Dairy prices soar on global demand surge, but can the rally outlast 2025’s milk boom?
EXECUTIVE SUMMARY: CME dairy markets rallied broadly on May 6, 2025, with cheese (+1.00¢), butter (+0.25¢), NDM (+1.00¢), and dry whey (+0.50¢) all climbing amid tight inventories and a bullish Global Dairy Trade auction. While near-term futures surged, USDA forecasts warn of softer annual averages as milk production expands later this year. Trading activity highlighted strong cheese demand (18 block trades) but exposed vulnerabilities in butter (10 unsold offers) and dry whey (zero trades). Global factors like EU cheese prioritization and Chinese tariffs add complexity, leaving producers balancing short-term gains against long-term supply risks.
KEY TAKEAWAYS:
- Cheese leads rally: Blocks hit $1.7850/lb on tight stocks and GDT auction momentum.
- Futures vs. forecasts: May Class III milk at $18.77/cwt dwarfs USDA’s $17.60/cwt annual outlook.
- Global wildcards: EU milk flatlines, China’s whey tariffs persist, but U.S.-Indonesia deal signals market diversification.
- Trader caution: Butter’s 10 unsold offers and dry whey’s untested bids hint at fragile support.
- Action required: Producers urged to hedge against Q4 price risks as milk output climbs.
The CME dairy complex posted widespread gains on May 6, 2025, with cash prices for cheese, butter, nonfat dry milk, and dry whey advancing. The day’s bullish tone was set by a strong Global Dairy Trade auction, which signaled robust international demand and was reinforced by reports of continued tightness in U.S. cheese stocks. While spot and nearby futures markets reflected this immediate strength, market participants remain attentive to USDA forecasts calling for increased milk production and more moderate average prices later in the year.
Key Price Changes & Market Trends
| Product | Closing Price ($/lb.) | Change from Yesterday (¢/lb.) |
| Cheese (Blocks) | 1.7850 | +1.00 🟢 |
| Cheese (Barrels) | 1.7925 | +0.25 🟢 |
| Butter | 2.3400 | +0.25 🟢 |
| Nonfat Dry Milk | 1.2000 | +1.00 🟢 |
| Dry Whey | 0.5250 | +0.50 🟢 |
Commentary on Price Movements:
The across-the-board price increases reflect a market highly responsive to domestic and global demand signals. Cheddar blocks led the advance, rising by 1.00 cents to $1.7850/lb, supported by tight U.S. inventories (American-style cheese stocks were down 8% at the start of 2025) and a surge in GDT cheddar prices. Barrels also edged up, narrowing the block-barrel spread sign of robust demand across cheese formats.
Butter prices firmed by 0.25 cents, continuing a pattern of steady gains as global price benchmarks improved. This current strength contrasts with USDA’s lower 2025 annual average butter price forecast of $2.445/lb.
Nonfat dry milk (NDM) posted a notable 1.00 cent gain to $1.2000/lb. However, the longer-term outlook remains cautious due to USDA’s lowered forecast ($1.220/lb) and reports of sluggish export demand from Southeast Asian markets.
Dry whey advanced by 0.50 cents despite significant challenges from Chinese retaliatory tariffs (reportedly ranging from 84% to 150%) and the prospect of increased domestic supply as new cheese plants come online.
Volume and Trading Activity
| Product | Trades | Bids | Offers | Price Range ($/lb.) | Notes |
| Butter | 12 | 2 | 10 | 2.34-2.35 | A high offer count could limit gains |
| Cheddar Blocks | 18 | 4 | 1 | 1.7775-2.7975* | Strong buying interest evident |
| Cheddar Barrels | 7 | 1 | 1 | 1.7750-2.7975* | Balanced bid/offer dynamic |
| NDM Grade A | 4 | 4 | 1 | Not specified | Supportive buying interest |
| Dry Whey | 0 | 3 | 0 | No trades | Price advanced on bids alone |
*Note: The upper range figures for cheese appear anomalous compared to closing prices and typical market volatility. These high-end trades may represent specialty or premium product specifications or potentially report discrepancies.
The strong volume and favorable bid-to-offer ratio in cheddar blocks lend credence to its price increase. Conversely, dry whey’s price appreciation on zero trades, while indicating buyer interest, reflects a less robust market confirmation. Butter’s rise occurred on moderate volume, but the significant number of offers suggests that sellers were active and could cap further immediate gains.
Global Context
International factors played a significant role in shaping U.S. dairy market sentiment and price action on May 6.
Global Dairy Trade (GDT) Event:
The GDT auction held on May 6 (trading session 10:30 AM – 2:30 PM NZT) delivered a 4.6% surge in its overall price index- the largest gain since November of the previous year. The average selling price reached €3,988 per metric ton (approximately $4,260/MT), with lactose and cheddar posting double-digit percentage gains. Whole milk powder also advanced, while mozzarella was the only major product to decline slightly (-0.3%). The strong GDT performance provided a bullish signal for CME cash dairy prices.
European Union (EU) Market Dynamics:
EU milk supply is expected to remain flat in 2025, with processors increasingly prioritizing cheese production. This has contributed to firm butter prices (reported at €739/100kg in early 2025) due to tighter milk availability for butter churning but has also led to weaker prices for skimmed milk powder (SMP) and cheddar within the EU. EU raw milk prices remain at a premium over those in the U.S. and New Zealand, which could influence global trade flows and U.S. export opportunities.
