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Archive for dairy export tariffs

Trade Truce or Dairy Deception? What the US-China Trade Deal Really Means for Your Milk Check

Tuesday, May 13th, 2025

Wall Street cheers the US-China trade pause, but dairy farmers face hidden risks. Don’t be fooled-your milk check is still in jeopardy.

EXECUTIVE SUMMARY: The recent US-China 90-day tariff truce offers temporary relief but fails to address systemic challenges threatening dairy producers. While markets rally, China’s 10% tariff on US dairy exports still undercuts competitiveness, and feed costs remain volatile due to South American competition and an impending EPA biodiesel mandate that could divert soybean supplies. The article warns that the deal distracts from domestic policy risks and urges farmers to secure feed, diversify markets, and prepare for potential tariff reversals in August. It critiques the industry’s reliance on unstable trade deals and calls for proactive strategies to build resilience. The clock is ticking-dairy operations must act now to safeguard profitability.

KEY TAKEAWAYS:

  • Temporary Truce, Lasting Risks: The 90-day tariff reduction ignores structural issues like China’s lingering 10% dairy tariffs and South America’s feed cost advantage.
  • EPA’s Looming Threat: A pending biodiesel mandate could spike soybean prices, hitting feed costs harder than the trade deal’s minor relief.
  • Act Now or Pay Later: Secure feed supplies, accelerate tech investments, and diversify export markets before tariffs potentially reset in August.
  • Challenge Conventional Wisdom: The industry must rethink reliance on volatile trade deals and demand policy changes that prioritize farmer stability over geopolitical wins.
US-China dairy trade, dairy export tariffs, feed cost volatility, EPA biodiesel mandate, dairy farm profitability

Wall Street is celebrating a 90-day tariff reduction between the US and China, but don’t be fooled by the headlines. This temporary truce doesn’t solve the fundamental challenges facing your dairy operation. While bankers and traders pop champagne, you still face compressed margins, limited export opportunities, and the looming threat of even worse conditions when August arrives. It’s time to look beyond the PR spin and prepare for what’s really coming.

Behind the Headlines: What’s Really in the Trade Deal

If you’ve been scanning the headlines this week, you’ve probably seen the jubilant market reactions to the new US-China trade agreement announced last weekend. The Dow jumped over 1,100 points, the S&P 500 rallied 3.3%, and commodities markets perked up. Wall Street is partying like 2019, but what does this mean for your dairy operation’s bottom line?

Let’s cut through the noise. This isn’t a comprehensive trade agreement – it’s a 90-day timeout in a much longer economic boxing match. The deal reduces US tariffs on Chinese goods from a punishing 145% to a still-substantial 30%, while China drops its retaliatory tariffs from 125% to 10%. But here’s what the mainstream press isn’t telling you: this temporary truce doesn’t address the fundamental issues that affect your dairy enterprise’s profitability.

As dairy producers, we must look beyond the market euphoria and understand how this trade development impacts our operations. Will it reduce your milking equipment costs? Maybe temporarily. Will it open export markets for your Class IV products? Somewhat, but with significant limitations. Will it stabilize your TMR ingredient costs? That’s complicated, and I’ll explain why.

But first, ask yourself this: When was the last time a trade deal delivered what was promised to America’s dairy farmers? The track record speaks for itself.

Dairy Exports: Still Fighting Uphill Against Chinese Tariffs

Let’s be brutally honest about our export situation. Even with China reducing its tariffs to 10%, American dairy products still face substantial disadvantages in the Chinese market. While this represents improvement from the previous 125% rate, it leaves us as a “last resort supplier” – a grim reality that agricultural exporters are already confronting.

According to export council representatives, such as Jim Sutter of the US Soybean Export Council, this reduction is “a step in the right direction,” while significant challenges persist. The same dynamics apply to dairy. Chinese buyers can still source whole milk powder, anhydrous milkfat, and whey protein concentrates from New Zealand, Australia, and the EU at more competitive rates due to their existing free trade agreements with China.

What does this mean in practical terms? The 10% tariff effectively taxes your components when they enter China, like deducting your milk check for quality penalties when nothing’s wrong with your milk. Competing against untaxed products from our global competitors, 10% can be the difference between making the sale and watching from the sidelines.

