Cheese surges while forecasts fall! Today’s dairy markets reveal a puzzling split as spot trading defies bearish USDA outlook. What’s driving this?

EXECUTIVE SUMMARY: The April 14, 2025 CME dairy markets displayed a stark divide, with cheese prices climbing significantly (+2.50¢ for blocks, +3.50¢ for barrels) amid active trading, while butter and powder markets remained completely static with zero activity. This divergence comes despite the USDA’s newly reduced price forecasts, which lowered the 2025 All-Milk price by 50¢ to .10/cwt amid expectations for increased production. Global factors create additional complexity, with high Chinese retaliatory tariffs (reaching 135-150%) effectively blocking a major export market while production challenges affect competitors in Europe and Oceania. The disconnect between immediate cheese market dynamics and bearish longer-term projections creates a challenging environment requiring careful strategic planning for producers facing potentially tightening margins throughout 2025.

KEY TAKEAWAYS

• Market Divergence: Cheese prices showed surprising strength (+2.50¢ blocks, +3.50¢ barrels) with active trading, while butter, NDM, and dry whey markets saw no price movement or trading activity, reflecting divided market drivers.
• Bearish USDA Outlook: The April WASDE report significantly lowered milk price forecasts (Class III -35¢ to $17.60/cwt, Class IV -60¢ to $18.20/cwt) while raising production estimates by 700 million pounds, signaling potential margin pressure for producers.
• Global Trade Barriers: U.S. dairy faces prohibitive Chinese tariffs (135-150%) that negate price competitiveness in this crucial market, forcing greater reliance on other export destinations while competing exporters face production challenges.
• Strategic Implications: Producers should focus intensely on margin protection strategies while monitoring upcoming Federal Milk Marketing Order pricing changes; traders should prepare for continued volatility and watch for upcoming Global Dairy Trade auction results on April 15th.
• Mixed Signals: The current market demonstrates a significant disconnect between immediate physical market needs driving cheese prices higher and the bearish fundamental outlook suggested by forecasts and inactive butter/powder markets.

Cheese markets rallied on active trading today despite bearish USDA forecasts. In contrast, butter and powder markets remained static, highlighting the complex dynamics influencing dairy markets as we move deeper into the spring flush period.

Key Price Changes & Market Trends

Today’s CME session revealed a sharply divided dairy complex. Cheese markets showed significant upward momentum with notable trading volume, while butter and milk powders saw no price changes and zero spot market trades, reflecting underlying caution and divergent market drivers – much like a herd splitting between fresh pasture and the familiar comfort of the barn.

Commentary:

Cheddar blocks and barrels posted substantial gains today, rising 2.50 cents and 3.50 cents per pound, respectively. This rally comes despite milk components running rich as spring flush progresses and reports of growing cheese inventories, particularly for blocks in the Western manufacturing region. The upward movement suggests persistent buyer interest, not unlike how feed dealers stock up before planting season. Processors appear to be securing supplies ahead of anticipated seasonal demand improvements or addressing immediate inventory needs. While earlier reports indicated steady-to-stronger retail cheese demand countered by lighter food service offtake, both block and barrel formats found support today, with barrels showing particular strength – reminiscent of how high-component Holstein herds often outperform Jersey crosses during peak production seasons.

In stark contrast, butter, NDM, and dry whey markets were inactive on the spot exchange, closing unchanged with no trades executed – as dormant as a silage pile in midwinter. The lack of activity in butter comes amid reports of readily available cream supplies and active churning by manufacturers building inventory for the upcoming baking season. For NDM, the market appears balanced with ample availability of condensed skim milk, pointing to sufficient supply meeting somewhat steady demand, similar to how a well-managed TMR ration keeps production steady without overfeeding. The dry whey market continues to face significant headwinds from potential oversupply from increased cheese production at new large-scale facilities in Michigan and Texas and weakened demand amid global trade uncertainty.

Volume and Trading Activity

Trading activity was entirely concentrated within the cheese markets today, highlighting the divergence across the dairy complex – much like how a farm’s attention shifts dramatically during corn silage harvest while routine milking operations continue unchanged.

Cheese (Blocks): 4 trades were executed. The market closed with one bid against five offers, suggesting that while the price advanced significantly during the session, selling interest emerged more prominently at the closing level of $1.7700/lb, potentially capping further immediate gains – similar to how a group of fresh heifers initially boosts herd average before settling into their production rhythm.

Cheese (Barrels): 5 trades were completed. The market closed with two bids and no offers outstanding at $1.8400/lb, indicating unfilled buying interest remained at the day’s higher price, supporting the more substantial 3.50-cent gain – not unlike how demand for quality replacement heifers often exceeds supply during expansion phases.

Butter: No trades were executed. The market closed with no bids and offers, signaling a complete lack of engagement in today’s spot cash market – as quiet as the parlor between milkings.

