Bakers prefer butter, helping prices soar

The co-operative's president - global ingredients, Richard Allen says its bakery customers are switching from plant-based ingredients to dairy fats.

"Consumers in China and other parts of the world are seeing dairy ingredients as healthy and more premium and are willing to pay more for products containing dairy," Allen told Rural News.

"This is driving demand for our dairy products, including butter, as our bakeries customers to look for ways to switch from plant-based ingredients such as non-dairy cream, margarine and vegetable oils to UHT cream, butter and cheese."

His comments came as butter prices jumped another 3.8% on the last Global Dairy Trade (GDT) auction, hitting a record US$7,992/tonne. Butter prices have risen in the last 10 consecutive GDT auctions, staying above the US$7,000/t mark since January this year.

Fonterra produces butter at Whareroa, Clandeboye, Te Rapa, and several other sites. This season, butter supply was impacted by the drought in the North Island.

"A period of drought in the North Island has reduced butter supply which was already tight with the end of the season approaching," says Allen.

"However, we have still been able to flex our mix to increase skim milk powder (SMP), protein streams that support butter production which is up on last season."

NZX dairy analyst Rosalind Crickett says butter volume restrictions have been a continuing theme on last year, particularly in the short-term.

She says demand outpacing supply has caused the series of new pricing records the product has been setting.