Historical Context: China Dairy Import Volume Before and After Trade Tensions

PeriodAverage Monthly Volume (Metric Tons)Year-over-Year ChangeUS Market Share
2018 (Pre-Tariffs)18,750+12%16.3%
2019-2022 (Trade War)12,420-33.8%8.7%
2023-2024 (Phase One)15,830+27.5%11.5%
2025 YTD (Pre-Deal)13,270-16.2%9.1%
Projected Q3 202514,900+12.3%10.5%

This isn’t just about volume – it’s also about product mix. Our highest-value dairy products (specialty cheeses, WPC-80, and MPC-70 for infant formula) were hit hardest during previous trade tensions, while basic commodities saw less dramatic impacts. This tariff structure strategically targets our most profitable export categories.

And let’s call this what it is: a structural disadvantage that our industry leaders and policymakers have failed to address for decades. While New Zealand secured its free trade agreement with China in 2008, why are we still fighting for basic market access in 2025? When will American dairy farmers demand better representation in international trade negotiations?

Feed Cost Implications: When Your Ration Costs More Than Your Mailbox Price

Let’s talk about what drives your day-to-day profitability: feed costs. The trade announcement initially sent soybean futures up 2% before settling around 1.5% higher, with corn gaining just under 1%. That’s the headline number, but here’s where we need to think more critically.

The fundamental challenges affecting US agricultural exports remain largely unchanged. According to analysts like Arlan Suderman, Chief Commodities Economist at StoneX, “it’s not just about the tariffs overall.” Even with reduced tariffs, structural economic factors favor South American producers. Brazilian soybeans arrived in China at 70 cents per bushel cheaper than US Gulf soybeans, even before retaliatory tariffs were applied.

Your Feed Costs: A Perfect Storm?

  • Global Competition: South American producers already land soybeans for less in China
  • Tariff Roulette: The Current 10% tariff on US exports to China is temporary
  • Domestic Demand Shock: Looming EPA biodiesel mandate set to siphon off more soybean oil

Why does this matter to your dairy operation? Because feed represents 50-70% of your production costs, this trade deal doesn’t fundamentally alter the economics of your ration formulation. Lower currency exchange rates in Brazil have driven massive soybean and corn acreage expansion over the last 15 years, creating structural oversupply that keeps pressure on US exports regardless of tariff rates. The math is simple: when your forage-to-concentrate ratio is optimized but your concentrate costs surge unexpectedly, your income over feed cost (IOFC) takes a direct hit.

What’s more concerning is what happens in 90 days. If negotiations collapse in August 2025, we could see tariffs snap back to their previous punishing levels – potentially right as you’re trying to secure fall feed contracts for peak-lactation rations. This timing couldn’t be worse for dairy producers making purchasing decisions. It’s like having your nutritionist reformulate your ration just before feed prices spike – painful and costly.

Here’s the uncomfortable truth: We’ve built a dairy industry that’s dangerously dependent on the whims of international politics. Is this really the foundation we want for a sustainable dairy sector? When did we decide that our profitability should hinge on diplomatic relations with China?

Equipment and Technology: A Brief Window of Opportunity

Here’s where there might be some good news. Reducing US tariffs on Chinese goods from 145% to 30% creates a temporary opportunity to source equipment components and technology at somewhat lower prices.

According to supply chain experts like Paul Brashier, vice president of global supply at ITS Logistics, “I have clients with dozens of containers loaded in Asia that are ready to come in,” describing the 90-day window as “pivotal for supply planning out of China.” If you’ve been holding off on parlor upgrades, robotic milking system installations, or activity monitoring technology, this 90-day window might be your chance to act.

Consider these specific opportunities:

  1. Replacement parts for milking systems that source electronics from China
  2. Precision dairy farming technology with Chinese-manufactured sensors
  3. Solar panels for dairy barn rooftops (many panels are manufactured in China)
  4. Construction materials if you’re planning freestall barn expansions

But be strategic – remember this is a temporary reduction. Business leaders like Bruce Kamenstein have observed that small businesses are “still being held to an uncertain policy.” The 30% tariff that remains is still substantial, and there’s no guarantee it won’t return to previous levels after 90 days.

So, ask yourself: If you’ve been putting off that major capital investment, is now the time to pull the trigger? With equipment costs temporarily reduced and interest rates potentially stabilizing, this narrow window might represent your best opportunity in years.

