Supply-demand collision accelerates: 7.25¢ cheese drop signals $1.75/cwt Class III pressure. Why waiting on “forecasts” kills margins.
EXECUTIVE SUMMARY: While industry experts chase export dreams and cling to outdated USDA projections, a brutal supply-demand collision is devastating dairy margins in real-time. Our comprehensive CME analysis reveals block cheese has collapsed 7.25¢ in just one week, with trading volume hitting crisis levels—only 5 total trades executed across all commodities. With U.S. milk production surging 1.6% year-over-year and domestic cheese consumption declining 56 million pounds in Q1 2025, the math is unforgiving: income-over-feed costs are projected to plummet below $12/cwt, representing a crushing 20% margin compression. The recently implemented FMMO reforms are amplifying this crisis by directly reducing component values just as market fundamentals deteriorate. Global dairy trade is contracting 0.8% while U.S. production accelerates at the fastest quarterly pace since 2021—a perfect storm that renders traditional supply-absorption strategies obsolete. Progressive producers implementing immediate DRP coverage and pivoting to component optimization strategies are positioning for survival while volume-focused operations face margin annihilation.
KEY TAKEAWAYS
- Immediate Risk Management Imperative: Implement DRP coverage for Q3/Q4 production within 48 hours—the cheese market collapse signals potential $1.25-1.75/cwt Class III pressure that could devastate unprotected operations through August 2025.
- Component Strategy Transformation: Target butterfat levels of 4.50%+ to capture $0.75-$1.50/cwt pricing premiums while cheese-dependent volume producers face direct exposure to the 7.25¢ weekly block cheese decline and institutional liquidation.
- Feed Procurement Optimization: Forward contract 60-70% of feed needs while corn remains below $4.60/bushel—projected record 15.58 billion bushel production offers rare input cost relief amid the margin compression crisis.
- Revenue Diversification Priority: Leverage beef-on-dairy opportunities with historically high cattle futures providing crucial income stability as traditional milk check reliability evaporates under supply-demand fundamental breakdown.
- Market Intelligence Reality Check: Abandon reliance on lagging USDA forecasts that missed the fundamental demand destruction—trading activity at March 2025 crisis levels with bid-ask spreads widening to 5-year extremes signals institutional market abandonment requiring immediate defensive positioning.
Market reality check: Today’s 1.50¢ drop in block cheese signals continued fundamental weakness, while butter’s modest 2.50¢ gain provides little relief for overall milk checks. The supply-demand collision we’ve been tracking is accelerating, demanding immediate risk management action from producers.
Today’s Price Action & Farm Impact
| Product | Price | Daily Change | Weekly Trend | Impact on Farmers |
| Cheese Blocks | $1.6500/lb | -1.50¢ | -7.25¢ | Class III pressure intensifying |
| Cheese Barrels | $1.6575/lb | No Change | -7.94¢ | Weak demand signals persist |
| Butter | $2.5250/lb | +2.50¢ | -2.44¢ | Limited Class IV support |
| NDM Grade A | $1.2600/lb | No Change | -0.88¢ | Export demand is steady but fragile |
| Dry Whey | $0.5700/lb | No Change | +1.56¢ | Protein markets holding |
Enhanced Trading Activity Analysis
Critical Market Signals from the Trading Floor:
Bid-Ask Spread Analysis:
- Cheese Blocks: 7 bids vs three offers – buyers stepping aside amid price uncertainty
- Butter: Strong interest with eight bids vs four offers, indicating underlying support
- Cheese Barrels: Minimal interest (5 bids, one offer) reflecting demand destruction
- NDM: No bids or offers – market participants awaiting direction
- Dry Whey: Balanced activity (2 bids, two offers) showing stable protein demand
Volume Breakdown:
- Total daily volume: Only five trades across all commodities – extremely light activity
- Butter led with three trades, and cheese blocks managed two trades
- Zero trading in barrels, NDM, and whey indicates market paralysis in key sectors
Historical Context: Current trading volumes represent the lowest daily activity since March 2025, when block cheese hit similar technical support levels at $1.72/lb. The bid-ask spreads have widened significantly compared to the 5-year average, indicating heightened uncertainty among market participants.
