Butter price hikes loom in the wake of drought

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Concerns are rising that butter prices could soon be propelled to new heights, as the drought in the UK and on the Continent sends feed prices soaring and reduces the amount of pasture land.

The UK wholesale price of butter has shot up 25% from £3,050 per tonne to £3,800 per tonne since the beginning of the year and is also up 25% year-on-year [Mintec], with Eurex butter futures rising from £3,697 per tonne for July to £3,707 per tonne for October.

Mintec analyst Robert Miles said much of the drought's effect was likely to have already been priced into wholesale butter prices. "But these wholesale prices will probably have yet to be passed on to retail customers, and that could be a concern," he said.

At present, a 250g pack of branded salted butter costs about £1.50 in the big four and Waitrose, up from about £1.30 last year. The retail price of own-label salted butter has gone up from about £1.10 to £1.25 during the same period [BrandView.co.uk].

Butter prices have been consistently high at a wholesale level for the past 12 months, as dairy producers have opted to use more milk for cheese. "We've not been making a lot of butter, so supplies are quite tight," said Patty Clayton, senior analyst at DairyCo.

Miles added that EU butter production in 2011 was expected to barely cover demand, and low Continental stocks and favourable currency exchange rates meant a growing amount of UK butter was being exported, further driving up prices.

Although it is not clear to what extent UK dairy production will be ­affected by the current drought the UK's key dairy production areas on the West coast have been affected less by the dry weather than the cereal-producing regions in the East of England and the Midlands, for example dairy producers could still feel pain as the feed they buy in becomes more expensive.

"If feed prices weren't ­already as high as they are, the drought wouldn't be as much of a concern, but farmers can't grow their own feed," said Clayton.

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