After months of dormancy in the CME spot butter market, we have recently seen a surge in both interest and price. Since the end of February, the spot butter price at the Chicago Mercantile Exchange has risen 14 cents per pound — from $1.21 to $1.35 — and has found good support at the $1.30 level. Meanwhile, butter stocks are reportedly high — well above five year averages. So, what’s the current butter picture and why are prices rising?

March’s cold-storage report turned out to be another bearish one for butter. The USDA showed butter stocks at 186.560 million pounds. This is a 10.30 percent increase from the previous year, but even more worrisome it is a month over month increase of 25.46 percent. Since November 2006, butter stocks have been intentionally built up and I don’t see any desire to stop the build up. But storage numbers are only one part of the equation.

March’s milk production report is the first since last fall to show a decrease in cow numbers month over month, leading some to believe this may be a reversal of the previous growth trend. Many cows have been killed or damaged due to extreme weather conditions throughout the country. We witnessed examples of this in last summer’s heat wave out west, which resulted in many damaged cows, and it is currently hampering spring flush output.

More recently we have seen ice storms sweep through states such as Kansas and Colorado, killing many cows and damaging more, leaving culling rates high in addition to the Cooperatives Working Together herd-retirement program. Additionally, high grain prices are beginning to decrease feed quality, causing not only a reduction in milk per cow but also lower levels of fat content.

In addition to the changing supply picture, new demand areas for butter should also be in your view. Butter is slowly but surely losing its “black sheep of the dinner table” connotation. Interestingly, the more the American public concerns themselves with healthy eating, the more they shift from butter alternatives back to butter, and the industry is responding.

Innovative butter manufacturers are offering more types of butter, including multiple flavors and different fat levels. This is in response to niche butter markets that are enjoying drastic increases in sales as consumers are increasingly willing to pay up for high-grade, high-fat, foreign-sourced butter. Those same consumers are buying butter online from Web sites that deliver via overnight mail, and they are paying prices that in some cases, with shipping, exceed $20 per pound.

Add to new butter offerings, high-priced oil. In oil markets, such as soybean oil, prices rise on a strong international demand situation. As supplies of traditional oils become tight, oil buyers can turn to butter as an alternative. Consistent with this, the decreasing and seemingly dying trans fat market has opened up another possible avenue for increased butter use as people search for alternatives.

Compile all of these factors with the raging fight for milk supply between cheese, powder and cream, and you have all you need to see the possibility of escalating milk, powder and, yes, butter prices sooner rather than later.

Seven dairy farm families who are members of Kansas City, Mo.-based Dairy Farmers of America Inc. (DFA) received the cooperative’s most prestigious award last month at its Annual Delegate Meeting. The 2007 DFA Members of Distinction include the owners and operators of the following farms: Crosswinds Dairy of Portales, N.M.; Anthony’s Dairy of Americus, Ga.; Diamond Three Dairy of Shelley, Idaho; Three Star Dairy of McCook, Neb.; RV Dairy of Winton, Calif.; Weir Farms of Hanover, Mich.; and Walker Farms of Fort Ann, N.Y. The DFA Member of Distinction program was created this year to celebrate the cooperative’s diversity and to recognize DFA members for their vision, leadership and innovation in the dairy industry. One farm from each of DFA’s seven Areas was selected and members were recognized with a video presentation during the general session of the annual delegate meeting. “These members have found unique ways to ensure their success in the industry and are positive examples for us all,” says Rick Smith, DFA’s president and chief executive officer. “This is a great achievement, and we are proud to name these members as the 2007 recipients of this award.”