Food manufacturers urged to enter long-term butter deals

By Michelle Perrett

- Last updated on GMT

Butter prices have rised globally
Butter prices have rised globally

Related tags Milk

Food manufacturers are facing higher butter prices after a “surprise rally” on global commodity markets, claims the head of a leading ingredients company.

Between April 15 2016 and May 24 2016, the price of butter futures to October 2017 on the European Energy Exchange (EEX) jumped by €349/t (£266/t) to an average of €3,012 (£2,298) – an increase of 13%.

Ian Thomas, md of Greenfields Ingredients, the UK division of Greenfields Ireland, said that the effects of low milk prices and a cold, wet spring across Europe had combined to push butter prices upwards.

Rising raw materials

He warned manufacturers not to expose themselves to the risk of rising raw material costs, which could hit their profits.

This is not the first time the ingredients boss has issued a warning to food manufacturers.

In April, he highlighted that all dairy products would be facing commodity price volatility and warned food manufacturers to consider entering long-term fixed price deals with suppliers.

Thomas said: “Food manufacturers have become accustomed to the idea that there is too much milk and that prices will continue to fall. Until recently, that’s been the case.

“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.

“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.”

He said that lower-than-usual spring temperatures and significant rainfall had prevented farmers from getting their dairy herds out on to fresh pasture.

‘Poor returns’

Combined with the “poor returns”​ the farmers are receiving for their milk, they have chosen not push production.

“The latest jump in butter prices is a direct consequence of these factors and prices have risen much earlier than expected,”​ he said.

According to the Agriculture and Horticulture Development Board (AHDB), Dairy Market Weekly May 26 2016, prices moved up for all reported dairy products during May, contrary to normal seasonal patterns.

It said: “Lower than anticipated milk production this year seems to have triggered a demand response, with buyers coming back to the market to secure supplies.

“Cream and butter prices were reportedly driven by shortages on the continent, pushing prices up week on week.”

AHDB said that butter prices moved up, indicating that there may be relatively little unsold stock in the market.

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