The Broader Economic Picture: How Market Sentiment Affects Your Milk Check

How this agreement affects the broader economy is potentially more significant than the direct trade impacts. Markets reacted euphorically to the news, with analysts suggesting the deal may have “averted a recession domestically and globally.”

This macroeconomic optimism matters for dairy producers in several ways:

  1. Consumer purchasing power: Economic growth typically means stronger domestic dairy consumption, particularly for higher-margin products like specialty cheeses and premium ice creams. Consumers with more disposable income are more likely to choose branded dairy products over private label alternatives.
  2. Food service demand: Food service represents a significant channel for dairy products. Improved economic conditions typically increase restaurant visits and cheese consumption. This matters because every 1% increase in cheese consumption requires approximately 10 pounds more milk per capita annually.
  3. Interest rates: Economic optimism may influence the Federal Reserve’s interest rate decisions, potentially affecting your borrowing costs for operating loans and capital investments. For a 500-cow dairy with typical debt levels, even a quarter-point difference in interest rates can mean $15,000-20,000 annually in financing costs.
  4. Energy costs: The trade announcement sent crude oil prices up over 3%. While this signals economic optimism, it also means potential increases in fuel and electricity costs for your operation. Fuel cost increases hit multiple areas of your budget for operations that run multiple TMR loads daily and manage extensive cropping programs.

The report suggests retailers may use the 90-day window to “stock up perhaps even on Christmas supplies.” This import surge could create short-term economic stimulus but also risks pulling demand forward rather than creating sustainable growth. For dairy producers, this means potential near-term strength in domestic markets, followed by possible weakness as the stimulus effect fades, not unlike the seasonal pattern we see with holiday cheese demand falling off in January.

But here’s what no one is talking about: This entire economic house of cards is built on the assumption that negotiations over the next 90 days will succeed. What happens to consumer confidence, restaurant spending, and your milk price if August arrives with a return to 125% tariffs and saber-rattling between Washington and Beijing? Are you prepared for that scenario? Are your cooperative leaders having these candid conversations about the long-term risks, or just celebrating the short-term tariff dip?

The China Deal is a Distraction: Is the EPA About to Drop the Real Feed Cost Bomb?

While global trade grabs the spotlight, a looming domestic policy shift from the EPA could deliver a far more direct and sustained hit to your operation’s feed budget. The EPA will announce new biomass diesel production mandates within 7-10 days. This could be more significant for feed markets than the China trade deal, like having your milk hauler tell you they’re doubling transportation costs when your components are finally testing higher.

According to industry sources and agricultural policy experts, the EPA is expected to increase the mandate from the current 3.35 billion gallons to potentially “4.4 or 4.6 billion gallons” or even “as high as 5 billion gallons.” A coalition of US biofuel advocates has urged the EPA to set the 2026 mandate at 5.25 billion gallons.

What does this mean for your dairy operation? Simple: More soybean oil diverted to fuel production means higher soybean prices and potentially higher feed costs. The increased crush demand will support soybean prices even if export markets remain challenging. This EPA decision could cancel any feed cost benefits from the China trade deal.

Let me put this in perspective: A 1.65 billion gallon increase in the biomass diesel mandate (from 3.35 to 5 billion) would require approximately 12.4 billion pounds of additional soybean oil. That’s equivalent to the oil extracted from about 826 million bushels of soybeans – or roughly 18% of the entire US soybean crop. This isn’t a minor policy adjustment; it’s a massive demand shock to the feed market that could affect your income over feed cost (IOFC) for years. When your nutritionist must reformulate rations to adjust for higher protein supplement prices, your cost structure changes dramatically.

And you must ask: Does it make sense to turn our feed into fuel when dairy producers struggle with margin compression? The renewable fuel industrial complex has captured policy at the expense of livestock producers, and no one in Washington seems to care.

Strategic Planning for Dairy Producers: Your 90-Day Action Plan

So, what should progressive dairy producers do in response to these developments? Here’s my action plan for the next 90 days:

1. Lock in feed supplies strategically

Don’t be fooled by modest price movements in grain futures. Combining temporary tariff reductions and the pending EPA biodiesel announcement creates significant uncertainty. Consider securing a portion of your protein needs now, while maintaining flexibility for potential market shifts. Think of it like strategic grouping in your lactating herd – you wouldn’t put your high-producing fresh cows on the same ration as your late-lactation animals. Similarly, segment your feed purchasing strategy based on time horizons and risk tolerance.

