Christmas is finally over, no doubt, the last cookie eaten, and if there is still a packet of butter left in the fridge from the holidays, then that is probably gone by now. The demand for butter is therefore comparatively flat, as always in January. Lo and behold: In all supermarkets and discounters, butter prices suddenly tumbled, at least for cheap German branded butter in the so-called entry-level range.
Aldi started: minus 40 cents or 20 percent less; and pretty much everyone is following suit. That’s how it works. Aldi always has to live up to its role of being the retailer who sets the prices. Otherwise the discounter will lose this role at some point. Butter has a very special symbolic power. Like milk, flour or eggs, it is a price point item. This is what many consumers look for. If a retailer offers lower prices than the competition, it is considered cheap.
Half a pound of branded butter now costs 1.59 euros in many places “until further notice”. And not as a special offer, but as a normal price. That is even slightly below the level before the outbreak of the Ukraine war. After that, the price had climbed steeply, dropped again somewhat and was most recently at a historic high of EUR 2.29 for the 250-gram packet. The traders are currently trumpeting the drop to the pre-inflationary normal with a loud advertising campaign. “We pass on the advantage!”, Kaufland rejoices. One does not know whether that is true.
The fact that prices dropped exactly on February 1 is primarily due to the rhythm of price negotiations in the dairy industry. The old contracts expired at the end of January, and in the new contracts the dealers were able to agree on significantly lower prices, which make the current price reductions possible. For other foods, purchase prices are usually fixed for up to six months. For butter, there were three months over Christmas. Before that, the prices fluctuated so much because the contracts between dairies and retailers were very short, sometimes as little as one month.
If the fat content drops, more milk is needed for half a pound of butter
The price of the butter is determined by events of global political significance such as the Ukraine war, but a city in southern Germany is also important. The butter price is essentially based on the listing on the butter exchange in Kempten in the Allgäu. There, a commission made up of representatives from sellers and buyers negotiates a price range every Wednesday. Within these, most butter is sold to wholesalers. The price negotiations are based on statistics on supply and demand from the previous week and on what is happening on the market in Germany and around the world.
Most recently, the high energy costs were the main reason why butter had become so expensive. Therefore, first the price for fertilizer rose, then for the production of concentrated feed. Farmers then reduced the amount of feed for the cows. Due to the lower feed quality, the fat content in the milk fell somewhat. Because butter consists mostly of fat, more milk than before had to be used to make butter or cheese. In addition to the price, there are also costs for freight and shipping as well as the dealer’s margin. The end result was a historically high butter price of more than nine euros per kilo.
Is this over now, once and for all? No, lower prices can only be expected as long as there is an oversupply. In four weeks it can look different again. Then the contracts that have now been agreed will already end. On the other hand, retailers could also do without a margin, as Aldi is now allegedly doing. but who knows that? In any case, the milk association does not expect new price increases after the end of the term.