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U.S. Butter Market Takes Off Like a Rocket

The U.S. butter market took off like a rocket. It soared 30ȼ this week and closed at $3.30 per pound, just shy of the all-time high set yesterday. The meteoric strength caught the market by surprise. U.S. butter output in January through July was record large, up 4% from the scant volumes of 2022. But domestic demand was even stronger, up 8% during the same period. USDA showed August 31 butter stocks at 289 million pounds. While that is 3.9% higher than last year, it is still tight. Butter stocks typically decline in the summer, and this June, July, and August they dropped at more than twice the normal rate. Cream is expensive, and butter churns are not running hard. Butter buyers are heading into the fall baking season with painful memories of last year. They’re hoping for lower prices, but they’re also making sure they get their hands on some product, despite the jarring expense. Butter is likely to remain expensive until butter buyers are confident they’ll have enough product to stock shelves for the holidays.

Milk powder prices also rallied. CME spot nonfat dry milk (NDM) finished the month at $1.1825 per pound, up 1.5ȼ this week to its highest price since May. The powder markets are cheered by slower milk output and higher prices abroad. Whole milk powder (WMP) inched upward at the Global Dairy Trade’s Pulse auction this week, and European skim milk powder (SMP) futures advanced. Although fall temperatures have boosted milk yields, spot milk prices suggest that processors continue to compete for milk in the Midwest, and driers are the last in line. Loads of spot milk commanded a $2 premium this week, a mark-up not seen since 2016.

Strength in the spot butter and powder markets helped to lift nearby Class IV futures. The October contract leapt 60ȼ this week to $20.80 per cwt., and November Class IV topped $20 as well. But 2024 futures slipped, likely due to concerns that U.S. milk production is not contracting as quickly as it once did. The heat has abated and slaughter has slowed.

October 2, 2023


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