Technical Abstract: In the U.S., fat consumption patterns changed in the mid 1980's, resulting in surplus butter inventory. The management and long- term storage of surplus butter is cost prohibitive because of the extremely low refrigeration temperature required. A cost saving alternate is to dry the milkfat with functional encapsulants such as starch, proteins or gums, making the powders shelf-stable at ambient temperature. By using microencapsulation techniques, the milkfat is entrapped within matrices formed by protein and carbohydrates that may protect the fat from oxidative deterioration during storage. Spray drying this encapsulated milkfat results in free-flowing powders that are shelf stable at ambient temperatures, and reduces the need for expensive frozen storage for milkfat. Substituting powders prepared with all- purpose flour and 50% milkfat for shortening in baking trials increased volume with minimal effect on textural quality, demonstrating their suitability as bakery ingredients.