The movement of butter prices is intricately tied to the calendar. In the short term, global supply is abundant, overshadowing a demand that — while inherently strong — shows signs of weakening. This scenario paints a picture of potential volatility, with an immediate downside risk in butter prices.
Last week, butter prices were hit hard, losing 19¢ in the spot market and closing the month out at $2.045 per pound, which is the lowest price seen since Dec. 6, 2021. Just one year ago, butter was trading at $3.17 per pound — over $1 higher than last Friday’s price. As we start this short trading week off, the question remains, is the freefall in butter prices over or can butter continue to churn lower from here?
In order to answer that, we need to look deeper into the reason for butter’s sharp decline and what has changed to warrant prices more than $1 lower year over year. Here in the United States, dairy farmers have been producing a high-quality product with higher butterfat content than last year. This has allowed for more butter supply to be available for the market. In fact, milk and butter production remains historically high — exceeding 2024’s output by over 1.2 billion pounds and leading to a surplus of supply and lower prices.
On the world front, there is a surging global supply. Most significantly seen in Europe where local production is rampant, imports are high, and exports have been reduced. They are left with a massive surplus, estimated at over 56,500 metric tons. Many countries are seeing the same. Due to a recent surge in demand, prices escalated short term and world dairy production increased from trying to meet the demand. But getting a wave of better weather produced an oversupply of product. Now there is plenty of product, but the demand is declining.
While all these factors point to a bearish outlook in the short term, as we saw last week, there is some hope on the horizon here in the United States. Exports in the U.S. have surged, up nearly 41% year over year in parts of 2025. This has helped to absorb some of the domestic overproduction.
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From a domestic perspective, consumers seek healthy fat options derived from butter — as butter’s current image is a healthier option compared to other fat sources. This helps Class IV demand giving support to prices. We see this in the retail sector as prices for an 8-ounce package fell 15¢ from last week, yet still remain 80¢ higher than one year ago. A 1 lb. package is only 9¢ higher than one year ago.
In July, U.S. butter inventory was 6% below one year ago. This has not concerned buyers yet, but could be the silver lining of hope needed to boost prices. As fall approaches, we start to focus on holiday demand. Typically, demand surges well beyond production. While manufacturers have been able to freeze excess butter lately, that lower inventory number will become more and more concerning if it’s not higher as we see the August inventory report.
So, will butter continue to freefall, or is there support on the horizon? That question currently relies on the calendar. Here in the short term, world supply is excessive, and demand is strong — yet faltering. As the holiday season approaches, and inventory levels are tighter, there is hope for support over the next few months. But still, there is plenty of downside risk in the near future.
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