November 20, 2023
While record butter prices have been making headlines the past two years, the butterfat story has been churning up positive momentum for over a decade, according to Corey Geiger, CoBank lead economist-dairy. “That’s because animal fats — in particular, butterfat — are back in vogue from a dietary standpoint,” Geiger says.
“In early 1900s America, butter was a staple, delivering nutrition and energy to dinner tables,” he explains. From 1909 to 1942, per-capita butter consumption rose above 16 pounds per person, according to USDA. Whole milk also ruled menus, with Americans drinking 384 pounds, or 44.5 gallons, of fluid milk per year at the market zenith in 1945.
“Those were among the consumer demands that propelled high component levels on dairy farms; butterfat content in milk shipped from dairy farms topped out at 3.98% in both 1944 and 1945,” Geiger notes.
From 1966 to 2010, butterfat production levels in farm milk held in a tight range of 3.65% to 3.69%, initially due to demand lost to margarine and later, health concerns, according to Geiger. “Since nutritional science moderated its stance on saturated fats, butterfat composition has been on a meteoric climb, moving to a record 4.08% in 2022,” he says.
U.S. milk and butterfat production had parallel growth at 24% from 1995 to 2010, Geiger says. Then from 2011 to 2022, butterfat pounds grew by 27% while total milk pounds shipped fell off the pace at just 15% growth.
Impact on milk pricing formulas
“Milk pricing formulas evolved with the changing market conditions to favor milk pounds in many Federal Milk Marketing Orders,” Geiger notes, explaining that as full fat slowly fell out of favor, butterfat levels slumped from the high of 3.98% in 1945 to 3.69% by 1966. Then for the next 44 years, butterfat held in that tight range of 3.65% to 3.69%.
There was a time when milk production and butterfat production were synonymous. That is no longer the case.
“When measured by pounds, milk and butterfat production mirrored one another from 1995 to 2010, each growing a collective 24%,” Geiger explains. “During that time, U.S. milk production grew from 155.3 billion pounds to 192.9 billion pounds. Meanwhile, butterfat output moved from 5.7 billion pounds to 7.1 billion pounds.” By 2021, that number climbed to 60.7%, with cheese notching 42.3% and butter 18.4% share. Fluid milk, at 10.6%, and frozen dairy, at 7%, rounded out the top four in the dairy product mix.
The drive for higher-solids milk caused butterfat levels to soar, he says, adding, “The breakout began to take place as butterfat moved to 3.71% in 2011, busted out to 3.84% in 2017, and forged ahead to 3.92% in 2019.” By 2021, butterfat broke past the 4% threshold and topped the previous historic high of 3.98% recorded during the height of World War II. Given strong market signals, butterfat levels moved even higher to 4.08% in 2022.
Consumer demand has been a driver, as well as producer push and processor pull.
“In several regions, some farmers face supply caps known as base excess programs, which place limits on the pounds of milk shipped from each farm,” Geiger says. “However, in nearly every case, those same base excess plans place no limits on the pounds of solids — largely butterfat and protein — shipped from each farm. Hence, dairy producers had incentive to improve milk’s component composition.”
The milk fat shortfall
Despite this significant growth in butterfat production, Geiger says tremendous upside potential still exists largely because the U.S. remains a milk-fat deficit nation. While U.S. milk-fat production grew 27% from 2011 to 2022, moving from 7.3 billion pounds to 9.3 billion pounds, milk-fat imports into the U.S. exploded by 120.6%.
According to USDA, the U.S. imported 130.4 million pounds of milk fat in 2011, and that number leapt to 287.7 million pounds by 2022 — a 157.3 million-pound shift. Of course, butter as a product category has been a major part of that narrative. In 2011, the U.S. imported just 10.2 million pounds. By 2022, that number bounded tenfold to 105.8 million pounds — largely lifted by imported Irish butter that contains 82% butterfat vs. domestic sources at 80%.
Future product prospects
“The long-term demand trends for dairy products indicate butter, cheese, cream in upscale coffees, ice cream, frozen desserts and other nutrient-dense dairy products will continue to grow sales volume both in the U.S. and the world as more people realize middle-class incomes,” Geiger says. “Given those projections, the upward climb in butterfat levels in farm milk will continue to grow. That also means that continued innovation in premium butter, butter spreads and development in the butter board phenomenon will bring value to producers, processors and consumers alike.”
Export markets are also a significant opportunity for butterfat, according to Geiger.
“When measured on a milk-fat basis, the U.S. exported just 5.9% of its milk production as dairy products in 2022,” he says. “Dairy product exports leapt to 23.4% when measured on a skim-solids basis, after butterfat has been skimmed from milk prior to manufacturing those dairy products.”
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