Growing taste for butter drives farm-gate milk prices upward

Butter on cutting board

As consumers relearn to butter their toast, they help dairy prices at the farm gate.

Despite growth in the U.S. dairy cow herd, milk prices have stayed above year-ago levels this year, says University of Missouri Extension economists.

Looking for causes, they see growing demand for butter, say Scott Brown and Daniel Madison.

“Butter prices easily surpass the last record-high price in 2014. Strong butter demand will lead to an all-milk price near $18 per hundredweight in 2017,” Brown says.

It’s not just U.S. consumer demand. Butter in Europe topped $3 per pound for the last two months.

The economists give their outlook in an “Update for Livestock and Dairy Markets.” That’s part of the MU Food and Agricultural Policy Research Institute (FAPRI) midyear outlook.

The report calls for a small pullback in milk prices in 2018 as international demand softens. However, prices grow in 2019 through the end of the outlook in 2022. The outlook price ends near $19 per hundred.

Butter drives prices now. Cheese sales remain strong (think pizza) but they don’t lead in price strength. For now, cheese and nonfat dry milk prices remain below 10-year averages.

Milk price strength and low feed costs protect dairy margins near or above $9 per hundred, Brown says. At that level, the Margin Protection Program (MPP), the USDA dairy safety net, won’t make payments in coming months. “That outlook could change if historical butter demand levels return.”

Dairy farmers haven’t embraced MPP and seek better protection in the 2018 Farm Bill being discussed by dairy groups with U.S. Congress.

This year could see a peak in dairy cow numbers. Now at near 9.4 million cows, that tapers to 9.3 million by 2022. However, total milk supply grows as per-cow production grows.

Brown and Madison are agricultural economists in the Division of Applied Social Sciences. That’s part of the MU College of Agriculture, Food and Natural Resources.

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