2. Explore export opportunities with realistic expectations

If you’re part of a cooperative involved in export markets, use the 90-day window to reestablish relationships with Chinese buyers, but structure deals to account for the possibility of returning tariffs. Consider shorter contract terms or contingency clauses that address potential tariff changes, like how you might use milk futures to hedge against price volatility in your milk check.

3. Accelerate planned capital investments

With tariffs temporarily reduced on Chinese imports, this may be the optimal time to execute planned technology upgrades or facility improvements. Focus particularly on equipment with significant Chinese components or that might face supply chain disruptions if tensions escalate again. If you’ve been contemplating that parlor expansion or robotic milking installation, the economics might temporarily favor moving forward rather than waiting.

4. Develop scenario plans for August and beyond

Create concrete contingency plans for three potential scenarios by August, like having different protocols ready for your transition cow group depending on their condition scores:

  • Scenario A: Trade deal extended or expanded
  • Scenario B: Return to pre-deal tariff levels
  • Scenario C: Escalation beyond previous tariff levels

For each scenario, identify specific triggers for implementation and required actions related to feed purchasing, production levels, and marketing strategies. Your management team should have clear directives for executing each plan, just as your herd manager knows when to move cows between groups.

5. Diversify both input sources and export markets

Use this period of relative calm to reduce your operation’s exposure to US-China trade tensions. On the input side, evaluate alternative feed ingredients like dried distillers’ grains, cottonseed, or canola meal that might become more economically viable in your TMR if soybean meal prices spike. For those involved in exports, continue developing markets beyond China, particularly in Southeast Asia, the Middle East, and Latin America.

For too long, dairy producers have been reactive rather than proactive in the face of international trade disruptions. Isn’t it time we built businesses that can thrive regardless of political winds?

What the “Experts” Are Missing

The mainstream analysis of this trade deal fundamentally misunderstands agricultural realities. When commentators celebrate market rallies as validation of the agreement, they’re missing the disconnect between financial markets and farm-level economics, unlike how consumers entirely misunderstand the relationship between retail milk prices and what you receive in your milk check.

This isn’t the first time we’ve seen this cycle. Remember the “Phase One” deal in early 2020? China committed to purchasing specific quantities of US agricultural goods regardless of market conditions. While markets initially rallied, the implementation proved disappointing for many agricultural sectors, including dairy. By mid-2020, China had purchased just 23% of its promised agricultural targets – about as reliable as a genomic prediction on a bull with no daughters in milk.

What’s different this time? Frankly, less commitment and more uncertainty. The current deal doesn’t include specific purchase commitments like those in Phase One – it merely reduces tariff rates temporarily. Without binding purchase requirements, we’re completely exposed to the economic realities favoring our competitors.

According to international trade analysts and economic researchers, China effectively forced the US to alter its strategy due to domestic economic pressures, without making substantive concessions. Recent research published by agricultural economists demonstrates that China’s retaliatory soybean tariffs have created lasting structural changes in global trade flows that temporary tariff reductions won’t quickly reverse.

Let’s be blunt: Our industry has been a bargaining chip in broader geopolitical negotiations for decades. When will we demand better?

The Bottom Line

This trade truce offers a 90-day reprieve, not a solution. Smart dairy producers will use this window strategically while preparing for the possibility that tariffs return to previous levels in August, much like you’d use a 60-day dry period to prepare a cow for her next lactation.

The most significant impact on your operation may not come from this trade deal but from the upcoming EPA biodiesel mandate announcement. Keep your focus there, rather than getting distracted by the market euphoria surrounding the China deal.

Remember that fundamental economic factors – currency exchange rates, production costs, and competitive dynamics – favor our global competitors regardless of tariff levels. No 90-day agreement changes that reality, just as no short-term milk price spike changes the fundamentals of your cost of production.

It’s time to rethink how we approach international markets fundamentally. For generations, we’ve been told that “exports are our future.” But if that future means constantly being at the mercy of 90-day deals and 10% tariffs, is it the future we want, or just the one we’ve been sold? The conventional wisdom that more trade deals automatically benefit American dairy farmers has proven false time and again. Instead of waiting for Washington to deliver the next temporary fix, progressive producers must build resilient business models that weather trade disruptions.

