Butter consumption in the U.S. is forecast to jump 8% this year, due in part to new products like butter coffee and brown butter cocktails. The butter craze includes restaurants like McDonald's switching from margarine to butter and serving it on the all-day breakfast menu on everything from Hotcakes to its signature Egg McMuffins. According to Bloomberg News, Cracker Barrel restaurants are also promoting breakfast dishes made with real butter.
As a result, butter consumption in the U.S. is nearing a 50-year record high. Increasing consumption is also pushing butter prices higher.
According to Bob Cropp, a University of Wisconsin Extension dairy economist, wholesale butter prices were well above $2 per pound during March. The butter price ranged from $2.11 to $2.23 and is now $2.13.
"Dairy product prices declined during March with the exception of butter and dry whey," Cropp explains. And this is in spite of higher butter stocks. Butter stocks in 2017 have been 16.1% higher than in 2016 and 49.8% higher than in 2015. However, butter exports were 26% lower in January than they were the year before, Cropp says.
Milk production is 2.5% higher than a year ago, according to Cropp. Milk production has dropped 2% from a year ago in California but has increased 11.6% in New Mexico, 16.4% in Texas, 3.8% in New York, 4.8% in Michigan, 2.9% in Minnesota, 4.6% in Iowa, 1.3% in Wisconsin and 4.6% in South Dakota.
"The relative strong production increases in New York, Michigan and even New Mexico are making it difficult to find enough plant capacity to handle all of the milk," Cropp says. "Some milk has been dumped or, in the case of New Mexico, fed to calves."
The USDA in its monthly supply-demand estimates released in March increased its 2017 milk production forecast, while its dairy product and milk price forecasts were mixed. The 2017 milk production forecast was raised by 100 million pounds from February's forecast to 17.5 billion pounds as cow numbers are expected to increase more rapidly. However, growth in milk per cow is reduced on January data.
The cheese price forecast for 2017 is reduced as stocks of cheese are high and are expected to pressure prices. USDA now expects cheese prices to average between $1.64 and $1.70 per pound this year — down from the previous month's forecast of $1.66 to $1.73 per pound, but still above the 2016 average of $1.60.
USDA's butter price forecast average is raised to $2.12 to $2.21 per pound, up from February's forecast of $2.04 to $2.14 per pound and also up from last year's average of 42.07 per pound.
According to Cropp, milk production will increase during the spring flush and likely will push milk prices lower.
"We can expect the Class III price to be in the low $15s for the months of April and May," he notes. "But with continued favorable butter and cheese sales, along with continued improvement of dairy exports, milk prices should trend back upward after that."
Cropp believes the Class III price could be back to the $16s by June and reaching into the high $17s by the fourth quarter. Currently, dairy futures are not that optimistic. Class III futures don’t reach the $16s until July and stay well below the $17s for the remainder of the year.
O'Leary is editor of Wisconsin Agriculturist.