The butter market at the start of 2025 is completely different than the start of 2024. In early 2024 the narrative was that milk production was down and couldn’t grow due to a lack of replacement heifers. New cheese plants coming online were going to take milk away from other products. Butter stocks were tight, and it was going to be hard to rebuild them. By early April of last year, spot butter prices were hitting the highest we had ever seen for that time of year, and there were whispers that the price could hit $4 per pound in the fall when holiday-related demand ramps up. But milk production did improve during the second half of 2024, cheese production was weak, cream demand into food service softened, butter stocks built up, and the spot price of butter started falling hard in mid-September.
The bearish sentiment has continued into early 2025. Milk production fell below last year’s values in November and December due to the highly pathogenic avian influenza (HPAI) impacting milk production in California. But, production is slowly recovering, and the market is looking for some mild growth in milk production during 2025. Butter stocks have rebuilt, up 11.4% year-over-year in December, and weak cheese demand has been keeping cheese production restrained.
The 2024 data shows we’re using butter to balance the U.S. milk supply. My best estimate is that dairy cooperatives handle the marketing of about 70% of the milk in the U.S. They try to sell that milk to commercial processors like bottlers, yogurt and ice cream makers, and cheese plants. Whatever milk they can’t sell the cooperatives have to run through their own plants. While many cooperatives have a variety of different plants they can run the milk through, their assets are biased heavily toward butter and nonfat dry milk. So, if they can’t find a commercial buyer for the milk, it is largely going to flow through to butter production, which is what we saw in 2024 with butter production up 5.2%.
The one supportive feature in the data has been demand. While the supply side has been a little stronger than the demand side, we have seen very strong demand with exports in 2024 up 6.9% and domestic disappearance up 5.4% (after adjusting for leap year effects). Butter prices on the world market are still north of $3.20 which should keep exports positive in 2025. I’m skeptical that domestic demand will keep growing at the recent pace, but it’s possible.
The market is still mildly optimistic about the price of butter as we move through the year. The CME butter futures have butter prices in the $2.60 to $2.70 range for the third quarter, compared to the $2.43 price on the spot market. If food service cream demand improves and the new cheese plants ramp up and absorb more milk, it’s possible the butter price later this year could get even higher than the futures are implying, but the odds of $3 or more for butter in 2025 are fading. Historically, $2.40 to $2.70 butter is still higher than average, but we’re likely looking at prices that are going to be down from 2024.
