Cheese prices surge 11¢ as U.S. dairy faces tight supplies, export boom. Can producers keep up? Feed costs drop – but trade storms loom.
EXECUTIVE SUMMARY: U.S. dairy markets are squeezed by slowing cheese production growth and surging exports, sending Cheddar prices to 5-month highs (.93/lb). While milk output expands, replacement heifer shortages and global powder demand fuel volatility, with Class III futures hitting $19.20/cwt. Canada’s supply-managed system battles butter stocks and rising cheese imports under trade deals. Feed costs offer brief relief, but trade uncertainties (U.S.-China tariffs, CUSMA quotas) threaten margins. Both markets face pressure from shifting consumer demand toward functional/organic products. Producers must balance risk management with innovation to navigate 2025’s turbulence.
KEY TAKEAWAYS:
- U.S. cheese panic: Buyers underestimated slow production growth; export-driven scarcity could push prices higher.
- Heifer crisis: $4,200/springer prices force producers to rethink expansion – efficiency trumps herd growth.
- Trade double-edged sword: Mexico’s cheese appetite props up markets, but China tariff risks loom over whey.
- Feed window opens: Corn at $4.43/bu offers rare chance to lock in lower costs amid milk price rallies.
- Canada’s import flood: CUSMA cheese TRQs hit 52% fill rate – domestic brands must innovate or lose shelf space.
U.S. cheese markets rocketed this week with blocks surging 11.25¢ to $1.93 and barrels jumping 11¢ to $1.88 as buyers panic over tighter-than-expected inventories. The anticipated cheese production increases have materialized more slowly than predicted, triggering a buying frenzy as exporters capitalize on competitive U.S. prices and domestic users rush to secure summer needs. Meanwhile, feed markets took a nosedive, giving producers a rare chance to lock in higher milk prices AND lower input costs simultaneously.
CHEESE BUYERS CAUGHT WITH THEIR PANTS DOWN: TOO LITTLE PRODUCT, TOO MANY ORDERS
The North American cheese scene got much more interesting this week. CME spot Cheddar blocks leapt 11.25¢ to reach $1.93 per pound, their highest price since January. Barrels weren’t far behind, climbing 11¢ to hit $1.88. What’s driving this sudden price explosion? Simple: those buyers who smugly sat on the sidelines waiting for the “inevitable” spring price collapse just got a rude awakening.
The widely anticipated increase in U.S. cheese production is underway, but it’s moving at a frustratingly slow pace compared to USDA projections. Buyers who gambled on heavy spring supplies and corresponding price drops are now frantically securing product as their summer needs loom large. USDA’s Dairy Market News confirms what traders are seeing, noting that spot cheese inventories are “somewhat tight” in the Central region. Even more telling, producers in the West report “Q2 production is heavily committed” due to booming export sales.
Want proof this rally has legs? Just look at Friday’s trading volume – a whopping 16 sales of cheese blocks ranging from $1.8975 to $1.93. That’s not speculative trading; that’s desperate buyers scrambling to cover genuine needs.
WHY AREN’T OTHER DAIRY PRODUCTS KEEPING PACE WITH CHEESE’S ROCKET RIDE?
While cheese dominated the headlines, other dairy commodities also managed to catch a bit of upward momentum, though with considerably less swagger:
Whey’s High-Wire China Act: Can This Rally Survive Tariff Threats?
Spot whey powder ticked up 0.75¢ to reach 55¢, matching a three-month high. The market’s getting an unexpected boost from the temporary cease-fire in the U.S.-China trade war. Let’s be clear, though – this isn’t a return to pre-trade war normalcy. China’s still slapping tariffs on U.S. imports at rates 10% higher than last year, and the 90-day negotiating window is evaporating fast.
We’re seeing a classic “get it while you can” mentality – Chinese buyers are rushing to secure U.S. whey before potential new tariff hikes make it prohibitively expensive. Domestic demand shows signs of life, but don’t get too comfortable. With cheese production ramping up (albeit slower than expected), whey output is climbing too. If those China negotiations go south, this whey market could fall faster than a politician’s approval ratings.
