Dive Brief:
- Butter prices have hit a record high this month as lower production levels create supply constraints heading into the holiday season, when demand peaks.
- Spot butter prices on the Chicago Mercantile Exchange averaged a "record high in trading history" at $3.44 per pound the week ending Oct. 13, the U.S. Department of Agriculture said in a Wednesday report.
- Butter production in August was the lowest in roughly five years due to tightened milk supply, fewer imports and the increased use of cream in manufacturing other products, according to the USDA.
Dive Insight:
Summer’s sweltering temperatures had a twofold impact on milk supply: The heat caused cows to produce less milk, and consumers demanded more ice cream and other dairy-based products.
Ice cream production was up 1.1% in August from the previous year, and there's been heightened competition for cream between food producers as supply remains constricted. In addition to the heat, dairy farmers are producing less milk after struggling with dismal returns and high feed costs this year.
Butter use in the U.S. has trended higher year-over-year since February, but production hasn't been able to keep up. Domestic use year-to-date was 8.2% higher than last year, while production and imports only increased by about 4%.
Although butter prices always rise ahead of the baking-heavy holiday season, the recent surge is "much higher than typical for this time of year," the USDA said. As supply tightens further, farmers could begin to see a turnaround in milk prices.
Margins are already beginning to improve, according to the USDA. The farm milk margin above feed costs, a measure of profitability, hit $6.46 per hundredweight in August, the highest since January.
