Australian dairy price status quo despite European butter glut

European butter blues could provide some Australian farmgate respite — but there’s mixed opinions. Here’s why.

Recessionary conditions are weighing on worldwide dairy trade, with butterfat shortages in the European Union providing export hope for the Australian farmgate.

Reduced milk fat output, a firm cheese market and summer cream demand have coincided over the European summer, according to analysis from Maxum Foods.

Another dairy variable is changes to the Common Agricultural Policy, with European Commission president Ursula von der Leyen weighing up changes to framework by which lucrative subsidies are doled out to Eurozone landholders.

Maxum Foods general manager Edwin Lloyd said sweltering conditions across much of continental Europe in recent months had shifted dairy stocks.

“Of course, when temperatures are high, naturally demand for ice cream goes up,” Mr Lloyd said. “That’s one variable. Butterfat normally directed towards butter production has been diverted into cream instead.

“Another variable has been the rise in blue-tongue cases across cattle in parts of Europe, so that’s another element stifling supply.

“Both of these elements are short-term factors but it does take the edge off Europe’s ability to export produce. Added into the bargain is the weaker Chinese economy.”

Reserve Bank governor Michele Bullock recently warned Australians that China’s shuddering economy would hit export growth, including agricultural sectors such as dairy.

Rabobank dairy analyst Michael Harvey said weaker Chinese dairy demand would likely keep the Australian farmgate price on ice in spring.

“The weaker Chinese story has been playing out for the past two years but indications are that demand is set to get weaker,” he said.

“Much of that has been due to the subdued Chinese property market, consumer demand in China is far weaker than we were seeing in the 2010s.

“In terms of the Australian farmgate, that lack of Chinese demand is still a factor in overall global demand. China has become far more self-sufficient in dairy, that’s increasingly evident.”