Here’s what soaring butter prices could mean for you

Friday, 9 February 2024

Global butter prices are rising, but does that mean retail prices will go the same way?

Global butter prices are closing in on highs not seen since 2022, when retail prices hit $8 a block.

Butter was the biggest mover at the latest Global Dairy Trade (GDT) auction, lifting 10.3% to US$6516 (NZ$10656) a tonne, the highest it has climbed since early 2022.

GDT events are held online and allow buyers and sellers from all over the world to trade dairy ingredients including milk powder, cheese and lactose.

Butter prices have risen sharply at recent events, jumping 34% since the beginning of December, and are closing in on the five-year high of US$7086 per tonne recorded in March 2022.

Kayes Bakery co-owner Luella Penniall say they want to buy New Zealand-made butter to use in their biscuits, but Australian butter is often less expensive.

In May 2022, retail prices for a 500-gram block of butter were as high as $7.99.

However, it was not a given that the recent jump in global prices would lead to higher prices for consumers, ANZ agricultural economist Susan Kilsby said

“Our supermarket chains tend to have contracts in place for the supply of dairy products,” she said.

“So there does tend to be a lag in the change in global prices relative to domestic prices and domestic prices only change when contracts are renegotiated.

“Traditionally, we have seen lags of about three to six months on price movements, although of course this can vary and will depend on when contracts are scheduled to roll over or price reviews are due to take place.”

The use of contracts meant domestic prices tended to be more stable than export prices, and local prices were also impacted by retailer margins, Kilsby said.

“Therefore prices may not fall as much when retailers are able to buy product more cheaply but on the other hand prices are less likely to rise as much when wholesale prices increase.”