Dick Groves
Editor, Cheese Reporter


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US Butter Price Records, Past And Present

Here in 2014, it’s beginning to sound like a broken record (or, in 21st century terminology, maybe a corrupted MP3 file): records are made to be broken. And 2014 is truly shaping up as a record-breaking year, especially when it comes to dairy product prices.

First it was cheese prices. The CME Cheddar block price record of $2.2850 per pound, set back in May of 2008, was first broken in January of this year, when blocks reached $2.2950 per pound on January 23 and eventually peaked at $2.3600 per pound on January 31 and in early February.

That record lasted a little over a month; blocks reached a new record high of $2.3625 on March 14, then kept on rising until hitting $2.4325 on March 24.

So for cheese prices, the dairy industry went from May of 2008 until January of 2014 without any new record highs being set, then saw new record highs set in both January and March. And when it was all over, the new record high of $2.4325 per pound is an impressive 14.75 cents per pound higher than the previous record set back in 2008.

But while cheese prices had set several new record highs since the turn of the century — in 2004 ($2.20 per pound), in 2007 ($2.2025 per pound), and then in 2008 — the butter price record dates all the way back to 1998. Or at least it did date that far back until last Friday, when the butter price record was finally broken.

As reported on our front page last week, the previous CME butter price record of $2.8100 per pound was set way back in 1998. The new record, $2.8225 per pound, broke that 16-year-old record by 1.25 cents.

How long did that $2.81 per pound butter price last? There are at least a couple of ways to put it into perspective.

First, as noted in our story last week, the AA butter price record was set back when the CME cash butter market was still trading just once a week, on Friday morning. It may be recalled that, earlier that same week (August 31-September 4, 1998), the CME began daily cheese trading (as opposed to weekly), and also began daily cash trading of nonfat dry milk (previously, there was no CME cash market for NDM).

Butter was actually traded just once a week on the CME for only another few months. In March of 1999, the CME’s cash butter market began trading three days a week (Monday, Wednesday and Friday), and then in 2006, butter trading became a daily event, just as it had been since 1998 for cheese and nonfat dry milk.

The butter price record that was finally broken last Friday was also established just a few short months after the CME changed from trading three different grades of butter (AA, A and B) to just the current Grade AA.

For the record, on the same day that butter reached its “old” record high of $2.8100 per pound, Cheddar blocks settled at $1.6575 a pound, barrels settled at $1.6325 per pound, Grade A NDM settled at $1.1300 per pound, and Extra Grade NDM settled at $1.1175 per pound.

Another interesting aspect to that September 1998 butter price record is that it didn’t just break or shatter the previous record, it obliterated it. The previous butter price record, set just a week earlier, was $2.3425 per pound.

Thus, the new butter price record was set on a Friday morning when the price of butter jumped 46.75 cents per pound. According to our very brief coverage of that record, the butter trading session on Sept. 4, 1998, lasted for just over an hour and included sales at a number of price levels, including a high of $2.9800. An uncovered offer set the record closing price.

A week after that $2.81 butter price record was set, the butter price declined by two cents. That was the first butter price decline since March 6, 1998, when the price fell three-quarters of a cent to $1.3425 per pound. A week later, the price increased by a quarter of a cent, and the price just kept going up after that.

Indeed, from March 6 through Sept. 4, 1998, the Grade AA butter price increased by an astonishing $1.4675 a pound. Just to put that in perspective, back on March 6 of this year, the butter price stood at $1.8800 per pound, meaning that the butter price increased by 94.25 cents from March 6 through last Friday, when the new record was set.

The butter price back in 1998 declined far less gradually than it increased. The butter price that year stood at $2.8000 per pound on September 25, then fell to $2.25 a pound by October 30 and to $1.2175 per pound by November 27.

So in the span of nine CME butter trading sessions, the Grade AA butter price dropped by $1.5825 per pound. Obviously, the precipitous decline in the butter price was far more rapid than the run-up to the record price of $2.81.

That incredible volatility back in 1998 can also be observed when looking over monthly average butter prices. More specifically, the average monthly price for Grade AA butter in 1998 rose from $1.3788 per pound in April to $2.0085 a pound in July, then rose to $2.1730 per pound in August before jumping to a record $2.7566 per pound in September before falling to $2.4089 in October, $1.7447 in November and $1.4131 in December.

By comparison, the monthly average butter price thus far in 2014 has risen from $1.7756 in January to $2.4624 in July, and is on pace to average around $2.55 in August.

Price volatility is still, obviously, a major factor in the dairy business these days. But even with a new record butter price being set, it’s difficult to imagine anything topping the volatility experienced in the butter market back in 1998.

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