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Are Producers Taking Advantage of High Butterfat Prices?

Butter and butterfat prices continue to escalate hitting record levels. Are producers taking advantage of these high prices to increase revenue? Technologies to increase butterfat in milk are known and many producers are taking advantage. Genetics, feed, and diets balanced for amino acids can boost butterfat. This post will cover where the U.S. stands in implementing the technologies to increase butterfat.

Table I lists the Federal Orders ranked by their percent butterfat calculated as 12-month moving averages. Butterfat percent decreases in the heat of summer and 12-month moving averages eliminates this volatility. Table II lists the Federal Orders by their improvement in the last 12 months. There are no negative statistics in either table!

Does a high butterfat price encourage producers and their nutritionists to take steps to increase butterfat? The answer is a clear YES. By comparison, butterfat percent in milk increased by .07 percent in the last year while milk protein increased by .04 percent in the same time frame. In 2020, as butterfat prices declined, butterfat percent increased by only .02 percent.

There are huge differences in butterfat production geographically. The best in 2022 is the Pacific Northwest Federal Order with 4.24 percent butterfat. The lowest is Florida with 3.67 percent butterfat, 13 percent lower than the Pacific Northwest.

In terms of improvement, the Pacific Northwest again ranks at the top of the list and Florida ranks at the bottom. Some that are ranked near the top in Table I, like the Southwest and the Upper Midwest have made only minimal to average improvements in 2022. Because the gains and standings vary significantly, that leaves room for improvements in many areas.

There is high demand for butter and inventories are low and prices are high (Chart I). Butterfat is priced based on the wholesale price of butter. The 12-month moving average of butterfat prices have been hitting new record highs every month. With better prices, the percent of butterfat has increased above the trend line as producers react to the higher prices. The overall improvement in butterfat is steady and is currently accelerating.

The next four charts provide detail on four of the Federal Orders with unique and positive butterfat production.

California is ranked second behind the Pacific Northwest in growth in the last 12 months. Chart II shows the gains made by California, up .12 percent in the last year. California is the largest dairy state and the largest butter producing state. Their improvement in butterfat helps the overall average, currently at .07 percent. For more details on California butter production click here.

The Southwest Federal Order stands out in most all comparisons. They rank second behind the Pacific Northwest in their butterfat content at 4.14 percent. Unfortunately, since the beginning of 2022, there has been no improvement.

The Southeast Federal Order is one of the four Federal Orders paid on the advanced system. The other three are all ranked at the very bottom in Tables II. The Southeast Federal Order has been able to increase butterfat by .07 percent and ranks in fourth place in improvement (Chart IV).

Starting 2021 and continuing through 2022, the Upper Midwest has increased butterfat. Over the two years of growth, the Upper Midwest has increased butterfat from four percent to 4.09 percent. This ranks the Upper Midwest at third place behind only the Pacific Northwest and the Southwest. Prior to 2021, there was very little growth in butterfat percent (Chart V).

Producers in all Federal Orders are paid for butterfat. Butterfat is in very short supply and butterfat prices are at record highs. The companies that can help producers and their nutritionists to increase butterfat have a very strong window of opportunity with the extremely high butterfat prices. The prices will likely begin to decline in 2023 but for some time will still provide a healthy ROI that will enhance a producer's revenue and finances.

November 6, 2022

John Geuss


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