Part of this changing consumer perception has been fueled by more than two decades of research on milkfat, DMI CEO Tom Gallagher said.
“We long believed that milkfat had benefits to the consumers and the general population that government policy and general professional guidance didn’t reflect,” Gallagher said.
In the last few years, US dairy organizations have started to see their viewpoint on the health benefits of milkfat gain support and integrated into government policy as well as health professional guidance.
“That is directly due long term funding in part to the checkoff program of milkfat research,” Gallagher said.
The dairy checkoff is a general dairy product promotion fund of which dairy farmers pay 15 cents and dairy importers pay 7.5 cents for every hundred pounds of milk they sell or import. That revenue – overseen by the USDA – is used to fund programs aimed at promoting dairy consumption and protecting the image of dairy farmers, dairy products, and the dairy industry.
The revived demand for milkfat has strengthened US butter prices, significantly increasing the average contribution of the USDA-reported price received by farmers from milk sales from 38% before 2015 to over 66%, according to DMI research.
“During that 2015-to-2016 summer period, we’ve added $2bn to $2.5bn of value to famers’ checks,” Gallagher added.
"We’ve added $2bn to $2.5bn of value to famers’ checks,” DMI CEO, Tom Gallagher, said.
Milkfat use on the rise
The value of milkfat has also played out in volume sales of fluid whole milk in the US domestic market, which had been on a long decline between 2000 and 2013, according to a dairy market analysis by NMPF.
“It goes much beyond butter,” Peter Vitaliano, VP of economic policy and market research at NMPF, said.
“In terms of fluid whole milk, that decline was very sharply reversed around 2013 and we’re seeing increased sales.”
In addition, the use of milkfat in the entire fluid milk sector has experienced an uptick and is making its way into lower fat fluid milk varieties, according to Vitaliano’s analysis.
The share of milkfat production used to make butter has risen to roughly 18% to 19%, increasing faster than milkfat production, the analysis found. The use of milkfat has also increased in the cheese and yogurt categories, with Vitaliano predicting that the frozen aisle will be next.
“Virtually we have every major category of dairy products increasing their use of milkfat and in many cases increasing their share of the milkfat supply,” Vitaliano said.
According to the analysis, US domestic butter prices will likely not fall below $2 per lb because of the pent-up demand for milkfat and the value that milkfat contributes to the farmer’s check will stay above 50%.
Keeping up with demand
To keep up with milkfat consumer demand, the US dairy industry has cut down its exports to the world market.
“The industry has actually been pulling butter and milkfat containing products out of the world market, our exports are down because, quite simply, we need that additional milkfat here to supply that growing consumer demand in our own home market,” Vitaliano said.
Subsequently, the new demand for milkfat in the US market spread to the rest of the global particularly in Europe, New Zealand, and Australia.
“In the world market, milkfat has basically been a product in surplus and when we look at that 2009 period, you see how world prices fell considerably and took US prices down with them,” Vitaliano said.
“Then we went through a period of recovery; the world markets had another meltdown.”
“Demand for butterfat continues to be a driving force within the dairy industry,” Vitaliano said. “This story is just getting started.”