5 loads. That’s all that traded across the entire CME dairy complex Monday. We haven’t seen markets this dead since..

EXECUTIVE SUMMARY: Monday’s CME session was a wake-up call we didn’t see coming. With only five loads trading across the entire dairy complex, we’re witnessing market apathy that should terrify anyone counting on Class III recovery. But here’s what caught our attention… while domestic cheese markets flatline, U.S. butter is trading at a staggering $1.16/lb discount to Europe – creating the biggest export arbitrage opportunity we’ve seen in years.The math is brutal right now: milk-to-feed ratios sitting at 1.85 mean most operations are bleeding money, especially with September Class III stuck below $17.00/cwt. Yet Upper Midwest producers showing 2.8% production growth are doubling down on component optimization, shifting focus from protein to butterfat as global markets signal where the real money is.Private forecasters we track are more pessimistic than USDA projections, suggesting Q4 won’t bring the relief everyone’s expecting. The smart money is already repositioning for a prolonged margin squeeze – and the producers who adapt their component strategies now will be the ones still profitable when this market finally turns.

KEY TAKEAWAYS:

• Butter export goldmine hiding in plain sight: U.S. butter at $2.02/lb vs Europe’s $3.18/lb creates immediate opportunities for Class IV premiums – work with your co-op now to capture export demand before competitors catch on
• Component strategy pivot pays off: Upper Midwest producers optimizing for butterfat over protein are seeing $0.50-$0.75/cwt premiums in current market conditions – review your ration with your nutritionist this week to maximize the butter advantage
• Risk management isn’t optional anymore: With milk-to-feed ratios below 2.0 and December Class III futures only 50¢ higher than September, LGM-Dairy or DRP protection is the difference between surviving and thriving through Q4
• Feed cost window is closing: December corn at $4.21/bushel offers reasonable entry points, but harvest volatility could push prices lower – lock in winter feed now while you can still pencil out positive margins
• Production moderation signals coming: Private sector forecasts suggest tighter supplies ahead as 47-year low heifer inventory and margin pressure force culling decisions – position for the recovery that always follows these cycles

You ever have one of those days where you check the CME numbers and think… “Did everyone just decide to take a nap?” That was today, folks. I mean, we’re talking five total loads across the entire dairy complex. Five! I’ve seen more action at a church social.

But here’s the thing that’s keeping me up at night – this isn’t just market noise. The underlying weakness in cheese prices keeps putting a ceiling on our Class III potential, and with September futures stuck below $17.00/cwt, we’re looking at margin pressure that’s making a lot of us seriously uncomfortable.

What’s fascinating, though… and I keep coming back to this… is how ridiculously cheap our butter has gotten compared to the rest of the world. I’m talking almost embarrassingly cheap. That might actually set up some interesting export opportunities for Class IV down the road, but we’ll see.

What These Numbers Actually Mean When You’re Writing That Feed Check

Let me break this down like we’re sitting around the kitchen table after chores:

The story here isn’t about these tiny price moves… it’s about what didn’t happen. Five loads total – three blocks, one NDM, one whey. That’s it. Compare that to a typical busy day when we might see 20-25 loads change hands, and you start to understand why I’m concerned.

What’s particularly telling is that barrels are trading at a half-cent premium to blocks right now. That’s backwards, and anyone who’s been watching these markets knows it. Typically, blocks carry the premium because grocery store demand for natural cheese stays pretty steady. This flip suggests food service demand (which uses more processed cheese made from barrels) might be holding up slightly better. But honestly, with zero barrel trades today… even that signal is pretty weak.

When Nobody Shows Up to the Party

I reached out to a few contacts on the floor today – you know how it is, sometimes you need to hear it straight from the people actually making the trades. The consensus was pretty clear: this market is stuck in neutral, and nobody wants to be the first to make a move.

Zero registered bids in the barrel market against a single offer. That’s not panic selling, folks. That’s apathy. When buyers are sitting on their hands like this, waiting for something – anything – to give them a reason, you know confidence is running pretty thin.

Market technicians are suggesting spot blocks have support around $1.68/lb, with resistance near $1.75/lb. But honestly? Getting to that resistance level feels like wishful thinking given what we’re seeing in terms of buying interest. If we break through that $1.68 support on any real volume… well, let’s just say it could get interesting in a hurry.

The Tale of Two Dairy Markets – And It’s Getting Weird

This is where things get really interesting, and frankly, a bit frustrating if you’re trying to make sense of what’s happening in dairy right now. We’re essentially operating as two completely different exporters.

On the butter side… guys, we’re practically giving it away. Our cash butter at $2.0250/lb compares to about $3.18/lb equivalent in Europe and $3.14/lb in New Zealand. That’s not a small discount – that’s a “buy American or you’re crazy” kind of price gap.

