Butter Prices Ramp Up Ahead of Holiday Season – How Long Will They Last?
Spot butter prices soared to an all-time high last Friday, hitting a new record at $3.17 per lb. This breaks the previous record of $3.15 per lb., which was set back in September 2015. With butter stocks in short supply and grocery chains ramping up orders ahead of the holiday baking season, farmers wonder just how long these high prices will last.
“The butter balance sheet has been looking tight,” says Phil Plourd, head of market intelligence at Ever.Ag. “I think all year long the market has been anxious about whether we will have enough butter on hand when the holiday demand season arrives.”
According to Plourd, butter stocks have been dragging throughout 2022. Lighter milk supplies, labor shortages and supply chain delays have prevented butter makers from running at full steam, and cream supplies have been limited during the summer months.
“With butter, it’s all about if can we make enough in the spring to last us through fall,” he says. “Typically, from the beginning of the year through May we have 155 million lb. in inventory growth. This year for that same time period we ended at +123 million lb. So, we’re 34 million lb. behind the average stocks build.”
Several other driving factors have contributed to butter’s recent price hike, including lower overall milk production and fewer imports of anhydrous milk fat. Higher global milk prices have also had a significant impact.
“Up until recently, world prices were much higher than U.S. prices,” Plourd says. “This explains the lack of imports this year, and it also gave us additional export opportunities. Overall, it’s just been a tighter marketplace. And when butter gets tight, prices go up.”
Aggressive Retail Promotions
With butter prices hitting as high as $5 on store shelves, Plourd says we could see butter demand continue to go down.
“Domestic buyer demand [for butter] was down 3% this year through July,” he says. “At the grocery store, we’ve seen retail prices hit $5 per lb., which is something consumers have never experienced before. Generally speaking, when we see higher prices, demand goes down. But grocery stores are doing some very aggressive promotions at retail this year, and that could shake things up.”
In preparation for the holiday baking season, grocery stores are promoting butter at lower prices, such as $2.50 per lb., to help bring consumers through store doors. Plourd predicts those promotions could continue over the next six to eight weeks as the holiday season kicks off.
“The appetite for retail promotion could mitigate some of the impact high prices has on consumer demand,” he adds.
How Long Will These Prices Last?
With the holiday baking season knocking on consumers doors, butter prices could remain elevated throughout the coming months. However, Plourd predicts spot butter prices to drop at the conclusion of the season.
“I think it’s going to be hard for the market to hold these levels all the way to year-end, because at some point the holiday baking season is over,” he says. “But maybe more importantly, global prices have come down quite a bit since the beginning of the year. And we would anticipate that we will be importing additional milk fat at year-end this year that we did not import last year.”