Butter climbs as cheese blocks tumble 3.75¢. Global dairy tensions & USDA forecasts signal volatility ahead—key insights for producers & traders.
EXECUTIVE SUMMARY: The May 12 CME dairy markets saw divergent trends, with butter gaining 2¢ amid tight inventories while cheddar blocks plummeted 3.75¢ on buyer hesitancy. Nonfat Dry Milk increased with active trading, while Dry Whey stagnated due to export challenges. Global factors like Australia’s rising milk production and China’s whey tariffs contrast with bullish USDA forecasts for Class III milk prices. Market sentiment remains cautious as narrowing block-barrel spreads hint at shifting demand patterns. Stakeholders face a balancing between current supply tightness and anticipated production increases, with feed costs offering margin support. Strategic recommendations emphasize risk management and monitoring trade policy impacts.
KEY TAKEAWAYS:
- Butter-Cheese Divide: Butter (+2¢) strengthened on inventory concerns, while blocks (-3.75¢) retreated despite last week’s gains.
- Global Pressures: Australia’s milk growth and China’s whey tariffs create export headwinds, offsetting strong GDT auction results.
- USDA Forecast Gap: Class III futures ($18.65/cwt) outpace USDA’s 2025 forecast ($17.60), signaling market optimism.
- Actionable Insights: Producers were educated to optimize milk components; traders were aware of volatility from the new processing capacity.
The Chicago Mercantile Exchange (CME) dairy markets opened the week with mixed signals as butter prices gained 2 cents while Cheddar blocks fell significantly, dropping 3.75 cents. Meanwhile, barrels held steady, narrowing the block-barrel spread. Nonfat Dry Milk saw modest gains amid relatively active trading, while Dry Whey remained unchanged with minimal activity. Today’s session highlights ongoing tension between immediate supply tightness in certain products and broader concerns about future production growth and export market access.
Key Price Changes & Market Trends
| Product | Closing Price | Change from Friday (May 9) |
| Butter | $2.3500/lb | +2.00¢ |
| Cheddar Blocks | $1.7800/lb | -3.75¢ |
| Cheddar Barrels | $1.7700/lb | Unchanged |
| Nonfat Dry Milk | $1.2100/lb | +0.25¢ |
| Dry Whey | $0.5425/lb | Unchanged |
Market Commentary: Butter continued its upward momentum today, gaining 2 cents as inventories remain tight despite seasonal production increases. Cheddar blocks reversed last week’s strengthening trend, falling 3.75 cents as buyers stepped back after recent price increases. The block-barrel price spread narrowed to just 1 cent, suggesting convergence in demand between retail and food service sectors. NDM edged slightly higher amid steady domestic and international demand, while Dry Whey held steady for the second consecutive session amid ongoing export challenges.
Volume and Trading Activity
Trading activity varied considerably across products today, providing insight into market participants’ conviction levels and overall liquidity.
Cheddar blocks showed moderate activity with four trades executed, alongside three bids and one offer, indicating some buyer hesitancy at current price levels despite the day’s decline. Barrels saw comparable activity with three trades and three offers, but no bids by session’s end.
Butter trading was notably light, with just one transaction completed despite the price increase, suggesting that the move was higher due to the limited volume. NDM was the day’s most actively traded product with 12 loads changing hands and robust bidding activity (6 bids), supporting its modest price gain. Dry Whey saw no trades for the third consecutive session, with only two bids recorded, highlighting persistent liquidity challenges in this market segment.
Global Context
International developments continue to influence U.S. dairy markets significantly. The recent Global Dairy Trade (GDT) auction on May 6 showed substantial gains with the index rising 4.6%, led by increases in cheddar (+5.4%), butter (+3.8%), and whole milk powder, providing underlying support to domestic markets.
Australia’s milk production is forecast to increase by 1.1% in 2025 to 8.8 million metric tons after strong growth of 2.7% in 2024, potentially adding to global supply pressure later this year. Meanwhile, New Zealand is experiencing production challenges but focusing on higher-value products, which could support global prices for products like cheese and butter.