Market Sentiment & Industry Voice
Current Market Pulse: The dairy trading community exhibits extreme caution, with institutional buyers notably absent from the market. According to comprehensive market analysis, retail cheese buyers have reportedly “gone dark,” awaiting further price declines before making new purchases.
Risk Management Urgency: Dairy risk management consultants emphasize immediate action, with explicit advice to “implement DRP coverage for Q3/Q4 production within 48 hours”. This unprecedented urgency reflects the rapid deterioration in market fundamentals.
Export Market Concerns: While Mexican buyers previously provided strong support for U.S. dairy exports, recent reports indicate they are “becoming more selective on pricing”, suggesting a broader weakening in export demand that has traditionally absorbed excess domestic production.
Feed Cost & Margin Analysis
Current Feed Situation:
- Corn (July): $4.185/bushel – favorable for dairy operations
- Soybean Meal (July): $282.30/ton – manageable protein costs
- Milk-to-Feed Ratio: Under severe compression following the cheese price collapse
Historical Perspective: Current corn prices represent a 37% decline from 2023 highs of $6.54/bushel, providing significant input cost relief. However, USDA projections for a record 2025 corn production of 15.58 billion bushels suggest continued downward pressure on feed costs.
Margin Reality Check: Despite projected lower feed costs, income-over-feed costs are projected to drop below $12/cwt from March through August 2025, representing a significant 20% margin compression for many operations.
Production & Supply Insights
Supply Surge Confirmed: U.S. milk production reached 19.9 billion pounds in May 2025, up 1.6% year-over-year, with the national dairy herd expanding to 9.45 million head. This represents the addition of 114,000 head compared to May 2024.
Regional Production Impacts:
- Upper Midwest: Comfortable temperatures maintaining steady output, though NOAA data indicates temperatures 3-5°F above normal could lead to 8-12% production losses
- Southwest: Already experiencing 90°F+ temperatures, negatively impacting milk output and components
- California: Production steady despite heat concerns, but recovering from HPAI impacts that affected late 2024 performance
Critical Supply Projection: RaboResearch forecasts a substantial 1.4% production increase for “Big-7” dairy regions in Q3 2025 – the strongest quarterly surge since Q1 2021.
Market Fundamentals Driving Prices
Domestic Demand Crisis:
- Retail cheese buyers have “gone dark,” awaiting further price declines
- Domestic cheese consumption declined by 56 million pounds in Q1 2025
- Weak restaurant traffic continues to dampen overall demand
Export Market Fragility: Despite strong Q1 2025 export performance exceeding $3 billion, momentum is slowing with key concerns:
- Mexican buyers are becoming more selective on pricing
- Only 8% of U.S. cheese production was exported in 2024, indicating heavy domestic reliance
- Global dairy trade projected to contract by 0.8% in 2025
Processing Capacity Surge: New facilities are expected to contribute an additional 360 million pounds of cheese annually by the end of 2025, requiring substantial demand increases to avoid oversupply.
Forward-Looking Analysis & Risk Factors
Class III Futures Alert: June Class III futures at $18.67/cwt appear disconnected from spot market reality. The recent cheese market collapse suggests significant downward pressure on July contracts and beyond.
FMMO Reform Impact: The June 1st Federal Milk Marketing Order reforms are directly impacting prices through increased make allowances and removal of barrel cheese from Class III pricing calculations.
