BUTTER
August 10, 2017

Butter Market Likely to Remain Tight

 |  By: Fran Howard

For the first time in two and a half years, the United States shipped more butter overseas than it imported. June’s positive monthly trade balance in butterfat was the first since January 2015. At the same time, U.S. butter production continued to decline and U.S. butter consumption has been steadily increasing.

“Declining butter production should come as no surprise to market participants,” says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. CME Group spot butter prices hit a 2017 low on April 18 just above $2.06 before breaching $2.73 on August 3—a nearly 33% rise. Since then, spot butter prices have retreated somewhat.

Year-over-year U.S. butterfat exports soared 178% to 3,713 metric tons (MT) in June, while year-over-year imports declined 26% to 3,287 MT, according to USDA’s Global Agricultural Trade System.

“Canada imported the largest volume of U.S. butter in June, accounting for 64% of total U.S. butterfat exports,” says Dorland. Canada imported 2,484 MT tons of butterfat in June from the U.S.—five times the amount it purchased a year earlier. Denmark was an unexpected big buyer of U.S. butterfat, importing 194 MT. In June 2016, Denmark imported only a fraction of that amount, or 1.3 MT of U.S. butterfat.

“Business with overseas customers in the first half of the year provided the heavy lifting needed to keep domestic dairy product markets balanced by absorbing the incremental milk production,” Dorland notes. “As the second half of this year unfolds, the current level of butterfat and other dairy exports could be even more supportive to prices.”

At the same time U.S. butterfat exports are outpacing imports, year-over-year U.S. butter production is declining and cream is being diverted to other uses. “U.S. butterfat tests are higher this year than last, but the additional cream is not headed to churns,” says Dorland. “Instead, it is being made into cream cheese and other high-fat dairy products.” Year-over-year U.S. butter production fell 7% in June to 140.6 million pounds, which is slightly behind the five-year average pace of 142.5 million, she adds.

According to Statistics Canada’s latest global per-capita butter consumption figures, U.S. butter consumption climbed from 4.85 lbs. per capita in 2010 to 5.73 lbs. in 2015.  In the first five months of 2017, total U.S. butter consumption grew 1% compared with the first five months of 2016.

Consumers’ renewed love of butter comes on the heels of recent studies that show butter and other full-fat dairy products do not necessarily lead to heart disease and obesity. “Demand growth has been fueled by consumers who now perceive butter as a safer alternative to vegetable oil substitutes such as margarine,” USDA states in its latest Dairy: World Markets and Trade report.

Tight world supplies and steady demand for butter, primarily in the United States and Europe, have led to a doubling of global butter prices in a little over a year’s time, according to the USDA report. World butter prices have climbed from a midpoint low of $2,650/ton to a midpoint above $6,000/ton.

“The butter market should remain well supported, both domestically and globally,” says Dorland. “Demand for butter should also improve in some of the oil-rich countries like Saudi Arabia and Egypt when the crude oil market recovers.”

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