Cheese blocks surge 6.75¢ as CME futures defy USDA forecasts. Butter flatlines, feed costs drop – key margins in flux.

EXECUTIVE SUMMARY: CME dairy markets closed mixed on May 14, with cheese blocks spiking 6.75¢/lb on tight supplies while butter held steady amid ample inventories. Nonfat dry milk reversed losses (+0.75¢) on export interest, but dry whey fell (-0.50¢) due to Chinese tariffs. Class III futures ($18.80/cwt) maintained a $1.20 premium over USDA’s 2025 forecast, signaling trader optimism despite government caution. Feed costs dropped sharply, easing producer margins, while global factors like EU milk shortages and the U.S.-Indonesia trade deal added complexity. Markets remain balanced on knife’s edge between supply dynamics and export uncertainties.

KEY TAKEAWAYS:

• Cheese Block Surge: Tight supplies drove blocks to $1.8475/lb (+6.75¢), widening the block-barrel spread to 7.5¢.
• Butter Stagnation: Unchanged at $2.3425/lb (no trades) as inventories offset global auction gains.
• Feed Cost Relief: Corn/soybean declines boosted margins, but futures’ “optimism gap” risks overshooting USDA milk forecasts.
• Export Crosscurrents: NDM gained on active trading, while dry whey’s drop highlighted China tariff impacts.
• Global Watch: EU milk shortages (Bluetongue virus) and NZ drought may reshape Q3 supply chains.

Cheese blocks posted a significant gain of 6.75 cents in today’s CME dairy spot market trading, reaching .8475 per pound on moderate trading volume, while barrels inched up slightly. Butter prices held steady at $2.3425 per pound with no trades executed. Nonfat dry milk reversed recent losses with a 0.75 cent gain, and dry whey continued its descent, falling half a cent to $0.5250 per pound. June Class III milk futures climbed modestly to .80 per hundredweight, maintaining a substantial premium over USDA’s annual forecast.

Key Price Changes & Market Trends

Cheddar blocks surged 6.75 cents to $1.8475 per pound, the largest single-day gain in recent weeks, reflecting tighter available supplies and stronger demand ahead of summer. The block-barrel spread widened significantly to 7.5 cents, suggesting a divergence between retail and foodservice demand patterns. Barrels made a more modest gain of 0.25 cents to close at $1.7725 per pound.

Butter prices remained unchanged at $2.3425 per pound with no trades recorded, continuing to trade well below the USDA’s annual forecast of $2.445 per pound, as ample inventories continue to weigh on the market. Nonfat dry milk reversed recent losses, climbing 0.75 cents to $1.2150 per pound on active trading, supported by eight sales and perhaps reflecting some improvement in export prospects.

Dry whey continued its downward trend, losing 0.50 cents to close at $0.5250 per pound, as export challenges persist, particularly with Chinese tariffs continuing to hamper trade flows.

Volume and Trading Activity

Trading activity was mixed across dairy commodities today. Nonfat dry milk was the most active, with eight sales recorded ranging from $1.2125 to $1.22 per pound, along with three bids and one offer. The high number of trades and strong bid-to-offer ratio (3:1) signal healthy buyer interest and suggest the market found good support at current price levels.

Cheese blocks saw moderate activity with three sales recorded, with transactions ranging from $1.80 to $1.8475, accompanied by two bids and one offer at the close. Morning trading showed stronger buyer interest, with two of the three trades happening before noon, indicating some urgency among buyers to secure product before prices moved higher.

Similarly, cheese barrels registered three trades at $1.7725, with one bid and seven offers outstanding at session’s end. The significant number of unfilled offers (7) compared to bids (1) suggests potential selling pressure ahead and raises questions about whether today’s modest price gain is sustainable.

Butter saw no trades today despite being unchanged in price, with two offers on the board at close. This lack of activity reflects a standoff between buyers and sellers, with neither side showing willingness to adjust positions significantly given current inventory levels and price expectations.

Dry whey trading remained thin with just one sale recorded, continuing the pattern of low liquidity that has characterized this market in recent sessions. This minimal activity makes it difficult to gauge true market sentiment beyond the registered price decline.

Global Context

International factors continue to influence U.S. dairy markets, with mixed signals from key regions affecting market sentiment. The Global Dairy Trade (GDT) auction held on May 6, 2025, registered a significant 4.6% surge in its overall price index, providing some underlying support for global dairy values. Butter prices at that auction increased by 3.8%, reaching $7,992 per metric ton, while anhydrous milk fat rose 5.4% to $7,212 per metric ton.

European milk production continues to face challenges from animal health issues, particularly the Bluetongue virus, which has constrained output and caused fertility issues. This situation potentially creates export opportunities for U.S. dairy products, though the impact varies by product category.