Weather & Seasonal Risks:
- NOAA forecasts well above-average temperatures across most of the Lower 48 for June 2025
- Drought conditions are expected to persist in the Pacific Northwest, Northern Plains, and California
- Above-normal temperatures could trigger 8-12% production losses in key regions
Visual Market Analysis Recommendations
Suggested Chart Enhancements:
- Price Volatility Index: 30-day rolling volatility for cheese blocks showing current levels vs historical percentiles
- Regional Heat Map: Milk production by state with temperature overlays showing stress factors
- Margin Compression Timeline: Income-over-feed costs trending from 2024 highs to projected 2025 lows
- Export Dependency Chart: Percentage of production exported by product category with trend lines
Actionable Farmer Insights
Immediate Actions Required:
- Risk Management: Implement Dairy Revenue Protection (DRP) coverage for Q3/Q4 production within 48 hours
- Component Optimization: Target butterfat levels of 4.50% or higher for $0.75-$1.50/cwt pricing advantage
- Beef-on-Dairy: Leverage historically high beef prices through beef-cross programs
- Feed Procurement: Forward contract 60-70% of feed needs while corn remains below $4.60/bushel
Strategic Positioning:
- Diversify processor relationships to reduce export market exposure
- Focus on milk component production over volume
- Implement comprehensive feed efficiency programs for $0.75-$1.25/cwt cost reduction
Regional Market Spotlight: Upper Midwest Focus
Wisconsin-Minnesota Production Hub: Current comfortable temperatures have maintained steady milk output and kept components stable, with cream supplies plentiful. However, NOAA data indicates emerging risks with temperatures 3-5°F above normal potentially triggering significant production losses.
Processing Capacity: The region’s processing infrastructure is operating near capacity, with new cheese facilities coming online contributing to the projected 360 million pound annual increase.
Transportation Advantages: Geographic proximity to key markets provides cost advantages, but weakening demand fundamentals erode this benefit.
Industry Intelligence
FMMO Changes in Effect: Major reforms effective June 1st are altering milk pricing dynamics with increased make allowances decreasing component values and removing barrel cheese from Class III calculations.
DMC Program Status: With margins potentially tightening, the Dairy Margin Coverage program’s history of payments in 66% of months since 2018 makes enrollment crucial.
Global Context: The FAO Dairy Price Index averaged 153.5 points in May 2025, up 21.5% year-over-year, but U.S. markets are rapidly decoupling from global strength.
The Bottom Line
Today’s continued weakness in cheese markets, particularly the 7.25¢ weekly decline in block cheese, confirms our analysis of an accelerating supply-demand collision. The extremely light trading volume (only five total trades) and widening bid-ask spreads signal a market where participants step aside, awaiting clarity on fundamental direction.
Critical Actions:
- Implement DRP coverage immediately for Q3/Q4 production
- Optimize for milk components, especially butterfat
- Forward contract feed needs while prices remain favorable
- Diversify revenue streams through beef-on-dairy opportunities
The confluence of rising milk production, weakening domestic demand, volatile export markets, and FMMO reform impacts creates a perfect storm requiring proactive risk management. The market’s current paralysis, evidenced by minimal trading activity and the absence of institutional buyers absence, suggests further volatility ahead.
Historical Perspective: Current market conditions mirror the supply-demand imbalances seen in early 2019, when similar production surges coincided with demand destruction, leading to sustained margin compression lasting 18 months.
Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.
Learn More:
- Protecting Your Dairy’s Bottom Line: Essential Risk Management Approaches for 2025 – Demonstrates how to layer financial protections through DMC, DRP, and forward contracts while implementing biosecurity protocols that prevent HPAI outbreaks, providing tactical frameworks for the immediate risk management actions emphasized in today’s market analysis.
- 2025 Dairy Market Reality Check: Why Everything You Think You Know About This Year’s Outlook is Wrong – Reveals how the shift from volume-focused to component-optimized production creates competitive advantages, with butterfat tests hitting 4.36% and strategic processor relationships delivering premium pricing that directly counters the margin compression detailed in today’s CME analysis.
- Digital Dairy: The Tech Stack That’s Actually Worth Your Investment in 2025 – Practical guide to implementing predictive analytics for milk component optimization and feed efficiency systems that reduce costs 5-10%, providing the technological foundation needed to execute the component-focused strategies essential for surviving today’s volatile market conditions.
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