Why the 2014 World Cup and New Zealand butter prices matter to the U.S. dairy industry.
In this day of instant access to world news, the U.S. dairy industry has taken on a global focus that few would have thought possible a decade ago. U.S. consumers are also paying more attention to world news and sporting events, evidenced by the recent high TV viewership of the 2014 World Cup. Both have affected dairy markets.
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This week’s lower weighted average price butter price at the Global Dairy Trade event sent U.S. CME spot butter tumbling 5 cents on Tuesday and 5 cents on Wednesday. The July 1 GDT butter price of $3,181/metric ton ($1.41/lb.) was $2,187 less than the U.S. 80% equivalent butterfat price of $2.40.
"Something has to give," says Sara Dorland, dairy economist with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.
"You can’t have butter prices in New Zealand, the world’s largest marketer of global fat, at $1.41, and the United States selling butter at $2.40. The system will have to fix itself. U.S. exports will slow. In fact, we could reverse course and import butter."
However, the United States is not likely to import butter before New Zealand’s coming production season begins this fall.
"October will be the pivotal point," says Dorland. At that point, New Zealand production will ramp up and U.S. holiday demand will be in full swing.
Dorland doubts that U.S. demand is strong enough to fully absorb expected higher milk production and potential imports to the point that the current lofty butter prices can be sustained.
"I think we are seeing some real issues in China, with demand falling off," she says. "China has started to sell powder that it bought at a high price into the world market for a lower price."
World Cup Becomes U.S. Sporting Event
Last week, more than 25 million Americans tuned in to watch the U.S. soccer team take on Portugal in the increasingly popular World Cup. Many were eating pizza loaded with cheese.