Butter is back. This past spring, U.S. per capita butter consumption was at its highest levels in around 40 years.
"There has been a complete resurgence of butter since at least 2008, and it really has everything to do with 'real food,' " Melissa Abbott, culinary insights director at the Hartman Group, a consumer market research firm, told the Minneapolis Star Tribune. "There's been a backlash against margarine and other processed spreads."
And according to Jerry Dryer, a veteran dairy and food market analyst based in Wisconsin, that per capita butter consumption has gone from five pounds in 2010 to more than 5.6 pounds last year. "With 350 million Americans each using an additional 0.6 of a pound," he noted, "butter usage has skyrocketed."
The bad news? The stocks of available butter are lower than usual. As of late last month, according to the U.S. Department of Agriculture, the amount of butter in storage was down 40 percent from a year earlier. That's nearly 130 million pounds less, compared to mid-2013 levels.
Not surprisingly, prices are rising. A pound of butter that cost just under $1.60 a pound in January now runs close to $2.40.
The problem comes down to combination of economics and weather. As the recession deepened after the 2008 financial crisis, lower-than-normal milk prices has driven many milk producers out of business. And the ongoing drought in California, a state that Dryer says "typically produces about one-third of our butter," is adding a further burden to the dairy industry.
Another issue reducing butter stocks is rising demand for U.S. butter overseas. The U.S. Dairy Export Council notes the nation's dairy exports have grown at a compound annual rate of 19 percent over the past nine years, with overall annual sales breaking through the $5 billion mark in 2012.
Industry data shows that from January through May of this year, the U.S. exported 100 million pounds (or more than 45,500 metric tons) of both butter and the high butterfat products used in food items such as candy and baked goods. That's an increase of 84 percent compared to the same time period in 2013.
"This year, about 12 percent of the U.S. butter produced has been exported," Dryer said. "Last year [it was] six percent."
In the past, U.S. butter exports have gone primarily to the Middle East and North Africa. But Brian Gould, an agricultural economist and dairy marketing specialist at the University of Wisconsin-Madison, said the growing global middle class, especially in Asia, has helped spark new demand for more dairy products. That includes butter, as the popularity of pizza, ice cream and other U.S. food staples increases overseas.
"In the developing world the trend has been has been that as the economy improves, diets tend to improve and become more westernized," he said. "Dairy is not part of the traditional diet in many of these developing countries."
That double-whammy of growing demand, both domestically and abroad, is also forcing commodities buyers to raise their bids. Sarina Sharp, an agricultural economist with the Daily Dairy Report in Chicago, told AgWeb.com that manufacturers are starting to cut butter into retail-sized portions earlier than usual this year.
"This is occurring about a month ahead of time, and it is one more weight on the scale toward tight butter inventories this fall," she said. "End users are likely to remain concerned about the possibility that butter supplies could be very tight later this year."
So what does this mean for consumers in the months to come? That's hard to predict, Dryer said.
"Retail butter sales have not slowed very much despite higher prices," he said. "So retailers are moving similar volumes. However, many probably have not yet passed along the full impact of the wholesale price increase."