Nonfat Dry Milk (NDM): No trades were executed. The close saw one bid and three offers, indicating some buying interest existed below the market. Still, more sellers were present at or above the unchanged price of $1.1675/lb – reminiscent of how cull cow prices often see more sellers than buyers during seasonal herd contractions.

Dry Whey: No trades were executed. The market closed with no bids and two offers, confirming the presence of selling interest but an absence of buyers at the $0.4650/lb level – similar to how surplus heifer calves find few takers during periods of industry contraction.

The bid/ask dynamics at the close reinforce the market narrative: sustained buying interest in barrels aligned with its stronger performance. At the same time, resistance appeared in blocks – much like how component premiums sometimes favor protein over butterfat, depending on regional processor needs.

Global Context

U.S. dairy markets continue to operate within a complex global environment characterized by shifting trade dynamics, varied production trends among competitors, and geopolitical tensions – not unlike how a modern dairy operation must simultaneously manage nutrition, reproduction, milk quality, and environmental compliance.

Export Demand: U.S. export demand remains a mixed picture. Shipments to Mexico, particularly for cheese, have been robust, and demand has also shown strength in regions like the Middle East/North Africa (MENA) and Central America. However, the ongoing trade dispute between the U.S. and China casts a significant shadow – as disruptive as a sudden mycoplasma outbreak in a closed herd. High retaliatory tariffs, reportedly reaching 135% on cheese and butter and 150% on whey, effectively price U.S. dairy out of this crucial market. While U.S. cheese and butter prices remain competitive compared to international benchmarks in Europe and Oceania, this advantage is negated in the Chinese market by the tariffs – similar to how having excellent genetics means little if your milk quality bonuses are lost due to high SCC.

Global Production Trends: Production outlooks vary among key exporting regions:

• European Union (EU): Milk production faces constraints, including falling cow numbers and the potential re-emergence of the Bluetongue virus – reminiscent of how domestic herds face their disease challenges from BVD to Johne’s. Recent data showed lagging output in major producers like Germany, France, Ireland, and the Netherlands, although UK production has been strong. While seasonal output is rising, overall EU production may contract slightly, with processors increasingly prioritizing cheese production – similar to how domestic processors often shift milk utilization based on component values and plant capacities.
• New Zealand (NZ): After a strong start to the season, milk collections have slowed due to dry conditions – much like how Midwest producers often see production dips during August heat stress periods. February production was down year-over-year, though the season-to-date figure remains positive. Overall growth is still anticipated for the season, but supplies available for the GDT platform are reportedly tight – comparable to how feed inventories can look adequate on paper but face spot shortages before the new crop harvest.
• Australia: Milk production continues to decline year-over-year, limiting export availability – similar to how regions like the Western U.S. have seen persistent contraction due to water availability issues.

The upcoming Global Dairy Trade (GDT) auction on April 15 is a key indicator of international demand, particularly from Asia. Futures markets suggest potential strength for milk powders but a possible weakness for milk fats in the upcoming event – a divergence not unlike how protein and butterfat premiums can move in opposite directions based on processor needs.

Forecasts and Analysis

The recently released April USDA World Agricultural Supply and Demand Estimates (WASDE) report presented a more bearish outlook for the U.S. dairy sector in 2025 compared to previous forecasts – as sobering as receiving a lower-than-expected milk check during what should be a profitable season.

USDA WASDE Key Forecasts (April 2025 Report for Year 2025):

• Milk Production: Forecast raised by 700 million pounds from the March estimate to 226.9 billion pounds. This upward revision was attributed to expectations for larger average cow inventories and slightly higher milk output per cow – similar to how adding a third milking or implementing an aggressive reproduction program can boost production beyond initial projections.
• Class III Milk Price: Forecast lowered by 35 cents to $17.60 per cwt, reflecting lower projected prices for cheese and dry whey – a drop that could mean the difference between covering operating costs and building equity for many operations.
• Class IV Milk Price: Forecast lowered by 60 cents to $18.20 per cwt due to lower projected prices for butter and NDM – particularly concerning for producers in regions heavily weighted toward Class IV utilization.
• All-Milk Price: Forecast lowered by 50 cents to $21.10 per cwt. This marks a significant $1.95/cwt decline from the January 2025 forecast, highlighting a rapidly evolving, weaker price outlook. This reduction could translate to nearly $400 less per cow annually for a 24,000 lb herd average.

Feed Cost Outlook: Feed costs remain a critical factor for producer margins. CME Corn futures settled at $4.8425/bushel for May and $4.6175/bushel for December. Soybean Meal futures settled at $296.90/ton for May and $308.70/ton for December. While the April WASDE kept the 2024/25 season-average farm price forecast for corn unchanged at $5.50/bushel, recent market commentary noted sharp increases in near-term corn and soybean meal prices, adding pressure to producer costs – much like how a sudden equipment breakdown can throw off even the most carefully planned cash flow projections.

