Creamery Butter

SIC 2021

Companies in this industry

Industry report:

This industry consists of establishments primarily engaged in manufacturing creamery butter.

Industry Snapshot

Despite modern sanitary production methods, butter produced in the twenty-first century is not much different from that enjoyed centuries ago by people who churned milk in animal skins slung from the backs of camels and horses. The butter manufacturing and marketing sector of the dairy industry is extremely regionalized and competitive. The industry's quality standards and farm pricing are highly regulated by the U.S. government. Government price support programs were reduced throughout the 1990s, leading to a more competitive marketplace and more volatility. In the mid-2000s, dairy farmers amped up production as both domestic and global demand increased, but milk prices dropped rapidly in the late 2000s when the United States slid into an economic recession. Butter prices, however, were at near record highs in mid-2010. The butter, margarine, and table spreads consumer market was valued at over $5 billion in 2010.

Under federal regulations, butter sold in the United States is made exclusively from milk or cream, or both, and must contain at least 80 percent milkfat by weight. Coloring or salt may be added. Butter is labeled by the U.S. Department of Agriculture (USDA) as Grade AA, A, or B, according to flavor intensity, texture, color, and salt taste.

Background and Development

Commercial production of butter developed in conjunction with the Industrial Revolution. In 1870, nearly all the 514 million pounds of U.S. butter was produced on farms, but that changed with the spreading effects of the Industrial Revolution and the invention of machinery that allowed increased production of butter. In 1864, a Bavarian brewmaster applied the process of centrifugation to butter making. A cream batching machine was introduced in 1877, followed two years later by the continuous cream separator.

Other innovations helped to advance the industry, including the Babcock test, which was perfected in 1890 to accurately measure the percentage of fat in milk and cream. In addition, pasteurization ensured a high quality of milk and cream, and that quality was preserved by the use of pure cultures of lactic acid bacteria and the invention of refrigeration.

The first U.S. butter manufacturing creamery was built in Manchester, Iowa, in 1871. By 1991, commercial production exceeded 1.3 billion pounds, and Wisconsin and California were the leading butter producers, accounting for 654 million pounds. According to the U.S. Census Bureau, in 1997, 34 establishments primarily manufactured creamery butter. Wisconsin and California continued to be the primary butter-producing states. The largest single-site dairy complex was the Land O'Lakes plant in Tulare, California.

Throughout the 1990s, butter producers sold their products in supermarkets, club stores, and other retail outlets. In addition to individual consumers, butter producers served the foodservice industry (restaurants and fast-food operations), institutions (hospitals and schools), and industrial customers (bakeries).

At the retail level, Grade A butter was typically packaged in quarter pound sticks packed four to a cardboard carton, while whipped butter, developed for easy spreading, was packaged in tubs. Industrial and foodservice packaging ranged from 68-pound blocks to individually wrapped, single-serve pats. Butteroil, the anhydrous form of butter developed to use up surpluses during a period of decreased public consumption, has been used by the confectionery and baking industries and as a cooking oil.

During the 1980s, butter consumption slowed as health and calorie-conscious consumers switched to margarine and other spreads. From 1981 to 1991, annual per capita butter consumption increased only slightly from 3.7 to 3.9 pounds. In 1995, supermarket sales of butter were $689 million, down from $917.5 million in 1991. Total U.S. butter sales in 1995 reached $1.3 billion.

To offset the decrease in butter consumption, the industry researched alternate marketing tactics. For example, butteroil, which was produced by heating butter until its emulsion breaks down and removing the milk serum by centrifugation, was marketed as a substitute for other oils in cooking and baking. Butter producers also introduced such flavored butters as honey, garlic, and herb, in an effort to increase consumer interest.

In the late 1990s and early 2000s, the United States experienced a shortage of butter and posted record prices for milk butterfat. Although production increased three percent in 2000, sales continued to outpace output, which pushed prices even higher. In fall 2001, retail butter prices jumped to between $4 and $5 per pound as butterfat prices peaked at $2.22 per pound. While butterfat prices had declined to $1.05 by mid-2002, retail prices remained high as demand increased.

