Description

Butter is a dairy product produced by churning the fat from milk, usually cow's milk, until it solidifies. In some parts of the world, butter is also made from the milk of goats, sheep, and even horses. Butter has been in use since at least 2,000 BC. Today butter is used principally as a food item, but in ancient times it was used more as an ointment, medicine, or illuminating oil. Butter was first churned in skin pouches thrown back and forth over the backs of trotting horses.

It takes about 10 quarts of milk to produce 1 pound of butter. The manufacture of butter is the third largest use of milk in the U.S. California is generally the largest producing state, followed closely by Wisconsin, with Washington as a distant third. Commercially finished butter is comprised of milk fat (80% to 85%), water (12% to 16%), and salt (about 2%). Although the price of butter is highly correlated with the price of milk, it also has its own supply and demand dynamics.

The consumption of butter has dropped in recent decades because pure butter has a high level of animal fat and cholesterol that have been linked to obesity and heart disease. The primary substitute for butter is margarine, which is produced from vegetable oil rather than milk fat. U.S. per capita consumption of margarine has risen from 2.6 pounds in 1930 to recent levels near 8.3 pounds, much higher than U.S. butter consumption.

Futures on butter are traded at the CME Group. The CME's butter futures contract calls for the delivery of 40,000 pounds of Grade AA butter and is priced in cents per pound.

Prices - The average monthly price of butter at the CME in 2021 rose +9.8% yr/yr to $1.7325/pound, down from the 2017 record high of $2.3278/pound.

Supply - World production of butter in 2022 is forecasted to rise +2.5% yr/yr to 11.555 million metric tons, a new record high. The world's largest producers of butter for 2022 are forecasted to be India with 56.3% of the world production, the European Union with 18.6%, the United States with 8.7%, New Zealand with 4.2%, and Russia with 2.4%. Production of creamery butter by U.S. factories in 2020 rose +7.5% yr/yr to 2.125 billion pounds, a new record high.

Demand - Total commercial use of creamery butter in the U.S. rose 4.2% yr/yr to 2.259 million pounds in 2020. That is about one-third more than the commercial use of butter back in the 1950s. Cold storage stocks of creamery butter in the U.S. on January 1, 2021, rose +5.8% yr/yr to 189.655 million pounds.

Trade - World imports of butter in 2022 are expected to rise +2.3% yr/yr to 624,000 metric tons. U.S. imports of butter in 2022 are expected to be unchanged at 73,000 metric tons. World exports of butter in 2022 are expected to rise +2.3% yr/yr to 995,000 metric tons. U.S exports in 20212 are expected to fall -10.0% yr/yr to 54,000 metric tons, far below the 1993 record high of 145,000 metric tons.

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