Butterfat is the prime contributor to producer revenue. In recent months, butterfat made up more than half of producer revenue. The November 15, 2024 post with the same title as this one covered butter’s long-term financial trends. This post is an update. The data below is based on eight years to get a long-term view. All monthly data below is based on 12-month moving averages as butter has volatility and an annual cycle of strong November and December sales.
The data shows no significant weakening of butter prices.
Chart I below shows the growth of domestic withdrawals from inventories, a leading indicator of butter consumption. Since the beginning of 2023, butter consumption has been showing a strong increase, with annual gains of 8%.
Chart II below follows the U.S. production of butter. The production of butter is increasing at 4% annually over the last two years. The increase shows no sign of weakening and is needed to meet domestic consumption.
One major change in the production of butter is the decreasing production from California (Chart III). At the beginning of 2023 California produced 33% of U.S. butter. By of the end of 2024 California was producing just 30% of U.S. butter. Increased butter production is coming from several other states.
One of the important parameters influencing butter pricing is the amount of wholesale inventory available. Chart IV covers the most recent data on wholesale Inventories. In mid 2021 inventories reached a two-month supply. Currently the inventory is at a 1.6 month’s supply.
Imports (Chart V) are growing at an annual rate of 35% in 2023 and 2024. The import growth is being used to supply domestic consumption.
Butter exports, Chart VI have fallen by 25% annually over the last two years. The reduction in exports is also helping support domestic consumption.
Butter prices fell to $1.51 per pound in 2021 when inventories were high (Chart VI). With increasing domestic consumption, inventories have decreased as covered in Chart IV above. Currently, the price of butter has nearly doubled compared to the lows in 2021.
Where are butter and butterfat prices going?
To supply the increasing U.S. consumption of butter, churning has increased, imports have increased, and exports have fallen. Domestic butter production is behind in meeting domestic demand.
In 2025 butter prices may fall slightly with increasing inventory levels, but demand will keep butter prices near their current levels. There will be a slight negative adjustment in butterfat prices when the new USDA formulas are implemented. The new “make allowance” for churning butter will increase by 32%, lowering butterfat value.
Why is butter consumption increasing so fast?
Here’s what AI has concluded.
- Changing health narratives: Recent research and dietary guidelines have led to a more positive view of butter’s nutritional profile, particularly regarding its fatty acid composition, contributing to increased consumption.
- Focus on natural ingredients: Consumers are increasingly opting for foods with simple, recognizable ingredients, making butter appealing due to its basic composition of cream and salt.
- Home baking trend: Rising popularity of home baking has significantly boosted butter sales as it is a key ingredient in many baked goods.
- Premium butter market: The emergence of high-quality, artisanal, grass-fed, and organic butter options has attracted consumers willing to pay more for premium products.
- Food service industry growth: The expanding restaurant and cafe sector contributes to increased butter demand used in cooking and as a condiment.
- Consumer awareness of quality: Growing knowledge about the source and quality of butter, including pasture-raised options, has influenced buying decisions.
- Economic factors: In some regions, rising disposable incomes enable consumers to purchase higher-quality butter products.
