European butter prices outpace NZ

European butter prices have increased as international dairy markets try to narrow the price premium that New Zealand and other Oceania butter has had over European butter in recent months.

"The question as to whether the premium would be narrowed by Oceania prices weakening or European prices increasing appears to have been answered," Massey University professor of agribusiness Bill Bailey said today.

Oceania butter -- mostly from Australia and New Zealand -- had been enjoying an unusual 10 per cent to 15 per cent premium in pricing over European butter, he said.

Since the start of this calendar year, Oceania butter prices had increased while European butter prices declined, Prof Bailey said in a commodities commentary on the ASB Bank website.

In February, New Zealand butter was earning an unprecedented premium of US$350/tonne over butter from Europe.

United States Department of Agriculture figures showed butter from western Europe selling up to US$2050/tonne, compared with butter from Oceania, selling for as much as US$2400/tonne.

One closely-watched price series showed European butter prices, for the first time in approximately 6 months, had recently increased.

While the increase was only 2 per cent up on earlier price levels, the strengthening implied European butter prices show no sign of weakening as the northern hemisphere spring approaches, Oceania butter prices are expected to remain strong rather than decline to narrow the premium, and with demand strong, despite high prices, butter prices may need to go higher if demand is to be rationed.

But Prof Bailey noted that because United States butter prices were declining, butter imports there might slow, putting additional quantities into the international market.

- NZPA