Butter prices have rocketed, trading at record highs across Europe in bad news for bakers and pastry makers as they prepare for Christmas celebrations.

The spike in recent months comes amid already high chocolate and sugar costs.

Analysts say strong demand for butter, tight stocks and dairy processors’ preference to use more milk for the most profitable products such as cheese have driven the price surge.

European butter was trading on world markets at a record $US8706 ($12,916) per metric tonne by September 29, up 83 per cent year on year, latest official European Commission data showed.

Prices were also higher year on year in Australia and New Zealand but came off summer highs.

While large food companies have covered much of their butter supplies before starting to produce Christmas cakes and ice-creams, the effect for small producers will be significant with a rise in prices unavoidable, said Paul Boivin, director of French baker and pastry federation FEB.

Milk output declined last year in most parts of the globe including Europe, the US and New Zealand – the world’s largest milk and butter exporter – as low prices and high feed costs discouraged many dairy farmers.

Global milk output rebounded slightly in 2024 but remained tight compared to growing demand, prompting producers to favour allocating milk to the most competitive products like cheese instead of butter, Rabobank dairy analyst Michael Harvey said.

EU milk production grew 0.7 per cent between January 2023 and July 2024, the latest EU data showed.

Over the same period butter output fell 1.6 per cent with stocks at historically low levels, while cheese production gained 3.2 per cent.

The US Department of Agriculture this month raised its forecast for 2024 US butter prices, up 15 per cent from last year, due partly to fewer cows and less milk produced by each animal.

“Tighter milk supplies and firm demand are expected to carry the higher price outlook into 2025,” USDA said.

Revenues in the global butter market are set to reach $US42 billion in 2024, up more than 8 per cent from 2022. The market is expected to grow annually by 7 per cent by 2029, according to data platform Statista.

European butter prices were also somewhat supported by fears of a further decline in milk supply due to a spread of diseases in dairy cows in western Europe, including bluetongue and Epizootic Haemorrhagic Disease (EHD), analysts said.

However, the number of outbreaks of bird flu in US dairy cows was not large enough to impact the national level of milk production, USDA economist Michael McConnell said.

Butter prices should ease from record highs as dairy producers boost output to benefit from high prices but it could take several months to see a significant fall, said Susan Kilsby, analyst at ANZ bank in New Zealand.