Lower milk production and higher demand for seasonal products like eggnog are pressuring the supply of butter and contributing to a surge in prices.
The amount of butter in cold storage declined 10% from July to August, with levels down 22% from a year ago, according to the U.S. Department of Agriculture. The average price for Grade AA Butter stood at $3.15 per pound for the week ending Sept. 30, an 80% increase from the week of Sept. 24 in 2021.
Tighter butter supplies come amid declining seasonal milk production in many areas of the country, according to the USDA. While the milk output per cow is higher than it was last year, there were about 11,000 fewer milk cows on U.S. farms in August compared to 2021.
Producers are finding that after fulfilling their milk contracts, there’s little leftover to turn into butter or other dairy products.
“Balancing plants are able to fill their fluid contracts, with minimal supplies remaining for manufacturing,” a USDA report said.
Meanwhile, some manufacturers in the Northeast are forgoing churning butter altogether, instead opting to sell the cream to meet higher demand for eggnog, cream cheese and other products.
Although supply constraints have raised prices, that hasn’t dampened demand. Producers in the Central U.S., for example, are still seeing high volumes of orders ahead of the fall season.
“Plant managers say production lines are busy trying to fulfill orders even at near-record market butter prices,” according to the USDA report.
Higher prices and declining milk production are pushing large dairy companies to rethink their operations and pass on more costs to the consumer. Saputo, a Canada-based dairy company, raised prices to offset higher costs of milk and butter and will be readjusting its footprint over the next four years to reflect tightened milk supplies.
“It's clear that the milk pool has declined,” said Leanne Cutts, Saputo president and COO, International & Europe, said during an earnings call in early August. “And therefore, we will need to ensure that our network going forward absolutely reflects this reality.”