milk truck

Butter drives farm-gate milk prices upward

Cheese sale remain strong but don't lead in price strength.

Consumers have been relearning to butter their toast, and two University of Missouri Extension economists say it’s helping dairy prices at the farm gate.

Extension economists Scott Brown and Daniel Madison said despite growth in the U.S. dairy cow herd, milk prices have stayed above year-ago levels this year -- the result of growing demand for butter.

“Butter prices easily surpass the last record-high price in 2014. Strong butter demand will lead to an all-milk price near $18/cwt. in 2017,” Brown said.

It’s not limited to just U.S. consumer demand. Butter prices in Europe topped $3/lb. during the past two months.

The economists provided their outlook in an “Update for Livestock & Dairy Markets,” which is also part of the University of Missouri's Food & Agricultural Policy Research Institute midyear outlook.

The report forecasts a small pullback in milk prices in 2018 as international demand softens. However, prices are expected to rise in 2019 through the end of the outlook in 2022, when the price is expected to be near $19/cwt.

Butter is what is driving prices now, but cheese sales also remain strong, although they don’t lead in price strength. For now, cheese and nonfat dry milk prices remain below their 10-year averages.

Milk price strength and low feed costs protect dairy margins near or above $9/cwt., Brown said. At that level, the Margin Protection Program (MPP) -- the U.S. Department of Agriculture's dairy safety net -- won’t make payments in coming months. “That outlook could change if historical butter demand levels return,” he said.

Dairy farmers haven’t embraced MPP and are seeking better protection in the 2018 farm bill, which dairy groups are discussing with Congress. Secretary of Agriculture Sonny Perdue recently announced that dairy producers may opt out of MPP this year.

Brown and Madison said this year could see a peak in dairy cow numbers near 9.4 million head. This will likely taper to 9.3 million cows by 2022, they suggested. However, the total milk supply is expected to increase as per-cow production rises.

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