Editorial Comment Publisher/Editor



Retail Butter Prices Seem A Bit High

Dick Groves
Cheese Reporter

November 20, 2020

Last week, the US Bureau of Labor Statistics reported that the Consumer Price Index for dairy and related products in October was 229.16 (1982-84=100), while the CPI for cheese and related products was 243.1, the CPI for whole milk was 214.9 and the CPI for ice cream and related products was 229.2

Also, the CPI for butter in October was 250.06, which, as we reported last week, marked the fourth straight month in which the butter CPI was above 250.

And this has led us to wonder why the CPI for butter is so high, when butter prices have been relatively low for so long. It seems like the butter CPI, which reflects retail butter prices, should be considerably lower than it is and has been for some time now.

That’s because the cash market price at the CME has been relatively low, at least compared to recent years. But the butter CPI continues to hover within a few points of its record high of 256.7, which was set back in October of 2014.

So let’s take a look at some recent history of butter prices on the CME and the CPI for butter, and see if that relationship is a bit “off” these days.

First, we offer one explanatory note here: the BLS, unfortunately, no longer publishes average retail butter prices. The most recent average retail butter prices are from the first four months of 2012, when they averaged between $3.18 and $3.50 per pound.

Also during the first four months of 2012, the CPI for butter ranged from 191 to 207.1, and the CME cash market butter price ranged from $1.3550 to $1.6400 per pound.

As far as CME butter prices are concerned, it may be recalled that the butter price was under $2.00 per pound for all of 2012 and 2013 (when it averaged about $1.60 and $1.56 per pound, respectively), and was also under $2.00 per pound during all but a few days during the first four months of 2014. Then the price took off, reaching $2.5100 per pound in July 21 and then hitting $3.00 per pound on Sept. 12.

The butter CPI followed, starting 2014 at 202.8 and rising every month until reaching 256.7 in October, a record that still stands.

After that, both the CME butter price and the butter CPI started to drop, with the CME price reaching $1.54 a pound in early 2015 and the butter CPI dropping to 222.1 in April of 2015.

But the CME butter price then started to rise again, reaching $2.0050 a pound on Aug. 11, 2015, and continuing to increase until reaching $3.1350 a pound on Sept. 25, 2015. The butter CPI again followed, reaching 250.9 in October of 2015.

From 2016 through 2019, the CME butter price remained above $2.00 a pound, but below $3.00 a pound, with few exceptions. Indeed, it didn’t drop below $2.00 for even a single day in either 2017 or 2018, and averaged above $2.00 per pound in each of those years (as well as in 2014 and 2015), including a record high average of $2.3278 a pound in 2017.

And the CPI for butter remained relatively high during that period as well, dropping below 230 just three times (in May, November and December 2016) and averaging above 240 in 2017, 2018 and 2019.

But the CME butter price and the butter CPI have parted company this year. The CME butter price fell to $1.9500 per pound on Dec. 31, 2019, and hasn’t been above $2.00 a pound at all in 2020. It fell to $1.10 a pound back in April, and averaged just under $1.20 per pound for that entire month, the lowest monthly butter price average since March 2009’s $1.1770 per pound.

During the first 10 months of 2020, the CME butter price averaged around $1.61 a pound which, if it holds for the rest of the year, would be the lowest annual average since 2013’s $1.5560 per pound.

But the butter CPI hasn’t really budged this year. Indeed, it actually averaged above 250 during the first half of the year (250.36, to be exact), and averaged above that in July, August and September (and was still above 250 in October).

In short, 2020 will be the first time since 2013 that the CME butter price averaged below $2.00 a pound for the entire year, and the butter CPI will likely average close to 250, a record high.

So, how big a problem is this for the dairy industry? Well, in at least one way, it doesn’t appear to be much of a problem at all.

Specifically, during the first nine months of 2020, domestic commercial butter disappearance, at 1.458 billion pounds, was actually up about 46 million pounds from the first nine months of 2019, according to figures from USDA’s Economic Research Service. That’s despite the fact that restaurants, a huge market for butter, have been closed or operating well below capacity since roughly the middle of March.

In other words, while retail butter prices remain as high or higher than ever before, retail butter sales appear to be doing quite well. In fact, it’s probably safe to conclude that retail butter sales will set a new record this year, given that domestic commercial butter disappearance set a new record in 2019, topping 2 billion pounds for the first time ever.

But dairy farmers might find this a bit frustrating. In recent years, with butterfat contributing more to their milk checks than protein, dairy farmers have boosted the average fat test of their milk from 3.75 percent in 2015 to 3.92 percent in 2019.

But here in 2020, it looks like protein is the more valuable component for dairy producers. Butterfat, on the other hand, seems to be quite profitable for retailers.


Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 40 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com

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