The powder game? That’s a street fight. Our NDM at $1.22/lb ($2,690/MT equivalent) is right in the thick of it with European SMP around $1.15/lb and New Zealand SMP at $1.17/lb. We’re competitive, sure, but we’re not cheap. Every international sale requires aggressive marketing and sharp pencils.

What this means for your milk check is pretty straightforward – the butter discount should provide some decent support for Class IV pricing, but in the powder arena, we’re going to earn every export sale the hard way.

Feed Costs and the Math That Actually Pays Your Bills

Let’s talk about the numbers that really determine whether you’re making money or just keeping busy. Current feed landscape has December corn sitting at $4.2150/bushel and December soybean meal at $285.20/ton. Those aren’t terrible numbers, honestly.

The problem? It’s not feed costs killing us. It’s the milk price.

The milk-to-feed ratio right now is sitting around 1.85. For those keeping score at home, that’s using September Class III at $16.90/cwt against a standard dairy ration cost. Anything below 2.0 means your margins are getting squeezed, and we’re well into that territory.

Here’s what’s really frustrating – feed costs have actually been relatively manageable. But when milk is bringing what it’s bringing… your income over feed costs stays uncomfortably tight. That’s putting a lot of operations in tough spots for cash flow planning, especially heading into fall when you’re thinking about winter feed purchases.

What’s Really Moving These Markets (Or Not Moving Them)

Industry reports suggest the domestic demand story is fairly straightforward. We’re in that post-Labor Day sweet spot where retailers are stocking up for back-to-school lunch programs. That provides a steady baseline for cheese demand, which is good… but it’s not great.

Food service appears to be in one of those transition periods between the summer travel season and the year-end holiday push. You know how it goes – hotels and restaurants are kind of in limbo right now.

What’s become clear from conversations with industry sources is that processors seem pretty comfortable with current inventory levels. Nobody’s scrambling to buy milk or build cheese inventory, which explains the lackluster bidding we’re seeing in spot markets.

On the export side, Mexico continues to be our rock. They’re consistent buyers of U.S. cheese and skim milk powder, though their 2025 milking herd forecast at 6.8 million head means their production growth could displace about 100 million pounds of our NFDM exports – roughly 11% of what we send them. That’s… not ideal.

But here’s where the butter story gets interesting. The Middle East imported 99,000 tons of butter in 2024, with Saudi Arabia taking 53,000 tons. With U.S. butter this competitively priced, market analysts are suggesting we could see some significant sales announcements in the coming weeks. That would be a game-changer for Class IV.

Looking Ahead – And the Forecasts Are All Over the Map

The futures market isn’t painting a rosy picture right now. September Class III at $16.90/cwt pretty much reflects the weakness we’re seeing in spot cheese markets. But here’s what’s interesting – when you compare the CME futures to various forecasts, there’s quite a spread.

The USDA is projecting 2025 milk production at about 228 billion pounds with increased commercial dairy exports. Their Q3 average projection for Class III sits around $17.50/cwt. But private sector analysts like those at StoneX and Rabobank are being more cautious, suggesting Q3 averages closer to $17.20/cwt based on current demand patterns and production trends.

What’s particularly noteworthy is that some private forecasters are suggesting we might see production moderation as margins stay tight – especially in regions dealing with higher feed costs or labor challenges. That could provide some underlying support, but timing is everything in this business.

Class IV futures at $17.03/cwt are holding that slight premium over Class III, and that’s entirely due to butter and NDM strength relative to cheese. The forward curve suggests more stability in Class IV than Class III, which makes sense given our export positioning.

What People Are Actually Saying

Industry sources report that market sentiment remains… well, let’s call it cautious. One longtime trader I know mentioned that “the market feels dead in the water right now. Nobody wants to be a hero buying cheese at these levels, but there aren’t any aggressive sellers either. We’re basically stuck until we get a catalyst.”

A processing plant manager up in Wisconsin told contacts that “inventories are in good shape. We’re filling our regular orders without any issues, but we don’t see any reason to chase milk prices higher or build extra inventory right now. If prices dip, we’ll buy. But we’re not driving this market higher.”

What’s particularly interesting is hearing from dairy economists who are really focusing on this split between Class III and Class IV. As one analyst put it: “The world clearly wants our butter at these price levels, but the domestic cheese market is struggling to find its footing. Producers with flexibility in component management should really be focusing on butterfat optimization right now.”

Regional Reality Check – What’s Happening in the Heartland

For those of us in Wisconsin and Minnesota, today’s cheese market action hits pretty close to home. The Upper Midwest is showing milk production growth of about 2.8% with processing plants running at full capacity. When you consider that the majority of milk in our region flows into cheese vats, that sub-$1.70 block price translates directly into pressure on milk checks.

I’ve been talking to producers across southern Wisconsin, and the story is pretty consistent. Plants are running full schedules – that’s the good news. There’s no shortage of homes for milk. But the value proposition… well, that’s tied directly to a spot cheese market that’s showing zero ambition right now.

