Farmers do an outstanding job responding to market signals. That is certainly the case in the dairy space when it comes to producing butterfat, according to Corey Geiger, lead dairy economist for CoBank.
“Butterfat was the leading component in milk checks for all but two months during a 38-month window from July 2022 through August 2025,” Geiger explained. “The spread between butterfat and the next leading milk component, protein, averaged $1.03 per pound. What’s more, the monthly spread between the two components peaked at $2.67 per pound in favor of butterfat in October 2023 milk checks.”
With those price signals in place, dairy farmers and their nutritionists employed every economical tool available to produce more butterfat. At first, the growth was at levels that the market could easily absorb, as liquid milk production grew just 0.2% in 2023 and butterfat moved 1.5% higher, he noted. The next year followed a similar pattern, with milk production dropping 0.36% and butterfat output growing by 1.9%.
“In those days, that additional cream supply was welcomed by dairy processors, as butterfat fetched between $2.91 and $3.61 per pound in monthly milk checks throughout 2024 under Multiple Component Pricing [MCP] provisions,” Geiger said.
Butterfat posts historic gains
Then came 2025. The nation’s dairy farmers put the afterburners on the jet engines producing more butterfat. At first, markets didn’t flinch at the 3% to 4% monthly growth rates in butterfat, Geiger said. Then June posted a 5.3% growth rate. Cream multiples began to drop. The year-over-year monthly comparison for butterfat production then skied higher to a 6.5% gain by September. The processing sector became more than oversupplied with sweet cream searching for a home.
Those market conditions began to be reflected in the marketplace, and the tide turned quickly in the butter markets.
“On Aug. 1, spot butter was trading for $2.44 per pound. By early September, butter lost 40 cents, moving to $2 per pound,” Geiger noted. “That was just the start of the descent, as spot butter lost another 30 cents in early October trading on the CME. Faced with strong butterfat supplies, butter kept on losing value and fell to $1.50 per pound in mid-November … nearly 95 cents lower in just a 100-day trading window. Keep in mind that this was taking place when butter sales are typically peaking heading into the holiday season.”
Milk check math
It stands to reason that the milk check math quickly changed. After being the most valued milk component for over three years running, protein pushed past its milk component cousin with a $2.71-per-pound pay price, Geiger said. Meanwhile, butterfat fell back to $2.19. This 51-cent spread morphed into a $1.05 chasm in October when protein climbed to $2.88 per pound and butter dropped further to $1.83. That $1.83 figure was the lowest butterfat price since March 2021. Given current supply conditions, that price figure most likely will drop further in November milk checks.
“The market reality is that the U.S. dairy industry is producing too much of a good thing at this moment in time — the good thing being butterfat,” Geiger said.
Butter sales are up 3.7% on a 52-week rolling average, based on Circana and Dairy Management Inc. reports. Real dairy creamers, powered by impressive sales growth from Chobani and other brands, are up 32% in the past 52 weeks. Cheese, the largest user of butterfat, grew at 1.4%. That’s still positive growth, but cheese is not on the pace of previous years.
On top of these domestic market conditions, the U.S. has been exporting significant amounts of butterfat. “In 2023, the U.S. exported 77 million pounds of butterfat, and that number climbed to 99 million pounds by 2024,” Geiger said. “Then [in 2025], the U.S. began exporting even more butterfat.”
In just the first seven months of 2025, the U.S. exported 134 million pounds of butterfat, he noted. That’s 35% more than all of 2024. And the country had five more months of outbound sales potential. This sales data reconfirms that the U.S. dairies are producing too much butterfat.
Butterfat price role
Geiger said it is important to keep in mind that butterfat’s position as the leading milk component in milk checks is a relatively new situation.
“When MCP pricing came into effect back in 2000, protein was the most valuable component in milk checks from 2000 to 2014, when looking at a yearly average. Then we entered an era where butterfat outpaced protein for eight of the next 10 years,” he noted. “When the 2025 average is totaled, protein likely will be the component price leader, and it sure looks like that could extend deep into 2026.”
To be certain, consumers are still craving dairy fats, Geiger said. However, it’s hard to reconcile year-over-year gains at rates of 4%, 5% and even 6% when comparing monthly data. That’s too much, too quick.
The Whole Milk for Healthy Kids Act would bring whole milk into schools. This would be a welcome market step for certain. However, keep in mind that whole milk is standardized at 3.25% butterfat. That means separators in beverage milk plants are spinning off over 1% sweet cream that has to find another use.
Another area for potential cream usage is ice cream.
“When butter was fetching north of $3 per pound the past three years, a number of ice cream makers pulled out dairy cream from their ice cream and added food gums and air to mimic real ice cream,” Geiger said. “Those products, sold as frozen novelties to consumers, represent another market opportunity for butterfat.”