The holiday butter price rally is right on schedule, if not early, but the magnitude of the rise has been surprising. The CME spot butter price hit a new all-time high last week, then closed even higher at $3.34/lb. on October 2 and $3.42/lb. on October 3. Since September 1, the CME spot butter price has climbed 74¢.
“The rapidly increasing butter price—particularly to heights well above $3—has surprised some in the industry, especially since the year started with strong butter production. Smaller supplies and strong domestic demand teamed up this summer to push prices substantially higher.”
According to USDA data, August butter inventories of just over 289 million pounds were well below the five-year average of more than 329 million pounds, and month-to-month, stocks fell 40.3 million pounds, the largest drawdown between July and August since 2015, Berning noted. Between May and August, warehoused butter stocks declined by nearly 78.8 million pounds, the biggest drop over that timeframe since 1993, she added.
In addition, year-over-year milk production in California, where 33% of U.S. butter was manufactured in 2022, declined 3.7% in August and 5.5% in July, according to USDA’s most recent Milk Production Report. Milk yields in the Golden State plummeted in July and August, compared to the same months in 2022, and the state’s milking herd also shrank, further limiting the fat available to butter makers. And finally, strong Class II demand throughout the summer for high-fat products like ice cream also pulled cream away from churns, she said.
“Butter and Class II processors and buyers were shellshocked after 2022’s run-up in butter prices and carried that anxiousness into summer, locking in prices and securing inventories. Their efforts to avoid a repeat of last year resulted in a very competitive fat market, and as buyers try to meet this year’s budgets, some still have product to buy, which could continue to drive prices higher. “
Robust domestic sales of butter have also been offsetting weak international demand. USDA data showed that year-to-date domestic disappearance of butter through July was more than 8.2% above the first seven months of 2022, and July and August sales were also reportedly strong.
“Recent data helps to explain why current butter markets are so tight,” Berning said. “Current market conditions also suggest that buyers are short on butter as the holidays near and are filling orders last minute, but once those needs are filled, butter prices could drop as quickly as they rose.”
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