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What is Going on with Butter Prices?

Retail and wholesale butter prices are very important to everyone in the U.S. In 2022 milk producers received healthy checks for their butterfat. Now the price is falling. Consumers are paying dearly for their butter purchases. They are paying very high retail prices for butter and as a result they appear to be buying less.

The most recent butter prices for retail purchasing as determined by the Bureau of labor Statistics is shown in Chart I below. In January 2023 retail butter prices hit another record high at $4.88 per pound.


However, the wholesale price of butter (Chart II), which is used to price producer milk dropped in price for the third consecutive month and is now at $2.46 per pound as covered in the previous post. The price is dropping further in the February weekly surveys. February 4 came in at $2.38 per pound and February 11 came in at $2.41 per pound.


The difference between wholesale and retail prices may be just a matter of time as lower butterfat prices trickle down the chain to lower retail prices.


EXPORTS AND IMPORTS


What role have exports and imports played in creating this volatility? Chart III shows the relationship between imports of butter and exports of butter. The U.S. imports a lot more butter than it exports. Imports increased by 14 precent in 2022 and exports increased by 42 percent. The 2022 increase in net imports (imports - exports) was only seven million pounds. This has helped the butter supply slightly, but the increase in net butter imports was less than a half percent of domestic butter production. In-other-words, butter net butter imports has a minimal impact on relieving domestic butter inventories.

BUTTER IMPORTS


In 2022, 57 percent of butter imports came from Ireland with its very strong Kerrygold brand (Chart IV). Imports from New Zealand and India make up an additional 27 percent of butter imports. India is the largest butter producer in the world and New Zealand is a major butter exporter. In the past, Mexico was a major source of butter imports, but the Mexican imports have dropped by 75 percent from 2020 levels.


Imports from Ireland (Kerrygold) have increased by 34 percent over the last four years and is now the second strongest butter brand in the U.S. second only to Land O'Lakes butter. Kerrygold was launched 20 years ago, and Land O'Lakes was launched 100 years ago. Kerrygold has developed strong distribution in U.S. grocery stores with 83 million pounds being imported. Kerrygold now makes up about four percent of U.S. butter consumption.


BUTTER EXPORTS


Exports of butter go primarily to Canada (Chart V). Canada has a significant butter shortage and has been a consistent importer of U.S. butter. In 2022 the butter exports to Canada were 43 percent of total U.S. butter exports (Chart VII). Another 18 percent was exported to Mexico. Exports to Mexico were up over 300 percent in 2022 compared to 2021. The remaining balance of butter exports is split between many countries and has varied over time.


The year 2022 was especially strong for butter exports to Canada which were double the prior year. Canada's dairy industry is unable to supply their increased consumption of butter. Low wholesale inventories have hit both the U.S. and Canada.

WHOLESALE DISAPPEARANCE


Wholesale domestic inventory disappearance measures sales of butter to fulfill the needs of distributers and retailers After four years of significant growth, in 2022, the wholesale disappearance dropped to 2019 levels. In Chart VIII, the 12-month average at the end of each year is quantified. Disappearance from inventories in 2022 were equal to all the gains in 2020 and 2021. The drop in withdrawals is influenced by three factors; lower U.S. butter production, lower butter inventories, and lower butter retail purchases.


Butter inventories declined by 67 million pounds comparing December 2021 to December 2022. Butter production for the years 2021 and 2022 was nearly identical. U.S. butter domestic consumption data for 2022 is not yet available, but there are numerous articles expressing estimates of lower domestic purchases.

WHAT DOES IT ALL MEAN?


While the dynamics of butter exports and imports were volatile in 2022, they still did not have a major impact on domestic butter inventories. The high domestic retail pricing, lower butter production, and lower retail purchases of butter have created the price uncertainty and volatility.


There have been no published cases of retail "out of stock" issues for butter. There is shrinking demand for withdrawals from wholesale inventories meaning that grocery butter inventories are not being sold at historical rates.


Butter is a commodity and will follow supply and demand. If imports from Ireland continue to grow at their current rate of nearly 10 percent a year, it could partially satisfy a part of the demand for U.S. produced butter. Perhaps more importantly, lower retail purchases will stimulate increased purchases,


Posted by John Geuss at 12:41 PM

February 19, 2023


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