- Butter prices face ongoing pressure as strong milk output and shifting milk allocation into cheese and whey have built inventories, increased volatility and weighed on values despite a recent price rebound.
- Cheese and whey investment is reshaping milk flows, with cheese proving more resilient than butter and whey emerging as a key value driver as processors chase protein demand and higher margins.
- High-value whey proteins are buoying parts of the dairy sector, supporting farmgate prices and driving global capacity expansion: but leaving butter and other traditional commodities more exposed over the long term.
Butter prices have come under strain in the past year as strong milk production has forced processors to route milk into storable commodities.
This has built-up inventories and impacted value, with prices in key exporting markets down in double-digit terms year over year.
Signs of recovery appeared in March when butter prices across Oceania, the US and the EU rebounded – but the bigger picture may be more complicated.
Investment in cheese and whey processing to cater for booming demand for protein and specialist dairy ingredients may be setting butter prices on a bumpy path.
Why butter bears the brunt
According to Jasper Endlich, dairy analyst at Dutch market intelligence firm Vesper, the growing share of milk flowing into cheese and whey is likely to make butter and powder prices more volatile.
“More milk directed towards cheese and whey production will pull milk away from butter and milk powder, unless the milk surplus is as excessive as it is today,” he said.
And while butter prices are more adversely impacted by this trend, cheese is more resilient, even as processors invest in increased capacity to access more whey.
“Even though there are a few processors that build cheese and whey capacity simultaneously, there are even more players who specialise in one or the other,” Endlich said.
Cheese on its own is already a profitable investment, he added. “Cheese markets are also growing – both in volume and value – as global cheese consumption increases.”
Whey, meanwhile, remains dairy’s ‘liquid gold’ – and valorising the cheese byproduct into high-margin ingredients is where the game is at.
Whey’s staying power
And while whey and cheese processing expansion is putting pressure on butter prices, the structural shift could fuel growth elsewhere.
Stable demand and margins in high-value whey protein concentrates (WPC) may support farmgate prices, potentially offsetting pressures on the commodity markets.
“High WPC prices offer better ways to valorise milk protein,” said Vesper’s Endlich. “Co-operatives can pay more for their milk and incentivise farmers to milk more. Processors – for example, [those manufacturing] sports nutrition brands – have been profiting from low whey prices for years, but are now operating with much lower profit margins.”
Capacity constraints have been a blessing and a curse for whey protein producers – with demand outstripping supply supporting high prices but also resulting in missed commercial opportunities. According to DCA Market Intelligence, standard whey powder (around 11% protein) has increased by more than 50% since January to €1,700 per tonne, while highly concentrated products such as WPC have risen to around €20,000 per tonne over the past year.
Protein demand fuels capacity expansion
However, manufacturers are expanding capacities – and those doing so now are in pole position to capture future demand.
“The US is leading the pack here, with most of the investments being made there to replace old factories or tap into new milk in regions where milk output is growing,” Endlich explained. “Europe and New Zealand also have some capacity expansion planned, but not to the same extent as the US.
“This does mean that the US should become the biggest exporter, while China is expected to remain the biggest importer.”
At the same time, not all whey products enjoy the same demand levels – with processors investing significantly more in high-concentration ingredients such as WPC80 than dry whey powder. This shift is already reshaping protein supply dynamics at a category level.
“WPC80 production is pulling a lot more whey away from sweet whey powder, WPC35, and others,” said Endlich.
“A lot of investment has already been made in WPC80 – but we suspect we might see even more in the coming years. Especially in other forms such as clear whey, hydrolysed WPC, and any new WPC forms.”
Clear whey in particular is one of the biggest growth drivers in the category, thanks to demand from the beverage and sports nutrition industries.
The ingredient – which enables beverage brands to formulate transparent, water-like shakes, sodas and other functional drinks – builds on whey’s nutritional credentials while overcoming traditional whey’s cloudy appearance and heavy mouthfeel.
Looking ahead, whey protein is likely to remain in high demand from food and beverage companies as appetite for protein and functional nutrition continues to shape dietary choices.
And if more milk is pulled toward whey and cheese processing, the prices of butter and other commodities may remain exposed in the long run. But for producers, the opportunities granted by this structural shift still likely outweigh the challenges.
