A22-Lancaster Farming, Saturday, July 29,1989
CCC Butter Inventories
At 5-Year High
By Blair Smith
And Robt Yonkers, PSU
BUTTERFAT
“The natural fat of milk.” This
definition of butterfat by Webster
sounds innocuous enough, but oh
what a dilemma this “natural”
substance presents to the dairy in
dustry! It wasn’t too long ago that
non-fat dry milk powder was in
chronic surplus, now it is butter
that the Commodity Credit Cor
poration (CCC) is having trouble
getting rid of. Cheese and powder
stocks are virtually non-existent,
but uncommitted CCC inventories
of butter are at a five-year high.
And growing.
Changes In Consumption
The primary reason* butterfat is
in surplus is because consumers
want less of it in most of the milk
and dairy products they buy, at the
prices they must pay for the higher
fat items. Of course, it is not just
price but a growing concern about
the overall levels of all fat, of
saturated fat, and of cholesterol in
our diet that persuades us to re
duce our consumption of butterfat
Sales of American and Italian
cheeses have provided the major
undergirding for the butterfat mar
ket, but recent data suggest a
slow-down in the growth in per
capita of such products. In
fact, preliminary estimates for
1988 actually show a decline in
cheese consumption on a per capi
ta basis.
CCC Purchase Prices
Change Again
The increase in the support
price beginning on April 1, and
iie subsequent return to earlier
levels on July 1 (from $10.60 to
SI 1.10 to $10.60) resulted in es
ientially no net change in cheese
mrchase prices. Powder prices,
towever, are up about 8.6 percent
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from 72.75 to 79.00 cents per
round), and butter prices are down
ibout 8.7 percent (from $1.32 to
>1.205 per pound). The purpose of
hese changes, presumably, is to
ower prices of butter relative to
lowder so that less butterfat is
iroduced and/or more butterfat is
onsumed in the commercial mar
ket.
Will It Work?
It seems unlikely much less but
terfat will be produced in the near
term future. The conversion from
high- to low-fat dairy breeds is
about over, and butterfat pre
miums are still much more im
portant determinants of milk
prices than solids-not-fat or pro
tein premiums throughout the
United States as a whole. Chang
ing the production ratio of the sol
ids-not-fat to butterfat compon
ents of milk is a slow and uncer
tain process, and it will take years
before the results of such efforts
are likely to show up in the farm
milk tank.
The overall direction of the ef
fect of lower butterfat prices rela
tive to powder prices will be to en
courage the consumption of high
er butterfat and discourage the
consumption of higher solids-not
fat products a reversal of the
trends actually under way in the
market. Swimming against the
tide always makes change more
difficult.
So, will the price change work?
To some extent, yes. Less butter
will be offered to the CCC. Butter
purchases, stocks, and uncommit
ted inventories should all fall as a
result of lower purchase prices.
The short-term goal of reducing
CCC costs will be aided. The
longer-term industry problem of
what to do with the declining de
mand for butterfat will remain un
resolved. This problem clearly
begs of a longer-term solution
than some minor adjustments in
relative prices.
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