Higher prices also boosted sales of private label butter, which held a 46.1 percent share of the market in 2002. Sales of private label butter, typically less expensive than name brand butter, grew 20.6 percent between 2001 and 2002, reaching $615.9 million. During that time, total butter sales grew 15.3 percent to $1.33 billion.

In 2006, butter production in the United States increased 7.5 percent, or 1.44 billion pounds. Domestic butter production during 2007 rose to 1.53 billion pounds, an increase of 5.8 percent over 2006. California was responsible for 32.5 percent of production, and Wisconsin accounted for 24.3 percent. There were an estimated 73 butter manufacturing creameries valued at $642.6 million, with 2,228 people employed within the industry. According to Chicago-based Information Resources Inc. (IRI), butter sales were on the rise as butterfat prices fell.

Competition heated up as manufacturers introduced new products. For example, Crystal Farms, a subsidiary of Minnetonka, Minnesota-based Michael Foods, Inc., launched Salted Sweet Cream Spreadable Butter, and industry leader Challenge Dairy Products followed suit with its own version of spreadable butter. Meanwhile, demand for organic butter was outpacing the dairy industry as a whole.

Current Conditions

In 2009, U.S. production of butter totaled 1.57 billion pounds, down 4.3 percent from 2008. California remained the top producer, churning out 33 percent of all butter products. Approximately 78 plants were actively engaged in manufacturing butter at the end of 2009, down from 81 in 2008. Prices fluctuated during 2009 but generally trended upward, moving from $1.10 per pound at the beginning of the year to $1.50 per pound in early December 2009 before falling slightly to $1.36 per pound before the close of the year. Butter production was down over the first few months of 2010 and, by August 2010, spot price reports of butter prices had butter selling at record highs of $1.80 per pound.

Although butter prices were fluctuating, butter had, for the most part, avoided the traumas that had beset the overall dairy industry during the late 2000s. During 2007 and 2008, many dairy farmers increased capacity, and both global and domestic demand rose along with price. Scott Brown, program director with the Food and Agricultural Policy Research Institute, told Farm Press, "It appeared that for the foreseeable future we'd be major players in world markets." However, in 2009, demand for milk fell as the economy in the United States, as well as many other countries around the world, felt the negative effects of a recession. However, butter has traditionally been a much more stable commodity. Butter producers were, nonetheless, affected by increased costs of production, such as feed and fuel prices, which offset much of the benefit of the sustained (and increasing) price of butter through 2009.

Industry Leaders

Land O'Lakes Inc, which was the largest butter-producing firm in the United States in 2010, was also one of the largest Midwest dairy cooperatives. This co-op, which originally had represented farmers in obtaining the best milk prices, became a manufacturer and marketer of butter and other dairy products. Established in 1921, Land O'Lakes led the retail butter industry in 2010. Headquartered in Arden Hills, Minnesota, Land O'Lakes has the number one brand of butter in the United States and markets more than 600 dairy products. The company's total revenues in 2009 were $10.4 billion.

Other top butter producers in the United States included Dairy Farmers of America (DFA). DFA had approximately 17,000 members nationwide, with a combined herd size of about 1.8 million dairy cows. These suppliers, who had about 30 production sites around the country, had revenues of about $8 billion in 2009 and were a major supplier of Dean Foods.

The largest organic, farmer-owned cooperative in the United States, was Wisconsin-based Organic Valley, which had more than 1,200 farmers as members in 34 states. Organic Valley posted revenues of $528 million in 2008. Organic Valley's sales climbed 250 percent between 2003 and 2008. Another leader in the industry, Stonyfield Farm of Londonderry, New Hampshire, had a partnership with Paris, France-based Groupe Danone, and celebrated its 25th anniversary in 2008.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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