Dive Brief:

• The average price of grade AA butter hit $2.02 per pound for the week ending Dec. 11, 2021, up 40% compared to the same time period a year ago, according to an analysis of USDA data by IndexBox reported by Global Trade. The latest USDA dairy market report found that the weekly average price of butter rose to $2.66 per pound for the week ending Jan. 7.
• The increase was driven by declining cow herds, labor shortages and higher packaging material costs, according to IndexBox, which expects price increases to continue in 2022. In its weekly report, USDA noted that ongoing labor and freight shortages will continue to limit the butter supply in 2022. Overall butter production declined 2.8% year to date.
• The spike in butter prices follows other record-setting increases for commodities such as wheat and coffee over the past year amid high demand, poor weather and supply chain disruptions, which manufacturers have largely chosen to pass down to the consumer.

Dive Insight:

The huge increase in butter prices runs counter to the trend for other dairy products. According to the Bureau of Labor Statistics, the price index for dairy only rose 1.6% in the past year, compared to 6.4% for all food at home.

Butter prices rose 3.7% in the month of December, which is not unexpected since demand for the dairy item increases during the holidays as consumers ramp up their home baking, IndexBox analysts said, adding that the trend will only continue.

Betty Berning, an analyst with Dairy Market News, cited "tightening milk supplies, increased milk demand from other processors, especially cheesemakers, strong butter exports and domestic holiday demand, and ongoing supply chain congestion,” Dairy Herd Management reported. Similar to the nationwide cream cheese shortage, she said factory labor and truck driver shortages have led to dwindling amounts of product and delayed shipments.

According to the USDA report, cream availability has decreased, leading butter churners in the central U.S. to have to split cream with other dairy processors, such as cream cheese providers.

In its last quarterly earnings report in October, butter manufacturer Land O’Lakes highlighted rising input and supply chain costs for its round of price increases, and said that the brand’s net sales increased 12% throughout the year. Meanwhile, baked goods manufacturers that rely on butter as an ingredient such as Grupo Bimbo, which owns Entenmann's treats and Sara Lee desserts, are weighing whether to pass along their increased costs.

At the start of the pandemic in 2020, sales of butter surged as consumers began cooking and baking more at home. That demand has remained high ever since, and with the omicron wave of COVID-19 leading people to spend more time cooking from home, it will likely persist.