Butter Prices Melting Away
October 3, 2016

Butter Prices Melting Away

 |  By: Mike Opperman

Thanks to a renewed demand for full-fat foods, butter prices saw historic highs in 2014 and 2015. But prices are down 8.8% this year and analysts say the drop won’t stop soon.

According to a recently published article, too much butter is the issue. According to USDA August stocks are 52% higher than last year and hover near a 23-year high.

“We’ve got too much butter, that’s clear,” says Tom Bailey, executive director for dairy research at Rabobank and a regular MILK contributor. “We’re seeing prices coming under pressure. It’s now more of a buyer’s market.”

Bailey says U.S. processors ramped up production and diverted resources from other dairy products in response to rising demand for butter. “The ‘fat is back’ mentality basically drove prices for the past couple of years to record high levels,” he says. “Butter’s kind of trendy; hence, we have high prices.”

Retail sales of butter have risen 6% over the past year while margarine sales have dropped 7%. Still, Bailey says demand isn’t growing fast enough to compensate for extra supply.

Analysts say prices could fall below $1.75 in the next few months due to the high stocks. It hasn’t affected inventories, which fell just 3.2% from July to August.

“U.S. butter prices have defied gravity for a long time,” says Dave Kurzawski, a senior broker at INTL FCStone Financial. “The weight of the inventory is finally starting to impact prices.” Demand increases over the Holidays may support prices, but New Year’s resolutions will revive the downward pressure.