Last week the US government increased the import tariff on butter by US$510/tonne (to US$2,051/tonne), significantly reducing the current premium available from that market to EU manufacturers.
The UK doesn’t export significant quantities of butter directly to the US, averaging around 75 tonnes per year. The EU, however, has increasingly turned to the US to plug the gap from the Russian ban. EU exports of butter to the US doubled during the first six months of 2015, with the country becoming the second largest export destination for European butter after Saudi Arabia.
The move by the US government was likely a response to domestic prices rising 20% over the last month. Despite the tariff hike, butter sales to the US would still currently offer a better return than selling into Europe, although the margin is now significantly reduced. For a UK butter/powder producer selling into the US, the tariff increase is equivalent to a 1.6ppl drop in milk price equivalent.
Meanwhile, global exports of dairy products experienced challenging conditions in the first half of 2015, according to a report by Eucolait. Lacklustre demand from importing countries such as China and Algeria had an impact on exports of WMP, which were down 9% compared to the first half in 2014.
In addition, the Russian ban resulted in cheese exports from Europe down 100k tonnes (13%) for the year ending June 2015, compared to the same period last year.
Despite this, Europe remains the strongest player in the global cheese market and is growing exports to markets such as the US and Japan.