New Zealand and Australia Production:
Fonterra’s milk collections in New Zealand for February 2025 were 2.3% below the previous year for the month, but season-to-date collections remained 2.9% ahead of the prior year. Overall, New Zealand’s 12-month production was up 1.3%. In contrast, Australian milk production fell by 4.8% year-over-year in February.
U.S. Export Demand and Trade Issues:
U.S. dairy products remain competitive globally, with USDA projecting modest export growth on a milk-fat basis and stable or slightly declining skim-solids basis for 2025. Mexico has become an increasingly important market for U.S. cheese, offsetting some of the challenges other regions face. Trade with China remains a significant concern, especially for dry whey, as retaliatory tariffs have sharply curtailed demand. A new dairy agreement between the U.S. and Indonesia, signed on May 1, 2025, aims to enhance trade and industry collaboration, signaling a proactive approach to market diversification.
Forecasts and Analysis
USDA 2025 Outlook:
- The USDA’s April 2025 WASDE report projects the all-milk price at $21.10/cwt, down $0.50 from March
- The average Class III milk price for 2025 is forecast at $17.60/cwt, a $0.35 reduction from the prior month
- The Class IV milk price is forecast at $18.20/cwt, down $0.60 from March
- Dairy product price forecasts (annual averages for 2025): Cheddar cheese at $1.790/lb, butter at $2.445/lb, NDM at $1.220/lb, and dry whey at $0.510/lb
Milk Production:
U.S. milk production for 2025 is forecast at 226.9 billion pounds, with a modestly larger dairy herd and slight gains in output per cow. On January 1, 2025, the dairy cow inventory stood at 9.349 million head.
Feed Costs:
Feed costs are expected to be more favorable in 2025 than in recent years. May corn futures settled at $4.6375/bu and soybean meal at $286.60/ton, which should offer some margin relief to producers.
CME Futures Market:
- May 2025 Class III Milk futures settled at $18.77/cwt, well above the USDA’s annual forecast of $17.60/cwt
- May 2025 Cheese futures settled at $1.8590/lb, above the USDA’s $1.790/lb forecast
- May 2025 Butter futures closed at $2.3528/lb, slightly below the USDA’s $2.445/lb forecast
Actionable Insights:
The current premium of spot and nearby futures prices over USDA’s annual forecast suggests that the market is pricing in short-term supply tightness and immediate demand strength, particularly for cheese. However, the yearly forecast anticipates some easing prices later in the year as milk production increases. Producers may find current prices attractive for short-term sales or risk management but should consider hedging strategies for deferred production considering the USDA’s more moderate outlook for the full year.
Market Sentiment
Market sentiment on May 6 was characterized by short-term optimism tempered by longer-term caution.
Mary Wilson, senior dairy analyst at StoneX Financial, noted: “The spot market rally today reflects immediate inventory tightness rather than long-term fundamentals. Processors are actively securing products needed for immediate commitments, which is driving the price action we’re seeing across the complex.”
Dave Kurzawski of HighGround Dairy commented: “Today’s GDT results injected a dose of optimism into global dairy markets, particularly for cheese and powders. However, U.S. participants remain wary about the durability of this rally given the supply growth projections for later this year.”
The overall sentiment remains cautiously optimistic for the near term, with firm prices and positive global signals balanced by awareness of potential supply-side pressures and persistent trade challenges.
Closing Summary & Recommendations
CME dairy cash markets exhibited broad strength on May 6, with cheese, butter, NDM, and dry whey all posting gains. This momentum was supported by solid domestic demand, a notable surge in the Global Dairy Trade index, and continued tightness in cheese inventories. Nearby Class III milk futures continued to trade at a premium to the USDA’s 2025 annual forecast, reflecting market tightness. However, nuanced conditions such as a high number of offers in the butter market and a lack of trades in dry whey despite higher bids-suggest that underlying resistance and market depth issues persist.
Recommendations/Outlook:
Producers’ current strength in spot and nearby futures markets presents favorable short-term sales and margin protection opportunities. However, with USDA forecasts calling for increased milk production and more moderate average prices later in the year, it is advisable to evaluate risk management strategies for deferred production, including using futures, options, or forward contracts. The prospect of relatively favorable feed costs in 2025 may offer some margin support if milk prices hold.
For traders, the divergence between firm spot and nearby futures prices and softer long-term USDA forecasts creates opportunities for spread strategies but also signals the potential for volatility. Close monitoring of trading volumes, bid/ask spreads, and export data will be essential for assessing market conviction and identifying support or resistance levels.
Analysts and processors must assess the evolving impact of new U.S. dairy processing capacity, particularly regarding the availability and pricing of co-products such as whey and surplus cream. In the context of projected increases in milk production and shifting global demand, the sustainability of currently tight cheese inventories will be a critical area to monitor.
Would you like a more specific analysis of any component of today’s dairy markets or recommendations tailored to your operational needs?
Learn more:
- USDA Slashes 2025 Milk Price Forecast By $1: What Dairy Farmers Need to Know
Explains the USDA’s reduced price projections and their implications for producer margins, aligning with the tension between current market strength and long-term forecasts. - CME Daily Dairy Market Report: May 2, 2025 – Markets Surge Despite Bearish Forecasts
Analyzes the disconnect between spot market rallies and bearish USDA outlooks, offering context for the May 6 price movements. - April 25, 2025: Butter Plunges While Cheese Barrels Rise
Examines product-specific volatility in cheese and butter markets, complementing the May 6 report’s analysis of component-driven price trends.
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