low milk prices and a cold, wet spring across Europe have pushed butter prices upwards, according to Greenfields Ingredients. The dairy firm says this leaves food companies exposed to the risk of rising raw material costs, which could hit their profits further if they do not take action now and lock into a fixed price deal.

The price of butter futures to October 2017 on the European Energy Exchange (EEX) jumped by €349 ($388.9) per tonne or 13% between 15 April and 24 May 2016 to an average of €3,012.

“Food manufacturers have become accustomed to the idea that there is too much milk and that prices will continue to fall,” says Ian Thomas, managing director at Greenfields Ingredients, the UK division of Greenfields Ireland. “Until recently, that’s been the case.”

However, he adds that 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.

“As such it’s always wise to prepare for bumps in the road when prices might shoot up, just as they have in the past month or so.”

Lower than usual spring temperatures and significant rainfall have prevented farmers from getting their dairy herds out onto fresh pasture, Thomas explains. In addition, farmers have chosen not push production due to the poor returns they are receiving for their milk.

The latest jump in butter prices, he adds, 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, Greenfields has developed a range of pricing models to help food companies hedge against further volatility.

 

 

Related content

Leave a reply

Confectionery Production