As U.S. holiday bakers head to the supermarkets in search for staple ingredients to whip up their favorite festive cookies, they may find butter prices on the rise.

Butter prices around the globe sizzled in 2022.

In early 2022, Oceania and European butter prices traded by as much as a 15% premium to U.S. butter prices, spurring foreign sales of U.S. butter. European butter prices started the year around $3 per pound and peaked in June near $3.60 per pound. However, butter prices failed to eclipse September 2017 prices that topped $3.70 per pound.

Oceania butter prices hovered around $3 per pound during the first half of 2022. And, by mid-year, U.S. butter prices were nearing parity with their Oceania counterparts. That is, U.S. butter prices were on the rise while Oceania butter prices weakened as milk production seasonally increased and whole milk powder exports to China waned, resulting in more production of butter and skim milk powder.

The Global Dairy Trade (Fonterra) butter price index slipped below $5,000 per metric ton ($2.27 per pound) in early October. In contrast, butter prices in Europe and the U.S. were closer to $3.25 per pound during the same month, mainly because both have sizeable domestic butterfat markets. And “tis the season” for stocking up on retail holiday butter. At the farm level, exceptionally strong butter prices have translated into fatter milk checks. The Federal Order butterfat price climbed from $2.9567 per pound in January to $3.6567 per pound in October, representing a $2.45 per hundredweight (cwt.) increase for milk at 3.5% butterfat. The higher butterfat price has offset a nonfat solids price that has retreated by nearly $2.10 per cwt. from June to October.

Looking forward, thinner butterfat prices are on the horizon. The CME spot butter price tumbled 44 cents during two trading days in early November, before recovering 5.75 cents. More price volatility is expected as the market finds a new equilibrium.

Price signals from Oceania are more bearish than U.S. or European butter futures. The November 1 Global Dairy Trade Auction pegged Fonterra butter prices near $2.25 per pound through May 2023. In contrast, the CME butter futures are nearly 20 cents per pound higher during the same period, and you can tack on another 20 cents per pound for European butter futures. As a result, New Zealand butterfat prices will be tough to beat in the short run.

In January 2021, the U.S. butter sold at $1.45 per pound. A year later it averaged $2.61 per pound. More recently, January butter futures settled around $2.41 per pound, reflecting a softened but not complete meltdown of the butter market. Look for more insights in USDA’s forthcoming butter production and stocks report.

For most of 2022, butter stocks have trailed the prior year by nearly 20%, and the year-over-year comparison will narrow in 2023. However, without an increase in butter production (down 2.2% year-over-year through August 2022), Rabobank forecast U.S. butter prices to trade between $2.25 and $2.65 per pound in 2023.

The butter market remains the tightest within the U.S. as we head into the holiday season and is likely to remain taut until seasonal demand subsides.

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(c) Hoard's Dairyman Intel 2022
November 23, 2022
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