Australian dairy farmers miss out on butter boom

Australian dairy processors and farmers have been unable to tap into the global butter boom, as prices hit $10,000 a tonne.

Butter has become liquid gold on global markets, but Australian processors are missing out on the boom.

Global butter prices have hit an eye-watering high of $10,300 a tonne, just shy of the record reached in March 2022 in the wake of Russia’s invasion of Ukraine.

But dairy industry analysts say most Australian processors can’t tap into the butter boom, given the golden spread is produced hand-in-hand with skim milk powder.

Rabobank senior dairy analyst Michael Harvey said Australian processors had been shutting down powder plants from Maffra to Leongatha and Rochester over the past decade and diverting milk into new multimillion dollar cheese plants.

Dairy Australia figures show the proportion of the national milk pool going into SMP-butter production has declined from 28 per cent in 2013 to 18 per cent in 2023, while the volume going into cheese production grew from 33 per cent to 43 per cent over the same period.

Mr Harvey said Australian processors could not simply cut cheese production and divert more milk into SMP-butter, due to that vast amounts of capital they had invested in cheese processing and the contractual obligations they had to meet.

Local processors have also had to contend with rising labour and energy costs - particularly the gas used in dryers to make milk powders.

As for what’s driving the butter boom, Dairy Australia’s head of economics and data John Droppert said there was no one factor at play.

“Dairy supply has tightened up globally, while protein is in a hole, so butterfat has streaked ahead,” Mr Droppert said.

He said reduced supplies out of New Zealand plus decent South-East Asian demand and strong domestic US retail promotion had all pushed up butter prices.

Global butter prices today are close to the March 2022 high that they reached in the wake of Russia’s invasion of Ukraine.

Mr Droppert said the war in Ukraine was also having a lingering effect on the market, given it was a global producer of plant-based fats.

But Australian Dairy Farmers president Ben Bennett said it was time for processors to follow the market and lift the butterfat price to farmers to encourage greater production.

While local processors were locked into cheese production, he said farmers could lift their butterfat to about 5 per cent, creating a surplus that could go into butter.

“It would take time, but it’s worth sending out the signal” Mr Bennet said, especially given butter prices have been well above those for protein for most of the past eight years.