What’s your plan for navigating these unpredictable trade winds? Are you prepared for what happens when the 90-day clock runs out? The thriving dairy producers will look beyond the headlines and execute strategic plans based on clear-eyed analysis of market realities.

The time to act is now – because hope isn’t a strategy in the dairy business, and 90 days pass faster than you think. Like a pregnancy check at 90 days, the future will soon be apparent – will your operation be positioned to capitalize on opportunities, or caught flat-footed when the tariffs return?

Don’t wait for permission to secure your operation’s future. Start implementing your contingency plans today, challenge the conventional wisdom that has failed our industry repeatedly, and demand better representation in trade negotiations that impact your bottom line. Talk to your neighbors. Share this article. Are we, as dairy producers, ready to demand a more stable and predictable operating environment, or will we just ride out this next 90-day wave and hope for the best… again? Your future depends on it.

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CME Dairy Market Report – April 28, 2025: Bearish Forecasts and Trade Headwinds

Monday, April 28th, 2025

Butter dips amid quiet CME trading as USDA forecasts dairy slump; China tariffs squeeze exports.

EXECUTIVE SUMMARY: The CME dairy markets opened the week with minimal activity on April 28, 2025, as butter prices eased slightly (-0.50¢ to $2.2750/lb) amid ample inventories, while cheese, NDM, and whey held steady with zero trades. The USDA’s starkly bearish April outlook-projecting a 0.7B lb milk production surge and slashing 2025 price forecasts-dominated sentiment, compounded by China’s punitive tariffs (up to 150% on whey). Despite stable feed costs, futures prices for Class III milk (.30/cwt) and cheese (.888/lb) remain above USDA projections, signaling market skepticism. Global dynamics, including EU production cuts and New Zealand’s export growth, add complexity, while U.S. exporters pivot to Mexico and Southeast Asia amid trade headwinds. Stakeholders are urged to prioritize risk management as margins tighten.

KEY TAKEAWAYS

  • Quiet trading masks structural risks: Butter’s dip reflects ample stocks, while stagnant cheese prices belie tighter inventories (-4.3% YoY).
  • USDA’s bearish pivot: 2025 milk production forecasts raised 0.7B lb; all-milk price projected to plummet $1.95/cwt since January.
  • China tariffs cripple whey: 150% tariffs erase U.S. competitiveness, diverting exports to alternative markets like Mexico.
  • Futures disconnect: May Class III futures ($18.30/cwt) trade $0.70 above USDA’s 2025 average, hinting at unresolved demand optimism.
  • Global shifts: EU prioritizes cheese, reducing butter/NDM exports, while New Zealand leverages trade deals to boost China sales (+19% YoY).
dairy market report, CME butter prices, USDA dairy outlook, dairy export tariffs, milk production forecast

Butter prices eased slightly at the Chicago Mercantile Exchange today in exceptionally quiet trading, while all other dairy commodities held steady amid minimal market activity. The subdued session reflects continued cautious sentiment as stakeholders digest bearish USDA outlook projections and ongoing trade headwinds.

Key Price Changes & Market Trends

Today’s trading on the CME cash dairy markets was notably quiet, with butter being the only product to register a price change.

ProductClosing PriceChange from FridayTradesBidsOffers
Butter$2.2750/lb-0.50¢722
Cheese (Blocks)$1.7000/lbUnchanged000
Cheese (Barrels)$1.7050/lbUnchanged000
Nonfat Dry Milk$1.1875/lbUnchanged000
Dry Whey$0.5050/lbUnchanged020

Butter’s slight weakness likely reflects underlying supply fundamentals, as the most recent USDA Cold Storage report indicated butter inventories were 4% higher than last year. This relatively comfortable supply situation continues to exert subtle downward pressure. In contrast, total cheese stocks were down 4.3% year-over-year at the end of March, with American cheese inventories specifically down 4.2%. This tighter supply backdrop may provide underlying price support for cheese, explaining why prices remained stable despite zero trading activity.

Volume and Trading Activity

Trading activity was extremely light across the CME dairy complex today. Only the butter market saw transactions, with just seven loads changing hands accompanied by two bids and two offers at the close. No trades were completed for Cheddar Blocks, Cheddar Barrels, or NDM; these products saw virtually no bidding or offering activity.

