U.S. dairy exports boom as global prices hit 3-year highs, but tariffs and domestic inventory risks threaten the rally. Can the surge last?

EXECUTIVE SUMMARY: The U.S. dairy market saw explosive growth in exports and global price rallies during the week ending May 9, 2025, fueled by record-breaking Global Dairy Trade (GDT) auction results and a weak dollar. Butter and cheese exports hit multi-year highs, while whey and lactose faced headwinds from Chinese tariffs. Domestically, strong spring milk production boosted butter and cheese output but raised inventory concerns as foodservice demand lagged. CME markets surged, with cheese prices hitting $1.84/lb, though USDA forecasts warn of softer annual averages. Producers must balance short-term gains against tariff risks, shifting global demand, and potential oversupply as milk production peaks.

KEY TAKEAWAYS:

• Global prices soar: GDT auction hits 3-year highs (butter +3.8%, cheddar +12%), widening U.S. export advantages.
• Export split: Cheese/butter thrive; whey/lactose struggle under Chinese tariffs (-23% prices since February).
• Domestic tension: Spring flush boosts production but risks inventory gluts as foodservice demand slows.
• Risk management critical: Feed costs drop temporarily, but USDA warns of softer 2025 averages ($17.60/cwt Class III).
• Diversify or die: New U.S.-Indonesia deal highlights shift from China-reliant markets amid trade volatility.

The bulls had plenty to feast on this week in dairy markets and didn’t waste the opportunity. US dairy exports are booming, and foreign buyers can’t get enough of our comparatively inexpensive dairy products. It’s a fascinating market right now – one of those periods where global factors drive our domestic prices more than usual.

Tuesday’s Global Dairy Trade auction kicked things off with a bang. Almost everything went up, and not by small margins either. Whole milk powder jumped 6.2% from the late-April auction, while Cheddar prices shot up an eye-popping 12%. Both hit their highest levels in three years. Butter somehow managed to outdo itself, climbing 3.8% to reach its highest price EVER at the GDT. And lactose? A stunning 16.8% leap as buyers scrambled to secure European products to avoid American tariffs.

The gap between US and international prices keeps widening, which explains why our exports are selling like crazy. I’ve never seen such a price advantage for American products – it’s almost guaranteed to keep export volumes strong in the months ahead.

Export Surge Continues

The good news kept coming on Tuesday when March trade data confirmed what many of us suspected – American dairy products are flying off the shelves overseas. Both value and volume reached two-year highs.

Cheese exports nearly matched their record-breaking performance from March 2024, with Japan taking an all-time high volume. Our butter and milkfat exports hit 53 million pounds for Q1, making it the strongest first quarter since 2014. Whey product exports easily beat last year’s volumes, though they still haven’t quite caught up to 2023’s pace in some categories. And milk powder exports? After a slow January and February, they rebounded nicely in March, slightly exceeding the same month last year.

The outlook for cheese, butter, and milk powder exports remains promising. The dollar is weak, and our prices are still much lower than international benchmarks – a perfect recipe for continued strong overseas sales. If these conditions hold, we’ll see more records broken before the year’s end.

Whey and lactose exports face a rockier road, though. Their dependence on Chinese buyers makes them vulnerable under the new tariff situation. Chinese buyers are already shifting purchases to Oceania and European suppliers, who are happy to fill the void we’re leaving. The premium for European lactose and high-protein whey over US prices has never been higher. This situation is causing some real headaches for US processors who’ve invested heavily in whey processing capacity.

Meanwhile, the strong sales and rising values are prompting dairy processors in Australia, New Zealand, and Europe to raise their farmgate milk prices. Nice to see producers getting some benefit from these improved market conditions.

Production Data Causes Indigestion

The dairy bulls gorged on good news early in the week, but perhaps they overate. Tuesday afternoon brought USDA’s monthly Dairy Products report, which showed that growing milk output and excellent component levels gave processors plenty of raw material to work with.

US manufacturers churned out 1.4% more cheese, including a substantial 5.4% more Cheddar and 8.6% more butter than they did in March 2024. All those exports have helped manage inventories but haven’t completely prevented stocks from growing. This could become problematic if exports slow down for any reason.