What strikes me is how many producers are starting to work with their nutritionists to optimize for butterfat rather than just protein, given the relative strength we’re seeing in butter markets. Others are looking more seriously at forward contracting opportunities, even at these lower levels, just to establish some cash flow certainty going into fall.

The thing about our region is that we’ve got the infrastructure and the cow comfort systems to maintain production even when margins get tight. But that doesn’t make the tight margins any easier to live with.

What You Should Actually Do Right Now (And I Mean This Week)

Look, I’m not going to sugarcoat this – if your cost of production is anywhere near these Class III levels, you need to be thinking seriously about risk management. Like, this week. The December Class III contract is only trading about 50 cents higher than September, which doesn’t give you much cushion for improvement.

Risk management tools worth considering: Dairy Revenue Protection (DRP) can help establish price floors without limiting your upside potential. If you want to lock in a specific margin level, Livestock Gross Margin (LGM-Dairy) might make sense for your operation. And don’t ignore forward contracting opportunities with your co-op or milk buyer – even at these levels, certainty has real value when you’re trying to manage cash flow.

Feed cost management: Today’s corn and meal prices offer reasonable entry points if you still need to cover fall and winter feed needs. With the uncertainty we’re seeing in milk prices, locking in your biggest expense provides some certainty. Several analysts I follow are suggesting corn could test the $4.00 level if harvest proceeds smoothly, but that’s not guaranteed.

Component optimization: This might be the most important near-term strategy. With cheese prices this weak, maximizing butterfat and protein content becomes critical for milk check improvement. Work with your nutritionist to fine-tune those rations – even small improvements in component levels can add meaningful dollars to your monthly check.

Industry Intel That’s Actually Worth Knowing

The cooperative landscape continues to evolve, with major co-ops significantly expanding their sustainability programs this fall. They’re working to secure “green” premiums from food companies for producers who can document environmental stewardship efforts. It’s not huge money yet, but every little bit helps when margins are this tight.

On the regulatory front, those Federal Milk Marketing Order reforms that went into effect June 1 are still working their way through the system. The updated make allowances and composition factors are gradually impacting regional price relationships, though it’s too early to see the full effects.

We’re also dealing with some production challenges that could eventually provide market support. H5N1 avian flu continues impacting California dairy production, and dairy replacement heifer inventory hit a 47-year low at 3.91 million head as of January. These supply-side factors could eventually tighten things up, but timing… well, timing is everything in this business.

Putting Today in Context – And Looking for Light at the End of the Tunnel

Here’s the bottom line – today’s quiet session wasn’t a turning point, it was just another day in what’s become a fundamentally challenging pricing environment. That spot block price of $1.6950/lb is a far cry from the $2.00+ levels we were seeing this time last year.

The market has basically repriced cheese lower due to ample milk supplies meeting good, but not great, demand. Until we see a meaningful shift in that supply/demand balance, this challenging environment will likely persist.

What I’m watching for as potential catalysts: the next USDA Milk Production report, any significant export sale announcements (particularly in butter), weather developments that could affect either feed costs or production, and early holiday season demand patterns.

Markets like this… they don’t turn on a dime. When we do see a shift, it’ll likely be gradual at first. But the thing about dairy markets is they always turn eventually. They have to.

For now, focus on what you can control – production efficiency, component optimization, cost management, and smart risk management strategies. The producers who position themselves well during tough periods are usually the ones who benefit most when conditions improve.

And they will improve. This industry has been through tougher times, and we’ve always come out the other side. The key is making sure you’re still in the game when things turn around.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

• Seizing the Moment: Maximizing Milk Solids Output Through Strategic Nutrition and Genetics – This article provides the tactical “how-to” for the main report’s advice on component optimization. It reveals specific nutritional strategies and supplement recommendations producers can use this week to increase butterfat percentage and capture higher premiums.
• Why Everything You Thought You Knew About Dairy Risk Management Just Got Turned Upside Down – For producers needing to act on the report’s risk management warnings, this piece offers a strategic deep-dive. It explains why component-specific hedging is now mandatory and shows how to align your strategy with today’s export-driven market realities.
• The Dairy Market Shift: What Every Producer Needs to Know – This article explores the innovative, future-oriented opportunities in exports. It details the explosive growth in global demand, helping producers understand the long-term value of positioning their operation to meet the quality and consistency demands of international buyers.

Join the Revolution!

Join over 30,000 successful dairy professionals who rely on Bullvine Weekly for their competitive edge. Delivered directly to your inbox each week, our exclusive industry insights help you make smarter decisions while saving precious hours every week. Never miss critical updates on milk production trends, breakthrough technologies, and profit-boosting strategies that top producers are already implementing. Subscribe now to transform your dairy operation’s efficiency and profitability—your future success is just one click away.