Milkfat, due in part to booming butter sales and greater demand for whole milk, underpinned milk checks during the past four years. That price role reversal over milk protein appears to have run its course, not because of sluggish demand for butter, but largely due to rebalanced markets.
After being beaten down for generations, saturated fats that have been found to raise high density cholesterol (HDL), or good cholesterol, came back into vogue. That sent consumer demand for butter, and all animal fats for that matter, into overdrive.
As a result, milkfat began a 48-month run where it outpaced protein in milk checks. Values for animal fat became so strong that, last January, butterfat fetched $2.50 per pound while protein netted $1.19 in the Federal Milk Marketing Order system. Overall, butterfat outperformed protein by nearly 70 cents per pound during that four-year window.
To capture returns, farmers and their advisers employed strategies to improve milkfat content. For perspective, from 1966 to 2010, milkfat held steady between 3.64% to 3.69%. As consumers clamored for butter, farmers matched that demand by improving butterfat levels to 3.89% in 2018 — a full 0.2% gain in just eight years.
While milkfat returned to glory, protein lagged during that time due to mounting supplies of skim milk solids — a byproduct when processors rush to make butter. Across the Atlantic, the price situation got so dire that the European Union purchased a couple hundred thousand metric tons of skim milk powder to take product off the market. Despite those efforts, prices that previously netted $3,000 per metric ton in Europe, Oceania, and the U.S. slid to $2,000 from 2015 to 2018.
There have been global inventory drawdowns of nearly 200,000 metric tons of skim milk powder the past two years, which was partly due to the European Union selling off inventories. That being the case, global skim milk powder inventories opened this year at the lowest levels since the start of 2015. With limited availability, global skim milk powder prices have begun to reach levels not seen since 2014.
This unfolding situation requires each of us to review our rations. In November, improving milk protein by 0.1% could net a return of 31 cents per day for a cow producing 80 pounds of milk. While protein may have retaken headlines, don’t forget milkfat. By improving milkfat 0.1%, that same cow could net another 19 cents each day. Indeed, protein is back, but butter is no longer a laggard.
