Butterfat Continues Price Increases

Butterfat continues to increase in price.  How much longer will this continue?  Chart I below lists the record setting prices of butterfat over 25 years.  Record highs for butterfat have been reached 23 times over these 25 years.  Nineteen of these records have occurred at the beginning and end of these 25 years.  During the first two years of the Class and Component pricing, there were 13 record high prices.  For the next 12 years there were no significant record price increases.  In 2014 there were three new high price records set.  Following that there were another eight years with no new record price increases.  In the most recent three years there have been six new record highs set.

Chart I - Record Highs for Butterfat Prices

The moving 12-month averages are shown in Chart II.  Butterfat production is cyclical, and prices are volatile and are therefore shown as 12-month moving averages.  The 12-month moving averages do not show the full impact of the most recent record setting prices for butterfat. 

In 2020 and 2021 butterfat prices were low during COVID "stay at home" mandates.  The butterfat prices reached a high in late 2022 and dropped in 2023.  With the new record high prices in 2024, the moving averages began to increase.

Chart II - AMS Butterfat Prices

With higher butterfat prices, producers and their nutritionists worked hard to increase butterfat in milk.  Over the five plus years in Chart III, the average butterfat level increased from 3.9% to 4.2%.  That is an 8% increase in butterfat levels or about 1.5% increase per year!  Yes, money talks.

Chart III - Butterfat Percent in Milk by Month

Charts IV through VI below show the butterfat levels in three of the largest Federal Orders.  The increases in butterfat levels are nearly identical and consistent with the average for the U.S.

Chart IV - Butterfat Percent in the
 California FMMO

Chart V - Butterfat Percent in the
Upper Midwest FMMO

Chart VI - Butterfat Percent in the Southwest FMMO

What is the impact of increased butterfat levels, increased prices, and increased milk per cow on producer revenue?  This data is also reported on 12-month moving averages and do not show the full impact on the latest reporting month.  The most recent month reported, May 2024, will be compared to the 12-month moving average at the end of this post.

Chart VII shows the revenue per cow for U.S. milk.  While 2023 revenue dropped with lower butterfat prices, it has in 2024 reached a record level in the latest reporting month.

Chart VII - Butterfat Revenue per Cow in the U.S.

Charts VIII through X follow the revenue per cow for three of the major dairy states.  Chart VIII, California, has the lowest current revenue of the three states at $266 per month per cow.  The price paid for butterfat is the same and the component levels are the same for all three states, but California does have a lower milk per cow factor.

Chart VIII - Butterfat Revenue per Cow in California

Wisconsin and Texas data in Charts IX and X are very similar as their milk per cow is similar.  Both Wisconsin and Texas are showing record levels of revenue per cow.

Chart IX - Butterfat Revenue per Cow in Wisconsin

Chart X - Butterfat Revenue per Cow in Texas

To see the full impact of the most recent butterfat prices and butterfat component levels, Table I below compares the May 2024 12-month average revenue to the May 2024 revenue.  The actual monthly revenue is significantly higher than the 12-month average due to rapidly increasing butterfat prices.

Table I - Revenue per Month per Cow for May 2024

It seems obvious that producers and nutritionists and anyone else involved in changes to increase butterfat should go full steam.  To maximize revenue per cow, it is also important to increase milk per cow and the amount of milk protein.   Cheese uses over half of the U.S. milk produced and cheese continues to increase annually.  Cheese makers need high levels of milk protein to efficiently make cheese.  The ability to increase revenue and profitability are established technologies.

The USDA is about to enact increases in the make allowances that will move money from producers to processors.  Improving butterfat and milk protein is key for producers to survive.