#Butter prices fatten up

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Cows may do all the work, but for the past few months the bulls have taken over U.S. butter markets, sending prices to some of their highest levels ever.
Butter joins milk and cheese as the latest dairy commodity to see record or near-record prices this year, as people around the globe increasingly gobble up as much protein as the world can produce.
«All of agriculture, from grain crops to pork and beef, all of these things have had a real good run of late. And farm income has been at record highs because of this incredible demand from nations like China, India and Brazil that have millions of people entering the middle class for the first time,» said Casey Langan, spokesman for theWisconsin Farm Bureau Federation.
«When you have people entering the middle class for the first time, the first thing they do is add protein to their diet,» Langan said. «They don’t run out and buy a TV.»
The soaring global demand for butter is occurring at the same time U.S. butter consumption has reached its highest point in more than 40 years, with Americans turning away from hydrogenated vegetable oils and increasingly seeking out products with no artificial ingredients.
All of that has sent butter prices shooting higher.
«I have not seen numbers like this in quite some time,» said Eric Meyer, president of High Ground Dairy, a dairy brokerage and advisory firm in Chicago.
The cash price for a pound of butter was $2.40 on Friday, according to the U.S. Department of Agriculture. That’s about $1 a pound more than at the same time last year.
The price hit $2.62 a pound on July 23, according to the USDA. That was 19 cents shy of its record price of $2.81 in September 1998.
While the price spike has been good for dairy farmers, it’s been difficult for folks who buy butter by the ton — folks such as Mark Carollo, owner of Simma’s Bakery in Wauwatosa, and Croissant Etc., a wholesale bakery in Greendale.
«A pallet used to cost me $3,000; now it’s costing me $6,000,» Carollo said. «And we go through a pallet a week. It’s one of our key ingredients.»
Raising his prices any further isn’t an option, and Carollo refuses to use cheaper ingredients.
«I’m not switching things over to margarine or anything like that,» he said. «At a certain point, you can’t raise prices to keep up with this. You just have to hope it’s going to come down.»
Other butter-centric businesses are feeling the squeeze, too.
In January, Erica Elia, owner of Classy Girl Cupcakes in Milwaukee, was paying about $78 for a 36-pound case of butter. By mid-July, that same case of butter cost more than $103.
Butter prices have always fluctuated, but the increases this year have tended to be bigger than usual, Elia said. «I didn’t really realize that prices were increasing this year until I pulled out my inventory forms,» she said.
For now, she said, her company will absorb the price increase.
«But if it went up really dramatically or continues, I would have to look at pricing,» she said.
For consumers, retail butter prices were nearly $1 a pound higher for the period July 14 to July 25, compared with the same period a year earlier, according to the USDA. This year, the average weighted price was $3.49. Last year, it was $2.53.

Prices go in cycles

Farmers know as well as anyone that high prices won’t stay that way forever, and butter is no exception.
«Prices have been a bit erratic, but they have typically gone in three-year cycles,» said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison. «I think we are at the peak of one of those cycles.»
Butter prices actually moved lower in the past week, falling about 10 cents a pound compared to the previous week, according to the USDA. Traders of «futures» contracts are expecting that to continue. Futures are agreements to deliver a specific quantity of a commodity at a set price at a certain point in the future.
«The futures market is predicting (lower prices),» Meyer said. «The December futures contract was 75 cents below the spot market price last week. That’s about as inverted as I’ve ever seen it.»
That doesn’t mean prices are going to crash, market watchers say.
«It is part of what we think the new normal is,» Stephenson said. «What I think is that these are prices on the high side of probably what is a new normal.»
That new normal is driven by worldwide demand.
«We’ve sold quite a bit of butter overseas as exports,» Stephenson said. «That’s a bit new to us, to have been selling as much product as we did the past year in particular.»

Tighter supplies

Prices for end-market dairy products like butter are watched closely in Wisconsin, where nearly 1.3 million cows produce more than 3.2 billion gallons of milk annually. Dairy-related businesses collectively are a $26.5 billion piece of the state’s economy — nearly 10% of the state’s total output of goods and services.
«The margins for dairy farmers have been very, very strong,» Stephenson said. «We think there will be some retrenching deep into 2015, but still at good levels even then. This has been a good period for dairy producers.»
Meanwhile, look for tight butter supplies to keep butter prices higher for the next few months.
That’s because during a typical year, U.S. producers churn a lot of butter in late summer and put it in cold storage in preparation for the yearly spike in demand that comes during the holiday season in November and December. This year has been different, said Trevor Wuethrich, vice president atGrassland Dairy in Greenwood, the nation’s largest family-owned butter producer.
«This year, there were no inventories built because the butter that was being produced was being exported to other countries,» Wuethrich said. «The world supply is tight right now.»
On June 30, U.S. cold storage holdings of butter totaled 186.1 million pounds, down 3% from May and down 42% from June 2013, according to the USDA.
Still, besides futures prices, there are other signs that dairy prices may stabilize in coming months, as dairy farmers add animals to their herds in order to gain a larger share of elevated milk prices.
Production per cow averaged 1,888 pounds for June, the highest for that month since the USDA began compiling the statistic in 2003.
And nationwide the number of milk cows on U.S. farms in June was 8.57 million, 11,000 more than May.
For the six months January to June, U.S. dairy farmers added 64,000 cattle to their herds, the strongest growth since 2011 for a six-month stretch, Meyer said.
«That herd growth may actually accelerate in the second half of the year,» he said. «These extreme prices are going to bring the milk.»
 
Source: Journal Sentinel

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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