The Shifting Fluid Milk Market is Reducing Butterfat Availability!

In the January 10 post to this blog, the shortage of butter production was reviewed.  There were two specific reasons mentioned in various press releases that were covered in the blog, a slow down in milk production and logistics.  However, there is one additional dynamic in the dairy industry that is also influencing the availability of butterfat.  This post will review the influence of how the decline of fluid milk is also influencing the availability of butterfat. 

In the January 22 post to this blog, the decrease in fluid milk was covered.  As less fluid milk is produced, there is less butterfat removed and available for various products containing butterfat.  The mix of the fluid milk decline is also important as lower fat milk is declining faster than whole or two percent fat milk.

When fluid milk is produced, the first step is to remove all butterfat with a cream separator.   The proper amount of butterfat is then added to the milk to meet the label requirement.  Whole milk must contain 3.25 percent butterfat followed by two percent and one percent fluid milk.  Fat free milk gets no butterfat added.  Currently, butterfat in producer milk is nearly four percent butterfat.  The dynamics of the available butterfat left from fluid milk production include the following:

• The amount of butterfat in milk is increasing.  (See the Oct 24, 2021 post to review component levels over time.)  Therefore, more butterfat should be available.

• Fluid milk sales are declining, making less butterfat available.

• The mix of fluid milk is changing.  The products that allowed the most butterfat to be harvested are one percent fat and fat free milk.  These two categories of milk are declining the fastest.

In this analysis, whole milk includes both regular milk and flavored whole milk.   Two percent milk also includes "flavored fat reduced" milk.  Data for one percent fat and fat free milk are taken as reported.  This analysis includes both conventional milk and organic milk.  The years 2017 and 2021 are compared below.  During this time, butterfat in milk grew from 3.8 percent to 3.95 percent and that is also taken into consideration in this analysis.  

Chart I below compares sales of fluid milk from 2017 and 2021.  Whole milk has maintained steady sales.  There has been an 11 percent drop in two percent fat milk, a 20 percent loss in one percent fat milk and a 40 percent drop in fat free milk sales.   

Chart I - Milk by category for 2017 and 2021

Chart II is a pie chart of the milk categories in 2017.  Overall fluid milk sales amounted to 48 billion pounds of milk in 2017.  All other milk which includes buttermilk and other dairy products accounted for only two percent of sales.

Chart II - Mix of Milk Products in 2017

By 2021 (Chart III) , the pie chart has shifted significantly.  One percent fat milk has dropped from being 16 percent of the mix in 2017 to 12 percent in 2021.  Fat free milk has dropped from nine percent of the mix to six percent.  Whole milk has maintained sales and has increased its share from 34 percent to 38 percent of the mix due to the overall drop in sales to 44 billion pounds.  From 2017 to 2021 fluid milk sales have decreased by eight percent.

The "All Other" category has increased from two percent to four percent with the addition of niche products like Fairlife milk.

Chart III - Mix of Milk Products in 2021

Table one below quantifies the impact of butterfat available from fluid milk.  The higher component levels of butterfat are offset by the drops in volume and the changing mix of fluid milk sales.  The amount of excess butterfat from fluid milk has been reduced by 119 million pounds.  That would produce about 155 million pounds of butter.  While some of the butterfat from fluid milk is used in other dairy products like ice cream, it does represent a drop in total available butterfat for butter churning.  

Milk received is based on the skim milk in fluid milk sales plus the butterfat in producer milk based on the butterfat percent in that year.  Butterfat used is based on the percent of milk in the four classes of fluid milk.  The excess butterfat is the difference between butterfat in the milk delivered and the butterfat used to meet the label requirements for fluid milk.

Table I - Impact on Butterfat Availability from Fluid Milk

Is 101 million pounds of butter from the excess butterfat in fluid milk a significant amount?  Chart IV shows the annual butter production from 2017 to 2021.  From the high of 2145 million pounds of butter produced in year 2020 to the 2069 million pounds of butter produced in year 2021, there is a 76 million pound drop.  From the low of 1847 million pounds in 2017 to the current level of 2069 million pound in year 2021 there was an increase of 222 million pounds of butter.

Chart IV - Annual Butter Production

Is 101 million pounds of butter from the excess butterfat in fluid milk a significant amount?  YES!

The next post will make projections of milk usage through 2030.  The growth is all in products that require milk components.  Component increases in producer milk is what's needed for the growing dairy products.  It is also what increases revenue for producers.