Stick of butter
July 19, 2017

Milk Fat Adds $2.2 Billion to Farmers’ Milk Checks

 |  By: Jim Dickrell

An analysis of recent trends in dairy consumption suggests increased use of butter and other higher-fat dairy products has added $2.5 billion to dairy farmer milk checks, say officials with Dairy Management, Inc. (DMI) and the National Milk Producers Federation (NMPF).

The $2.2 billion figure comes from a comparison of simulated milk prices given increased demand for milk fat during the price crashes of 2015-2016 compared to weaker milkfat demand during 2008-2009, says Peter Vitaliano, NMPF Vice President of Policy and Market Research.

"Without the strong butter prices during the recent period of weak world prices, domestic milk prices would have averaged more than $1/cwt. lower than they did during the entire 12-month period of August 2015-July 2016, costing U.S. dairy farmers an additional $2.2 billion in lost income during that time," he says.

In addition, the percentage of a farmer’s milk check coming from milk fat has climbed from an average of 38% from 2000 to 2014 to a peak of 68% in 2015. That percentage has dipped back to 50% in 2017, but futures market prices suggest it will rebound to 58 to 60% in future months, says Vitaliano. 

Butter’s share of total milk fat use in dairy products had dipped to 16% in 2000. Last year, that share had increased 12.5% to 18%.

Another example: Whole milk sales have rebounded from 40 million lb per day in 2013 to 45 million lb. this year. And the industry is seeing an uptick in total milk fat sales across the fluid milk category, rising from 2.65 million lb of milk fat per day in 2015 to 2.75 million lb this year.

Vitaliano is also confident the trend is happening in cheese as well as the frozen dairy category. “We know it’s happening in yogurt,” he says.

Tom Gallagher, DMI CEO, attributes butterfat’s rise to three factors:

• Farmer-funded nutrition research on milk fat that has been on-going for the past two decades.

• Work of state, regional and national checkoff programs with national health and dietary groups to establish the credibility of the research the National Dairy Council and others were doing.

• Partnerships with McDonald’s, which helped facilitate McDonald’s switch from margarine to butter. That change triggered a catalytic effect with other fast food restaurant chains to make the switch as well.

Paul Rovey, DMI Chairman, says farmers are already adjusting to the greater demand for milkfat. “A number of years ago, we were actually breeding for more protein and decreasing fat. But now, we’re looking at what we can do to drive [total] milk solids,” he says. Locally, the Southwest is looking for more opportunities for cheese, he says.

The increasing domestic demand for milk fat also has implications for exports, which currently use about 15% of U.S. milk production. “Milk fat availability for export will be a bit of a constraint,” says Vitaliano. “We’ve clearly pulled back on our exports of fat, though a lot of butter and cream is going to Canada which is seeing the same trends.”

He expects U.S. exporters will place a greater emphasis on cheese exports in the future. But both the Europeans and to some extent New Zealand will be increasingly competitive in world cheese trade, he says.