What is your outlook for butter prices for the remainder of 2018?

US butter prices have been steady this year compared to EU prices. Even with stronger milk production and high stocks, US butter prices will remain firm due to tighter cream availability, rising freight costs and end user nervousness.

What is driving the resurgent demand for butter in the US?

Butter demand is supported by increased consumer preference for natural, single label foods and healthier fats. McDonald’s high-profile move to switch to butter recently has been quietly followed by other restaurants, increasing demand by millions of pounds per year. In the past, some substitution happened when butter prices climbed, but with consumers turning away from trans-fat and oils, butter has increasingly become the only option, regardless of price.

How are cheese markets performing?

Cheese has been in a relative balance so far in 2018, with both bullish and bearish factors pressuring the market. US cheese exports are very strong in 2018, while domestic demand remains good due to a strong US economy and good foodservice demand. However, production has not struggled to keep up with demand. With more production expansion in the pipeline, the US will need to continue to find markets to absorb the increased production.

What is driving milk production growth in the US?

Dairy cow numbers continue to increase in the US and are close to a 20-year high. On a regional basis, there is good milk production growth in the southwest and Rocky Mountain states (April production: Texas +7%, Colorado +10%, Kansas +5%), while production is lower in the northeast and parts of the Midwest. Overall, US milk production will be at least 1% higher in 2018.

How will recent tariffs by Mexico on US dairy impact trade?

Mexico’s tariffs on US cheese are very concerning for exporters, as Mexico purchases 75% of its cheese imports from the US. Once the tariffs are implemented in July it will make US shipments more difficult, especially when coupled with a weak Mexican peso relative to the US dollar. With Mexico-US relations strained right now, it is likely Mexico will look to other providers for its dairy import needs as supplies from the US become less reliable.

What impact are higher freight costs having on the US dairy industry?

Electronic logging requirements, trucker shortages, and higher fuel prices overall have combined to force freight costs higher. It has been especially impactful to the western US which has had difficulty moving products (butter, cheese) to the Midwest for further processing and distribution. Processors and co-ops will need to decide whether to absorb this cost, impacting profitability, or pass costs along to end users, potentially making dairy more expensive on shelves.

Title: Director of market intelligence.

Company: HighGround Dairy.

Location: Chicago.