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For the first time in more than three years, CME spot butter slumped below $2/lb., although U.S. butter consumption has remained robust. USDA’s Dairy Market News reports that “Thanksgiving sales were solid, and retailers appear eager to reorder for the next winter holiday push.” There is still more than enough product that remains available to meet demand. For years, lofty butter values spurred U.S. dairy producers to make more cream, and they rose to the challenge. In 2018, the butterfat test of U.S. milk averaged 3.88%, up from 3.77% in 2016, when butter values were much lower. This year, butterfat has averaged 3.87% through August, up from 3.84% in the first eight months of 2018.

With higher components, the U.S. dairy industry has expanded cream production even while adding little milk. Through August, U.S. milk output was just 0.05% greater than in 2018, but cream production increased 0.96%. With greater advances in milk output in recent months, cream output will likely widen its lead over last year. If all of the new cream were to end up in butter churns, U.S. butter makers could produce 1,628 more truck loads of butter than in the first eight months of 2018 and 5,422 more than during the same period in 2017, assuming a load is 41,500 lbs., and eligible for delivery to the CME spot market.

Butter remains abundant abroad. According to Dairy Market News, previously unforeseen volumes of butter now being produced [in Oceania] have led to more current stocks than had been expected. Through September, European butter production was 3.7% greater than it was in 2018. The combination of plentiful and inexpensive foreign butter and rising domestic cream production will likely keep the U.S. butter market on its heels.

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