Domestic consumption seems… well, lackluster is probably the kindest way to put it. Several pizza and burger chains reported disappointing sales in Q1 and expressed worry about continued slow traffic in April and May. That’s especially concerning for cheese demand.

There’s an interesting shift happening in manufacturing priorities, though. Producers focus more on whey protein isolates, leaving less whey available for dryers. Whey powder production fell 11.7% below March 2024 levels. However, stocks still inched upward, not exactly what producers wanted to see.

Similarly, increased cheese production pulled milk solids away from dryers. Combined production of nonfat dry milk and skim milk powder dropped 9.6% year-over-year, hitting the lowest March output since 2013. Milk powder stocks did grow a bit from February to March, with manufacturers’ NDM stocks 12.8% higher on March 31 than a year earlier. But here’s where it gets interesting – the stockpile isn’t nearly as large as USDA initially thought.

The government found February’s stock at just 250 million pounds in its annual inventory survey, which was way below their initial estimate of 329 million pounds. USDA officials told Daily Dairy Report analysts that other months’ inventories were also overstated, but government rules prevent them from publishing those revisions until next April’s annual survey. The takeaway? Milk powder supplies have been tighter, and domestic demand has been better than we thought. That explains a few things about price behavior that had me scratching my head earlier this year.

Markets End Week Higher Despite Late Selloff

The markets closed out the week substantially higher than they started, even with some selling pressure on Thursday and Friday. CME spot Cheddar blocks rose 5.75¢ to finish at $1.8175 per pound, while barrels added 1.5¢ to reach $1.77. That widening block-barrel spread tells me retail demand is outpacing food service needs.

Spot NDM climbed 1.25¢ to $1.2075, and whey powder gained 2.25¢ to close at 54.25¢. Butter, meanwhile, held steady at $2.33 – not bad considering how much production has increased.

Most Class III and IV milk contracts added between 30 and 40¢, settling in the $18s and $19s. With all the market uncertainty these days, these prices offer an excellent chance for producers to lock in some protection using Dairy Revenue Protection or similar hedging tools. I’d look seriously at those opportunities if I were still milking cows.

Beef revenues continue to provide another bright spot for dairy producers. Live and feeder cattle futures hit new all-time highs this week, boosting the value of cull cows, beef calves, and other on-farm livestock. Every little bit helps when it comes to income diversification.

Meanwhile, feed costs dropped – always welcome news. Spring weather has been nearly ideal, with a good balance of sunshine and rainfall. Farmers in the Northern Plains and western Corn Belt could use more showers, but overall conditions look promising. The favorable weather in the US and South America pushed corn futures to five-month lows on Thursday before rebounding slightly on Friday. July corn finished at $4.4975 per bushel, down nearly 20¢ for the week. July soybeans settled at $10.52, 6¢ lower than last Friday. July soybean meal dropped $2.90 to $294 per ton.

When you put it all together – strong exports, decent milk prices, lower feed costs, and high beef values – the overall financial picture for dairy farms looks more positive than it has in quite a while. But this business has taught me never to get too comfortable. Markets can turn quickly, and the current export advantage won’t last forever if international prices fall, or the dollar strengthens. As my grandfather always said, “Make hay while the sun shines” – literally and figuratively.

Learn more:

• U.S. Dairy Exports in February 2025: How Can Record Values Coexist with Plummeting Volumes?
  Explore how U.S. dairy navigates booming cheese and butter exports amid collapsing milk powder shipments, trade wars, and shifting global demand.
• American Cheese Dominance: U.S. Dairy Exports Shatter Billion-Pound Barrier in 2025
  Dive into the record-breaking surge in U.S. cheese exports, what’s fueling global demand, and the impact on American dairy farm economics.
• How the U.S. Can Become the World’s No. 1 Dairy Exporter: Strategies and Challenges
  A forward-looking analysis on what it will take for the U.S. to surpass global rivals, overcome barriers, and seize new opportunities in dairy exports.

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