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The Butter Blues: Prices Fall Even Lower Than Expected

It is near the end of the year, and the surprise in the dairy complex is the weakness of butter. It was not surprising to see price weakness, but the surprise was the magnitude of the weakness. Historically, prices decline as holiday demand is met and buyer interest slows. Sellers have a desire to move inventory though the end of the year. There have been other years during which butter price declined substantially with a recent large decline taking place in 2015 (see chart below).

Prices in 2015 reached a high of $3.13 1/2 in September and fell to a low of $2.01 3/4 by the end of the year for a loss of $1.11 3/4 per pound. Inventory in November 2015 was 67.0 million pounds less than this year at 132.7 million pounds, with the decrease of inventory from October to November of that year almost the same as the decrease this year. The November 2022 inventory was 199.7 million pounds, ironically 67.0 million pounds higher than November 2015.

So far this year, butter prices have fallen 87 1/4 cents from the record high on October 6th. If the weakness continues, prices could fall further into the end of the year resulting in a similar price movement. What makes this surprising is the increase of demand from 2015 to now. Consumer demand has increased, more restaurants have switched to butter as an ingredient rather than alternatives and international demand has increased substantially.

We all remember the articles written of the potential for a butter shortage this year, which spurred retail and food service orders to be placed earlier than usual with consumers purchasing increased amounts ahead of time and putting it in their freezers to ensure sufficient supply through the end of the year. News articles encouraged consumers to stock up early. However, once the concern over a supply shortage evaporated, buying interest waned to some extent. Yes, orders continued to be placed and buyers continued to purchase, but not as aggressively as they had been.

The other interesting aspect of the market this year was the level of inventory. In August, butter inventory was 22% below the previous year which was a catalyst that fed the potential shortage concern as the market was in a seasonal drawdown trend. After all, if supply is already 22% below a year ago, what would it be at the end of the year? However, due to my earlier analysis in this article, more aggressive purchasing earlier in the year resulted in lower demand later in the year. This resulted in butter inventory for November being only 5% below a year earlier. If the tread continued through the month of December, inventory could close out the year near the level it was a year ago, which was not anticipated by the trade a few months ago. High prices cure high prices, and this was very evident in butter this year.

Cheese prices have been holding much better albeit at lower levels. But traders have been bearish anticipating current prices will be unable to hold moving through the first quarter of 2023. Prices have been volatile in 2022 and will remain that way in 2023. If there is any New Year’s resolution that should be made, it is to be involved in risk management making that an integral part of the dairy operation. Set goals for the coming year and look for opportunities to protect prices.

Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website

The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.


December 27, 2022


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