Global Supply Squeeze Makes U.S. Milk Powder the Hot Ticket
Sometimes it pays to be the last one standing. That’s exactly what’s happening with U.S. milk powder as global production falters. They’re dealing with their seasonal production valley in Oceania, and SMP output is dwindling. Europe’s situation is even more striking – milk collections in the EU-27 and the United Kingdom fell 0.4% year-over-year in Q1, and European SMP production dropped 3.3% in the first two months of 2025 after adjusting for leap day.
This global supply contraction is sending international buyers straight to America’s doorstep. Mexican importers are particularly hungry for U.S. powder, paying up to get it. The result? CME spot nonfat dry milk jumped 1.75¢ to reach $1.225. For your operation, this signals a potential boost to the protein component of your milk check – something to celebrate in today’s challenging margins.
Butter Market: Steady As She Goes While Cream Finds New Homes
The butter story remains remarkably consistent – U.S. butter is currently the cheapest in the world, driving exports that help keep inventories manageable despite heavy spring churning. Processors are working overtime, building inventories for the holiday baking season, but the market refuses to crack under the weight of all that production.
What’s changed recently? Cream markets have tightened slightly as ice cream production kicks into high gear for summer. There’s still plenty of cream, but that market isn’t quite as sloppy as it was a month ago. This week, CME spot butter added 1.25¢ to close at $2.3425. Since March, CME spot butter has traded within an unusually tight 12-cent range – stability that’s rare in today’s volatile dairy markets.
FUTURES MARKET GOES WILD: ARE TRADERS CALLING USDA’S BLUFF?
In an impressive feat of strength and stamina, June Class III futures managed to outpace spot Cheddar’s uphill sprint. June milk closed at $19.20 per cwt., not far from the life-of-contract high set Thursday, and up a whopping 89¢ for the week. Most other Class III contracts logged double-digit gains, and July through October Class III finished above the $19 mark.
This performance firmly puts futures traders in the bullish camp – and directly opposes USDA forecasts. While USDA’s latest outlook projects the 2025 Class III milk price at a modest $17.60/cwt, June futures are trading a full $1.60 higher. That’s not just a difference of opinion – it’s a fundamental disagreement about where this market is headed.
The “optimism gap” between USDA’s annual forecast and current futures prices has only widened recently. Are traders drunk on cheese-market Kool-Aid, or does USDA have its head in the sand regarding tight supplies? Your risk management decisions depend on who you think is right.
Class IV markets were much quieter, with nearby contracts adding a few cents while fourth-quarter futures lost a little ground. Most summer Class IV contracts point toward $18 milk, with the futures curve suggesting $19 Class IV later this year. Not too shabby, but nothing compared to the Class III fireworks.
YOUR MILK CHECK: PAIN TODAY, GAIN TOMORROW?
Let’s cut to what matters most to your operation: what does this mean for your bottom line? April milk checks are going to be disappointing – no way around it. But from May forward? Those futures are signaling significantly better days ahead.
This improving outlook is already fueling expansion talk across dairy country. But here’s the rub – where will you find the cows? Replacement heifers remain scarcer than honest politicians and nearly as expensive. Top springers commanded between $3,800 and $4,200 per head at the latest monthly dairy auction in Pipestone, Minnesota. That’s not just expensive – it’s potentially budget-breaking if milk prices don’t justify those astronomical replacement costs.
The heifer shortage isn’t temporary – it’s structural. Recent auction data from Ontario reveals replacement heifers weighing over 900 pounds are commanding between $326.50 and $328.00 per hundredweight. Do the math: a single 900-pound replacement heifer costs approximately $2,942. With USDA data showing dairy replacement heifer inventories have plunged to historic lows, this supply constraint will likely prevent rapid expansion despite improved milk prices.
