Guest Columns

Perspective:
Dairy Markets

The butterfat quandary

Corey Geiger

Corey Geiger is lead dairy economist for Denver-based CoBank, a national cooperative bank serving vital industries across rural America. He is a guest columnist for Cheese Market News®.

This past August, butterfat markets turned on a dime. Spot CME butter prices went tumbling, and sweet cream was searching for a home at very reduced values. At the producer level, Class IV butter and nonfat dry milk prices shifted from $18.50 per hundredweight in August to $13.89 by November. As this took place, butterfat values under federal milk market order pricing dropped from $2.73 per pound in August to $1.58 in December. Those prices fell even lower in January to $1.45. While spot prices have rebounded in recent weeks, they are still well below the long-term average.

As I attend industry events this spring, the butterfat topic is a consistent theme in hallway discussions and questions I answer during presentations. The rather consistent question is, “How did butterfat move into an oversupply situation?”

The short answer is, dairy farmers ramped up supply to meet market demand and pricing signals. Having grown up on a sixth-generation dairy farm, I remind people that we must never underestimate a dairy farmer’s ability to produce milk. Some processors have been concerned where the milk will come from to fill the capacity of the $12 billion in plant investments. I point to the butterfat story and remind people, if you build it, the milk will flow.

Butterfat has followed.

• Butterfat deficit nation, exports

The American growth story in dairy exports is well documented. We are exporting 17% to 18% of our milk production in any given year via dairy products and ingredients. However, the makeup of those ingredients has indicated that we skim off our butterfat and export protein and other solids. That was the story until mid-2025.

In 2011, the U.S. exported 4.6% of its milk supply when measured on a milk solids basis. That number has hardly budged as milk fat exports totaled 5.2% in 2024, according to USDA data. On the flip side, the U.S. exported 16.6% of its milk supply on a skim-solids basis in 2011, and that number climbed to 21.6% by 2024. This means America kept butterfat for domestic markets.

• Butterfat deficit nation, imports

Further proof that America ran short on butterfat can be seen with import data. In 2011, the U.S. imported 10.2 million pounds of butter. By 2021, that number grew 10-fold to 100.5 million pounds. When butter moved to over $3 per pound, imports grew even higher to 172.6 million pounds in 2024. Then came the great pullback in the second half of 2025, when butter imports fell 43% to 98 million pounds.

• Price signals incentivize butterfat production

Remember 90 and 90. Multiple component pricing is the standard for just over 90% of the nation’s milk. And 90% of that milk is priced on two components — butterfat and protein. Those two components have been like a pair of NASCAR racecars competing on the racetrack. Each component has had their winning dynasty era.
From January 2000 to August 2015, protein was the unquestioned leader, outpacing butterfat in monthly milk checks in all but 13 months. That’s a 93% winning percentage with protein outpacing butterfat by $1.02 per pound in that run.

From September 2015 to August 2019, butterfat claimed the pole position leading in all but five of those 48 months for a 90% winning percentage. However, its monthly lead over protein was just 69 cents per pound. Protein then regained the lead for 31 of the next 34 months until June 2022, outpacing butterfat by its widest margin yet at $1.09 per pound.

Then came the butterfat surge from July 2022 to August 2026. Butterfat won 36 of the 38 months by a $1.03-per-pound advantage over protein, nearly matching protein’s largest margin of victory. That sent the clear signal to farmers — make more butterfat.

• Farmers respond

Producing more butterfat wasn’t so easy in years past. However, more tools are available today. Farmers have a host of economical feeding options to produce more butterfat, and genomics has become a game changer. In the pre-genomic era, dairy farmers realized about $10 of improvement each year from using the best available bulls on their heifers and cows. By 2020, that number leapt to $100 per year, with butterfat and protein being the leading contributors to that gain.

On top of that, genomic testing on the female side of the equation has been gaining momentum. From 2008 to 2021, The Council of Dairy Cattle Breeding ran 6 million genomic tests. Another 6 million genomic tests were added to the docket from 2022 to 2025. Simply said, U.S. farmers believe in the DNA science that predicts 70% of what a newborn calf will do as an adult cow. Underperformers are immediately sent to their second career in the beef sector.

Gender sorted semen is another amplifier to get more females from the best heifers and cows. That category has grown from 7 to 10 million units sold from 2020 to 2024.

With 62% of the contemporary modern-day gains in butterfat being achieved through genetics, this represents a structural shift in America’s milk. Even if farmers pull back on feeding strategies, cows will perform to their genetic potential. That means the move from 3.66% butterfat in 2010 to 4.29% in 2025 is no fluke. The genetic selection made in 2025 will not see the milking string until 2028. So, more butterfat is on the way.

As my good industry colleague Chad Dechow, a Penn State geneticist, suggests, perhaps we should change the genetic selection criteria to choosing bulls for a protein-to-fat ratio. That might begin to moderate the significant growth in butterfat and give cheesemakers what they want: a protein-to-fat ratio of 0.80. After all, over 40% of the U.S. milk supply goes into cheese on a milk fat basis. Plus, protein demand is as strong as ever.

One thing is for certain — dairy farmers respond to incentives. Strong butterfat prices in the most recent run caused them to double down on butterfat.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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