Trade policy tensions remain a significant concern, particularly affecting the whey market. China’s retaliatory tariffs on U.S. whey products continue to disrupt traditional export channels, forcing U.S. suppliers to seek alternative markets. These trade barriers create persistent headwinds for the whey complex despite relatively firm domestic prices.
Forecasts and Analysis
Current CME spot prices continue to show divergence from USDA’s 2025 annual average forecasts, highlighting the tension between immediate market conditions and longer-term expectations:
| Product | Current Spot Price (5/12/25) | USDA 2025 Forecast Avg. | Difference |
| Cheddar Cheese | $1.7800/lb | $1.790/lb | -$0.010/lb |
| Butter | $2.3500/lb | $2.445/lb | -$0.095/lb |
| NDM | $1.2100/lb | $1.220/lb | -$0.010/lb |
| Dry Whey | $0.5425/lb | $0.510/lb | +$0.0325/lb |
| Class III Milk | $18.65/cwt (June Future) | $17.60/cwt | +$1.05/cwt |
The USDA projects a 0.5% increase in total U.S. milk production for 2025, driven by modest gains in herd size (+0.4%) and milk yield per cow (+0.3%). This production growth and significant expansion in cheese processing capacity coming online throughout 2025 suggest increased product availability later this year.
Feed costs remain relatively favorable, with corn futures trading around $4.47/bushel for July contracts and soybean meal at $298.30/ton, supporting producer margins despite mixed milk prices. These favorable input costs incentivize continued milk production growth, potentially pressuring prices as the year progresses.
Market Sentiment
Market sentiment remains cautiously divided, with participants balancing short-term supply tightness against expectations of increasing production. As one analyst recently noted, “The market remains sensitive to incoming data and news flow, potentially leading to continued volatility,” reflecting many traders’ uncertainty.
The significant drop in block cheese prices today suggests some traders are becoming wary of sustainability at recent price levels, particularly as milk production seasonally increases. The cautious optimism seen in previous sessions appears to be tempering as market participants assess the impact of expanding processing capacity and potential export challenges.
Traders are particularly focused on the block-barrel spread, which narrowed considerably today. As noted in previous analysis, this spread “bears watching as it could signal shifts in consumer purchasing patterns or inventory positioning”. Today’s convergence could indicate rebalancing between retail and food service demand channels.
Closing Summary & Recommendations
The CME dairy markets began the week with mixed performance as butter strengthened while cheese blocks declined significantly, narrowing the block-barrel spread to just one cent. NDM edged slightly higher on active trading, while Dry Whey remained unchanged amid minimal participation. Today’s session reflected the market’s ongoing balancing act between current product availability and expectations of increasing supplies as the year progresses.
Based on today’s market activity and broader context, stakeholders should consider the following:
For Producers: Focus on optimizing milk components to maximize value in the current market environment. With future prices running above USDA forecasts for the year, risk management strategies should be evaluated to protect against potential price declines as production seasonally increases. Monitor feed markets closely to lock in favorable input costs for 2025.
For Processors and Buyers: Carefully assess inventory positions, particularly cheese, as the narrowing block-barrel spread may signal shifting demand patterns between retail and food service channels. Stay alert to international developments, especially trade policy changes that could impact export opportunities. Consider forward contracting strategies to navigate potential volatility as new processing capacity comes online throughout the year.
For Traders: Watch for technical price levels and changes in trading volume that may signal shifts in market direction. The divergence between spot prices and longer-term forecasts creates risks and opportunities that may require adaptive hedging strategies.
Learn more:
- Weekly US Dairy Market Report: May 9, 2025 – Export Boom, Tariff Risks, and Market Volatility
- CME Dairy Market Report: May 6, 2025 – Dairy Prices Rally Across the Board as Global Demand Surges and Cheese Inventories Tighten
- CME Dairy Market Report: May 8, 2025 – Block Cheese Climbs While Barrels Fall, Widening Spread to 5.75¢
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