FEED MARKETS DROP: FINALLY, SOME GOOD NEWS FOR YOUR COST SHEET
While dairy markets made headlines for their upward trajectory, the corn market offered a different story. USDA’s latest crop balance sheets confirmed strong export sales and predicted they’ll remain robust into the 2025-26 crop year. This should have been bullish news for corn prices, but Mother Nature had other ideas.
Rain swept across key growing regions this week, alleviating drought concerns and washing away bullish sentiment. July corn closed at $4.43 per bushel, dropping another 6¢ after substantial losses last week. For dairy producers watching feed costs like hawks, this represents one of the few bright spots on their expense sheet.
The soybean complex initially rallied on favorable USDA projections, but that optimism evaporated when EPA news hit the wire. Late in the week, the Environmental Protection Agency submitted a draft to the White House outlining biofuel blending requirements for U.S. refiners. Market whispers suggest these requirements could be much lower than previous proposals – potentially devastating news for soybean oil demand.
Soybean futures quickly surrendered their gains and then some. July soybeans settled at $10.51, a penny lower than last Friday. Meal prices initially climbed on expectations that reduced soybean oil demand would slow crushing and tighten meal supplies. By Friday, however, that logic collapsed, and meal futures retreated, finishing at $292 per ton, down $2 weekly. Again, these feeds cost stability for dairy operations represents a welcome counterbalance to the wild swings in milk markets.
THE BOTTOM LINE: WHAT THIS MEANS FOR YOUR OPERATION
Here’s what this week’s market moves mean for your dairy operation as we head toward summer:
- Lock in your feed needs NOW while corn ($4.43/bu) and soybean meal ($292/ton) prices remain defensive. Weather-driven bearishness could vanish faster than free drinks at a dairy convention if drought concerns resurface. Don’t miss this rare opportunity to secure lower input costs while milk prices strengthen.
- Consider milk price protection strategies for Q4 2025 and Q1 2026. Current futures offer attractive levels that could protect your margins if the cheese rally fizzles. Class III futures above $19 for July through October provide meaningful protection against the USDA’s more pessimistic $17.60 forecast.
- Rethink your replacement strategy from the ground up. Raising your replacements at current prices ($3,800-$4,200 per springer) provides a 54% cost advantage over buying. If you’re short on heifers, prioritize genomic testing on your current herd to identify your best genetic prospects and invest in sexed semen to maximize your future heifer crop.
- Watch export demand signals like your profitability depends on it – because it does. The current cheese and milk powder rallies are heavily dependent on international buyers. Mexico’s booming cheese appetite and global milk powder shortages drive this rally, but these advantages could evaporate if the trade landscape shifts.
- Update your financial projections based on this new market reality. Run scenarios with current futures prices AND the more conservative USDA forecasts to ensure your operation can weather potential volatility. Remember: the gap between these projections represents your risk exposure.
The days of predictable dairy markets are long gone. Today’s successful producer must be part strategist, economist, and fortune-teller. But one thing’s certain: with cheese markets suddenly explosive, butter holding steady, and feed costs cooperative, the opportunity for solid margins is emerging after a challenging start to 2025. The real question isn’t whether opportunities exist – it’s whether you’re positioned to capitalize on them before they disappear.
Learn more:
- Cheese Market Volatility: 5 Strategies to Protect Your Dairy’s Bottom Line
Explore hedging techniques and inventory management tactics tailored to today’s record-high cheese prices, with real-world examples from top dairy operations. - The Heifer Shortage Crisis: Breeding Strategies for Sustainable Herd Growth
Discover how leading farms are using genomic testing and beef-on-dairy crossbreeding to maximize heifer value amid $4,000+ replacement costs. - USMCA 2.0: How New Trade Terms Are Reshaping Dairy Exports to Mexico
Breakdown of 2025 tariff rate quotas and logistics challenges as Mexico absorbs 60% of U.S. cheese exports – essential reading for exporters.
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