New Zealand’s milk production for the season through March 2025 was up 2.2% by volume, with milk solids increasing by 3.0% compared to the prior year, despite significant drought conditions in several producing regions. Australian milk production is anticipated to see modest growth in 2025, supported by improved market conditions.

U.S. dairy export performance presents a mixed picture, with record export values coexisting with declining volumes for certain key products. Exports to Mexico, the top destination for U.S. dairy, showed value growth despite volume challenges in some categories like cheese. The recent U.S.-Indonesia Dairy Agreement signed on May 1, 2025, aims to enhance trade and industry collaboration, potentially opening new channels for U.S. dairy exports.

Forecasts and Analysis

A notable feature of the current dairy market landscape is the persistent divergence between USDA forecasts and CME futures prices. The USDA April 2025 World Agricultural Supply and Demand Estimates (WASDE) projects the 2025 Class III milk price at $17.60 per hundredweight, substantially below current futures levels. Today’s June Class III milk futures settled at .80, maintaining a significant premium over the USDA’s annual forecast.

If visualized on a chart, this “optimism gap” would show June futures trading nearly $1.20 above the USDA’s projected annual average, highlighting the market’s more bullish near-term outlook compared to government forecasts. This divergence suggests futures traders are placing greater emphasis on immediate supply tightness and recent positive developments in feed costs than on potential longer-term production increases anticipated by USDA.

Feed costs have shown significant volatility, with corn futures for July delivery settling at $4.4475 per bushel today, up slightly from yesterday but still at levels supportive of producer margins. Similarly, soybean meal futures for July delivery settled at $292.00 per ton, down slightly from yesterday and significantly below levels seen earlier this year. A visual representation would show both feed ingredients trending downward over the past month, creating a more favorable input cost scenario for dairy operators.

The USDA forecasts U.S. milk production at 226.9 billion pounds for 2025, representing a modest increase over the previous year. This growth is expected to come from a slightly larger national dairy herd and marginal gains in milk yield per cow, though factors such as Highly Pathogenic Avian Influenza (HPAI) have impacted milk yields in certain states.

Market Sentiment

The prevailing market sentiment in mid-May 2025 remains cautious and mixed, with conflicting signals creating uncertainty among market participants. Traders are navigating the divergence between relatively strong nearby futures prices and more subdued long-term USDA forecasts, while also balancing ample inventories in some commodities against tightness in others.

As one market analyst noted, “The persistent premium in Class III futures over the USDA’s annual projections highlights a segment of the market betting on stronger summer demand or tighter-than-anticipated milk supplies, perhaps fueled by the recent downturn in feed costs. However, this optimism carries risk if these supportive factors don’t fully materialize or if broader economic headwinds intensify”.

This sentiment is echoed by dairy producers facing uncertain margins. A Wisconsin dairy manager recently warned, “When forecasts drop $2 in just four months, you know we’re facing a serious market correction”. Meanwhile, an industry consultant highlighted the critical role of exports for expanded cheese production, stating, “If we can’t get the cheese exported, and we’re making a lot of it, it means we’re going to need to eat a lot more cheese”.

Closing Summary & Recommendations

In summary, today’s dairy markets showed significant strength in cheese block prices amid signs of tightening supplies, while butter held steady at levels well below USDA annual forecasts due to comfortable inventories. Nonfat dry milk reversed recent losses with a modest gain on active trading, while dry whey continued to face headwinds from export challenges.

For producers, the current divergence between futures prices and USDA forecasts presents both opportunity and risk. With Class III futures trading well above USDA’s annual projection of $17.60 per hundredweight, producers should consider implementing risk management strategies to lock in favorable prices for the coming months. Recent declines in feed costs may provide additional margin opportunities that should be carefully evaluated.

Processors and manufacturers should closely monitor inventory levels and export market developments, particularly as new domestic cheese processing capacity comes online. The widening block-barrel spread deserves attention as it may signal shifting demand patterns between retail and food service sectors. Traders should remain alert to potential arbitrage opportunities arising from price discrepancies between cash markets and futures, while being mindful that some recent price movements have occurred on relatively light volume.

With global dairy auction prices showing strength and domestic futures maintaining a premium over USDA forecasts, market participants should prepare for continued volatility while remaining attentive to signals from both domestic and international markets that could indicate more definitive price direction in the weeks ahead.

Learn more:

• CME Dairy Market Report: May 13, 2025 – Markets Mixed Amid Lower Feed Costs
  Mixed dairy markets: Butter and powders dip while cheese holds steady. Feed costs plunge, offering producer relief. Global shifts loom.
• Weekly US Dairy Market Report: May 9, 2025 – Export Boom, Tariff Risks, and Market Volatility
  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?
• CME Dairy Market Report: May 6, 2025 – Dairy Prices Rally Across the Board as Global Demand Surges and Cheese Inventories Tighten
  CME dairy prices soar on global demand surge, but USDA forecasts caution as milk output rises. Will the rally outlast 2025’s milk boom?

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