Butter prices are said to be rising substantially for two-fold reasons: a demand for milk-fat, and a recent drop in production. So what is going on with the domestic butter market that hasn’t seen these high $2 per pound butter prices since November?
California dairy farmers are the nation’s top producers of butter and they have been reportedly struggling with lower profit margins since last year which has caused a 1.5% reduction (that’s 8.8M pounds!) in butter production. In other parts of the nation the dairy-milk supply appears to being devoted toward the making of cheese – at the expense of the consumers of butter.
“With CME spot butter prices now over the $2/lbs level, it might make more sense for dairy producers to reconsider how they allocate their product,” said Kevin Craney, Director of Managed Futures at RJO Futures in Chicago, regarding the fundamental assessment of the CME spot-butter market. Craney added, “It wouldn’t be surprising to see more milk headed toward the churn at this point, rather than the cheese vat.”
The Chicago Mercantile Exchange’s spot butter prices – according to my study – are clearly in an uptrend. Before butter prices get too crazy I’m confident the dairy producers will see the profit margin potential to step up production once again. At least from a business prospective this makes sense.
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