Analysis & Implications: The combination of significantly lower milk price forecasts driven by higher anticipated milk production, alongside stable to potentially rising feed costs, points towards a considerable tightening of income over feed cost (IOFC) margins throughout 2025. Notably, the USDA’s lowered 2025 average Class III forecast ($17.60/cwt) aligns closely with today’s CME May 2025 Class III futures settlement price ($17.64/cwt). This suggests the futures market may have already incorporated much of the bearish information from the WASDE report – similar to how forward-thinking producers have likely already factored these projections into their risk management strategies and capital investment decisions.

Market Sentiment

Overall market sentiment on April 14 can best be described as mixed, cautious, and uncertain – not unlike the mood at a county extension meeting after a particularly challenging growing season. A significant disconnect exists between the bullish behavior observed in the CME spot cheese market, the broader bearish fundamentals suggested by official forecasts, and the inactivity in other dairy commodity markets.

Concerns persist regarding macroeconomic factors, including potential economic slowdown or recession impacting consumer demand, particularly in food service channels, which have shown signs of weakness – similar to how restaurant closures during COVID dramatically shifted milk utilization patterns. Inflationary pressures may also influence consumer purchasing habits, with dairy case behavior showing signs of trading down from premium to value products.

Global trade tensions, especially the U.S.-China tariff situation, continue to inject uncertainty and weigh heavily on export sentiment, particularly impacting products like whey – as disruptive as losing a significant milk buyer in a regional market. While U.S. dairy remains competitively priced in many global markets, the inability to access the critical Chinese market without prohibitive tariffs is a primary concern – comparable to having a productive herd but limited processing capacity in your region.

Furthermore, the recent downward revisions to milk price forecasts by the USDA and ongoing concerns about feed costs contribute to a cautious, if not outright bearish, outlook for producer margins – reminiscent of the challenging economic environment faced during the 2015-2016 downturn.

One market analyst noted, “The surprising resilience of spot cheese prices despite the bearish implications of the April WASDE report suggests immediate physical market needs are currently overriding longer-term projections.” However, another trader commented, “The substantial Chinese tariffs remain a significant impediment to U.S. export growth, forcing greater reliance on other international markets and potentially limiting the upside for domestic prices, especially for whey – it’s like trying to fill a Class I bottling plant when your largest customer suddenly switches suppliers.”

Closing Summary & Recommendations

In summary, the CME dairy markets presented a bifurcated picture on April 14. Cash cheese prices saw robust gains driven by active trading, defying the recent bearish USDA WASDE report that projected lower average prices for 2025 due to increased milk production forecasts. Conversely, butter, NDM, and dry whey markets remained static, with no spot trades executed, reflecting broader market caution influenced by ample supplies and global trade headwinds, particularly the impact of U.S.-China tariffs on export potential.

Recommendations & Outlook:

• Producers: The outlook necessitates a strong focus on margin protection – as critical as maintaining proper vaccination protocols. Vigilantly monitor feed costs against the backdrop of significantly lowered milk price forecasts. Proactive risk management strategies, including forward contracting, Dairy Margin Coverage (DMC) participation, and Dairy Revenue Protection (DRP) policies, should be evaluated. Understanding component values and potential optimization strategies remains essential, especially with upcoming Federal Milk Marketing Order (FMMO) pricing changes impacting cheese – similar to how adjusting your feeding program to maximize components can significantly impact your milk check in a multiple-component pricing system.
• Traders: The divergence between spot cheese strength and bearish fundamentals/other market inactivity presents both opportunities and risks – not unlike the contrasting strategies of expanding versus paying down debt during uncertain price cycles. Monitor upcoming market catalysts, such as the April 15th GDT auction and subsequent export data releases, for signals that might resolve this divergence or indicate broader market direction. Prepare for potential continued volatility – much like how producers must prepare for drought and excess moisture scenarios when planning forage inventories.
• Buyers: Balance procurement strategies between potential long-term price relief suggested by forecasts and the reality of short-term spot market volatility, particularly in cheese. Maintain awareness of inventory positions and closely track global supply, demand, and trade policy developments – similar to how producers must balance immediate feed needs with longer-term storage requirements when managing silage and hay inventories.

The current market environment is characterized by uncertainty and conflicting signals, like deciding whether to expand or contract a herd during transitional market phases. Stakeholders should exercise caution and prioritize informed decision-making based on a comprehensive assessment of short-term market dynamics, longer-term fundamental forecasts, and evolving global factors – just as successful dairy operations balance day-to-day management with long-term strategic planning.

Learn more:

• CME Dairy Market Report: April 3, 2025 – Cheese Markets Crash as Demand Falters – Provides context on recent cheese market volatility, showing the dramatic shift from early April’s price crash to today’s surprising rally.
• USDA’s 2025 Dairy Outlook: Market Shifts and Strategic Opportunities for Producers – Offers deeper insights into the USDA forecasts referenced in today’s report, including the evolution of production constraints and component value divergence.
• USDA Slashes 2025 Milk Price to $21.60, Raising Red Flags for Producers – Examines the recent downward revisions to USDA price forecasts that are creating the bearish backdrop against which today’s cheese market rally appears particularly notable.

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