Milk Fat Adds $2.2 Billion to Farmers' Milk Checks

An analysis of recent trends in dairy consumption suggests increased use of butter and other higher-fat dairy products has added $2.2 billion to dairy farmers’ milk checks, say officials with Dairy Management Inc. (DMI) and the National Milk Producers Federation (NMPF).

In addition, the percentage of a farmer’s milk check coming from milk fat has climbed from 38% in the early 2000s to a peak of 68% in 2015. That percentage dipped back to 50% in 2017, but futures market prices suggest it will rebound to 58% to 60% in future months, says Peter Vitaliano, NMPF vice president of policy and market research.

Butter’s share of total milk fat use in dairy products had dipped to 16% in 2000. Last year, that share had increased 12.5% to 18%.

Another example: Whole milk sales have rebounded from 40 million pounds per day in 2013 to 45 million pounds this year. And the industry is seeing an uptick in total milk fat sales across the fluid milk category, rising from 2.65 million pounds of milk fat per day in 2015 to 2.75 million pounds this year.

Vitaliano is also confident the trend is happening in cheese and the frozen dairy category. “We know it’s happening in yogurt,” he says.

Tom Gallagher, DMI CEO, attributes butterfat’s rise to three factors:

1. Farmer-funded nutrition research on milk fat that has been on-going for the past two decades.

2. Work of state, regional and national checkoff programs with national health and dietary groups to establish the credibility of the research the National Dairy Council and others were doing.

3. Partnerships with McDonald’s, which helped facilitate McDonald’s switch from margarine to butter. That change triggered a catalytic effect with other fast food restaurant chains to also make the switch.

Paul Rovey, DMI Chairman, says farmers are already adjusting to the greater demand for milk fat. “A number of years ago, we were actually breeding for more protein and decreasing fat. But now, we’re looking at what we can do to drive [total] milk solids,” he says. Locally, the Southwest is looking for more opportunities for cheese, he says.

The increasing domestic demand for milk fat also has implications for exports, which currently use about 15% of U.S. milk production. “Milk fat availability for export will be a bit of a constraint,” Vitaliano says. “We’ve clearly pulled back on our exports of fat, though a lot of butter and cream is going to Canada which is seeing the same trends.”

He expects U.S. exporters will place a greater emphasis on cheese exports in the future. But both Europe and to some extent New Zealand will be increasingly competitive in world cheese trade, he says. 

 

Note: This story appeared in the September 2017 issue of Dairy Herd Management.

 

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