Why has the price of butter increased?

As we enter the holiday baking season, one key ingredient will be harder to find: butter. 

And the lack of supply is already driving prices up. In January, the average price of butter was $3.67 per pound, according to the Federal Reserve Bank of St. Louis. In September, it was up to $4.70 per pound.

"Prices are not going to come down," says Scott Grawe, a professor of supply chain management at Iowa State University. 

As of today, Trader Joe's has the lowest price, and Target the highest:

  • Trader Joe's: $3.69 per pound
  • Costco/Kirkland butter: $4.37 per pound
  • Walmart/Great Value butter: $4.48 per pound
  • Target/Good & Gather: $4.69 per pound

Why the price of butter is so high right now

Milk production in January 2022 was down 1.4% from the previous year, according to a USDA report.

Due to the increasing cost of feed and an ongoing labor shortage, buying and maintaining cows is more expensive for farmers than in previous years.

And while some technological innovations fueled production, environmental factors did the opposite. Extreme temperatures, floods, droughts, along with frequent and intense storms "weighed on productivity growth," according to a USDA report. 

"Such conditions can affect the availability and quality of feed as well as the physiological functioning and reproductive health of dairy cows," the report reads. "Negative environmental conditions also lead to the distribution and resiliency of parasites and pathogens that affect animal health."

Processing plants are also weathering an ongoing labor shortage. Plus, cold storage reserves are running low.

In August 2022, there was about 282.6 million pounds of butter in storage, down from the 362.7 million pounds in August 2021, according to a USDA report. 

Price compare and stock up

A Butter Shortage Is Sending Prices Through the Roof Just Before Peak Baking Season 

The price of butter has increased significantly more than the price of food overall.

Published on September 23, 2022

Photo: surreal studios/Getty Images

Post-pandemic inflation has driven up the price of everything, including groceries. Consumers can look for ways to ease the pain – perhaps cutting down on name brands – but cost increasings are hard to avoid when they affect underlying food staples. It's why a butter shortage is so hard to stomach. Butter seems to be in everything… or at least everything that tastes delicious.

The price of butter was up 24.6 percent over the 12 months ending in August, according to the Wall Street Journal, a shocking increase that was nearly double the increase of U.S. grocery prices overall over the same period – which itself was 13.5 percent, the largest annual increase since 1979. The butter price increase is reportedly being driven by supply shortages: The U.S. has the lowest amount of butter in storage facilities since 2017. As a result, butter prices were said to have reached $4.77 per unit in the four-week period ending August 27, which is also the most expensive butter has been since 2017.

The reasons for the shortages are multifaceted. Milk production, which apparently usually sees year-over-year growth, recently saw a production decline as increases in underlying costs hurt dairy farmers. Exacerbating the problem is that, as the WSJ explains, butter is actually at the bottom of the milk hierarchy, with milk typically being sold to bottlers, followed by makers of products like ice cream and cheese, before the remainder is churned into butter. Toss in ongoing labor shortages at processing facilities and simply increasing production isn't always an option.

Meanwhile, the timing is especially problematic: The winter holidays are also prime baking season, when butter demand is expected to increase. The USDA said suppliers in parts of the country are worried about being able to meet all of the orders from retailers. But at the same time, the industry also has concerns that record high prices may cause consumer demand to be lower than in the past. As a result, despite the shortage, producing more butter can also be risky business.

"What happens when orders stop?" Trevor Wuethrich, president of Grassland Dairy Products, told the WSJ. "Now everyone is holding $3 butter and the market crashes."

So, if you're planning on doing a lot of baking this winter, keep an eye out for any sales on butter. It might be an opportunity to build up your own butter reserves.

There’s more bad news on the horizon for Aussie families already tightening their belts, with the cost of two supermarket essentials expected to soar.

It’s no secret grocery prices have been exploding lately, with the cost of certain items making headlines.

But now dairy staples including cheese and butter could be added to that list, according to Victorian Farmers Federation president Emma Germano, with a global dairy shortage pushing prices up.

The trend is being driven by several factors, including environmental disasters such as floods and droughts, shortages of land and irrigation water and even the war in Ukraine – and it means more pain for shoppers at the supermarket checkout.

Meanwhile, chief executive officer of the South Australian Dairy Farmers Association Andrew Curtis told The Advertiser the price hike was linked to inflation, which has led to higher production costs.

“Inflation has raised the power prices. We use a lot of electricity in the dairy industry – at every stage of production, we need to use refrigeration,” Mr Curtis told the publication.

“The cost of fertiliser has increased because of the war in Ukraine.”

Mr Curtis’ comments come hot on the heels of the Reserve Bank of Australia’s shock “super-sized” interest rate rise, which was announced on Tuesday.

The RBA’s bombshell move saw Australia’s official cash rate move up 50 basis points to 0.85 per cent – the biggest rise in 22 years – in another desperate attempt to rein in inflation.

According to the Australian Dairy Products Federation’s Milk Value Portal, over the March quarter, the industry faced a particularly challenging time.

“Dairy markets are experiencing complex and challenging times. Already tight supplies of milk for fat and protein commodities have been overlaid with complex supply and demand impacts of the Russian invasion of Ukraine and sanctions on Russia and its allies,” the report reads.

“Local dairy commodity markets will remain under the influence of tight EU export availability. Product and ingredient prices have been pushed to record highs in the EU and Oceania which will ration demand and may also eventually see some supply-side response.

“US markets are also managing tighter milk supplies while demand recovers from the effects of Covid restrictions, although supply chain challenges continue to drive some price volatility.

“The broadbased inflation impacting input costs for local processors as well as farmers has only been exacerbated by the conflict in Eastern Europe with energy and feed costs spiking and global fertiliser supplies affected.”.

Why is there a butter shortage 2022?

Much like the possible turkey shortage, the butter shortage boils down to three main challenges: Inflation, supply and demand, and labor shortages. The Wall Street Journal confirms that, due to higher costs for animal food and fuel to transport everything needed to raise dairy cows, overall dairy production is down.

Why has butter gone up in price UK?

The war has put pressure on the price of cooking oils in butter and has escalated the cost of fertilisers and feed used by farmers to produce milk. Global meat prices have also jumped.

Is there a butter shortage 2022?

There is 22% less butter in storage in October 2022 than there was in October 2021 (USDA). Butter also costs 24% more today than one year ago (DOL). But neither of these factors equate to a “butter shortage”.

What would cause the supply of butter to rise?

With more milk being produced, there would be more milk fat available to make butter, and the price of milk fat would fall. This would shift the supply curve for butter to the right, resulting in a drop in the price of butter and an increase in the quantity of butter supplied.