Food manufacturers may be hit hard by a rise in the price of butter after a surprise rally on global commodity markets, a dairy ingredients supplier has warned.
Greenfields Ingredient said that the effects of low milk prices and a cold, wet spring across Europe have combined to push butter prices upwards. The news leaves manufacturers of ready meals, bakery products and confectionery exposed to the risk of rising raw materials costs, which could hit their profits.
Since 15 April, the price of butter futures to October 2017 on the European Energy Exchange (EEX) jumped by €349 per tonne to an average of €3,012 – an increase of 13% – illustrating the highly volatile nature of butter.
Greenfields Ingredients managing director Ian 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.
“Lower-than-usual spring temperatures and significant rainfall have prevented farmers from getting their dairy herds out on to fresh pasture. In addition, due to the poor returns they 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.
“Prices have risen already but it’s not too late to take action. Greenfields Ireland has developed a range of pricing models that offer a straightforward way for food manufacturers to bring some certainty to dairy commodity prices over an extended period.”
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