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Expect Escalating Butter Prices
by Robert Chesler
After months of dormancy in the CME spot butter market, we have recently seen a surge in both interest and price. Since the end of February, the spot butter price at the Chicago Mercantile Exchange has risen 14 cents per pound — from $1.21 to $1.35 — and has found good support at the $1.30 level. Meanwhile, butter stocks are reportedly high — well above five year averages. So, what’s the current butter picture and why are prices rising?
March’s cold-storage report turned out to be
another bearish one for butter. The USDA showed butter stocks at 186.560
million pounds. This is a 10.30 percent increase from the previous year,
but even more worrisome it is a month over month increase of 25.46 percent.
Since November 2006, butter stocks have been intentionally built up and I
don’t see any desire to stop the build up. But storage numbers are
only one part of the equation.
March’s milk production report is the first
since last fall to show a decrease in cow numbers month over month, leading
some to believe this may be a reversal of the previous growth trend. Many
cows have been killed or damaged due to extreme weather conditions
throughout the country. We witnessed examples of this in last
summer’s heat wave out west, which resulted in many damaged cows, and
it is currently hampering spring flush output.
More recently we have seen ice storms sweep through
states such as Kansas and Colorado, killing many cows and damaging more,
leaving culling rates high in addition to the Cooperatives Working Together
herd-retirement program. Additionally, high grain prices are beginning to
decrease feed quality, causing not only a reduction in milk per cow but
also lower levels of fat content.
In addition to the changing supply picture, new demand
areas for butter should also be in your view. Butter is slowly but surely
losing its “black sheep of the dinner table” connotation.
Interestingly, the more the American public concerns themselves with
healthy eating, the more they shift from butter alternatives back to
butter, and the industry is responding.
Innovative butter manufacturers are offering more
types of butter, including multiple flavors and different fat levels. This
is in response to niche butter markets that are enjoying drastic increases
in sales as consumers are increasingly willing to pay up for high-grade,
high-fat, foreign-sourced butter. Those same consumers are buying butter
online from Web sites that deliver via overnight mail, and they are paying
prices that in some cases, with shipping, exceed $20 per pound.
Add to new butter offerings, high-priced oil. In oil
markets, such as soybean oil, prices rise on a strong international demand
situation. As supplies of traditional oils become tight, oil buyers can
turn to butter as an alternative. Consistent with this, the decreasing and
seemingly dying trans fat market has opened up another possible avenue for
increased butter use as people search for alternatives.
Compile all of these factors with the raging fight for
milk supply between cheese, powder and cream, and you have all you need to
see the possibility of escalating milk, powder and, yes, butter prices
sooner rather than later.
Robert Chesler is an account executive with
Chicago-based Downes-O’Neill LLC.
DFA Selects Members of Distinction
Seven dairy farm families who are members of Kansas
City, Mo.-based Dairy Farmers of America Inc. (DFA) received the
cooperative’s most prestigious award last month at its Annual
Delegate Meeting. The 2007 DFA Members of Distinction include the owners
and operators of the following farms: Crosswinds Dairy of Portales, N.M.;
Anthony’s Dairy of Americus, Ga.; Diamond Three Dairy of Shelley,
Idaho; Three Star Dairy of McCook, Neb.; RV Dairy of Winton, Calif.; Weir
Farms of Hanover, Mich.; and Walker Farms of Fort Ann, N.Y. The DFA Member
of Distinction program was created this year to celebrate the
cooperative’s diversity and to recognize DFA members for their
vision, leadership and innovation in the dairy industry. One farm from each
of DFA’s seven Areas was selected and members were recognized with a
video presentation during the general session of the annual delegate
meeting. “These members have found unique ways to ensure their
success in the industry and are positive examples for us all,” says
Rick Smith, DFA’s president and chief executive officer. “This
is a great achievement, and we are proud to name these members as the 2007
recipients of this award.”
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