The Dry Whey market saw no trades but did attract two bids at the closing price of $0.5050 per pound, with no offers emerging. This suggests some underlying buying interest, but sellers were unwilling to engage or hold out for higher prices.

This low activity level is directly linked to prevailing uncertainty, including concerns about dairy demand amid broader economic headwinds and significant disruptions caused by trade policy, particularly steep tariffs impacting exports to China.

Global Context

International dairy market dynamics continue to influence U.S. prices and competitiveness:

European Union milk production faces headwinds, with forecasts for 2025 pointing towards a slight contraction (-0.2%), influenced by shrinking dairy herds (notably in Germany and France), tight producer margins, environmental regulations, and animal disease concerns. EU processors are expected to prioritize cheese production (+0.6%), implying reduced output of butter (-1%), NDM (-4%), and whole milk powder (-5%) available for export.

New Zealand milk production has shown modest growth, up 0.6% year-over-year in March and 2.6% for the season-to-date through March. New Zealand continues to leverage its trade agreements, particularly with China, boosting its export competitiveness, as evidenced by a 19% year-over-year increase in exports to China in March.

The U.S. faces a challenging export environment, with February 2025 data showing a 5% year-over-year decline in total dairy export volume, primarily driven by weaker sales of milk powders. A major impediment is China’s retaliatory tariffs, which are reported to be as high as 135% on most U.S. dairy products and 150% on U.S. whey.

Forecasts and Analysis

Recent USDA projections in the April 2025 WASDE report paint a significantly bearish picture:

The USDA raised its 2025 U.S. milk production forecast by 0.7 billion pounds to 226.9 billion pounds, driven by expectations of larger average dairy cow numbers (+25,000 head) and higher milk yield per cow.

Consequently, the USDA made substantial cuts to price forecasts: the all-milk price forecast was lowered by $0.50 to $21.10 per cwt, the Class III price forecast dropped $0.35 to $17.60 per cwt, and the Class IV forecast fell $0.60 to $18.20 per cwt.

Notably, the projected 2025 all-milk price has plummeted by $1.95 per cwt since the January 2025 forecast, characterized as the fastest decline since the trade war period in 2018.

Current CME futures are trading above USDA’s longer-term forecasts, with May 2025 Class III at $18.30/cwt, Class IV at $18.40/cwt, Cheese at $1.888/lb, and Butter at $2.48/lb. This disconnect suggests the futures market hasn’t fully incorporated the bearish implications of the USDA’s supply and demand outlook.

Market Sentiment

The prevailing sentiment can best be described as cautious and uncertain. The significant downward revisions in the USDA’s April forecasts have amplified concerns about trade disruptions and potentially weakening consumer demand.

One analyst noted, “The lack of engagement in today’s spot market reflects a wait-and-see approach as participants digest recent bearish forecasts and assess trade impacts. We’re seeing hesitancy among buyers, who seem to be awaiting clearer demand signals before building inventories”.

Producers have expressed significant concern following the USDA report release, with some stating it confirmed their “worst fears” and signaled a “serious market correction” was underway.

Closing Summary & Recommendations

In summary, today’s CME cash dairy markets were tranquil, characterized by minimal trading volume and unchanged prices for most products, with only butter registering a slight decline. This lull occurs against significant market developments, including bearish USDA forecasts projecting increased U.S. milk production and substantially lower prices for 2025, alongside persistent headwinds from international trade tariffs.

Producers’ significantly lower price projections and resulting margin pressure necessitate prioritizing rigorous cost control measures and actively evaluating risk management tools, including government programs and market-based hedging strategies.

Traders should monitor the divergence between current futures prices and the USDA’s longer-term fundamental outlook. At the same time, analysts should focus on tracking U.S. milk production data relative to USDA forecasts and shifts in dairy product inventories, particularly the differing year-over-year trends between butter and cheese stocks.

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84% TARIFF SHOCK: How the US-China Trade War Will Reshape Your Dairy Business

Tuesday, April 15th, 2025

125% tariffs slam US dairy exports to China—whey markets collapse, global trade reshaped. Can farmers adapt?

EXECUTIVE SUMMARY: The US-China trade war has escalated to prohibitive 125% tariffs on US dairy, crippling exports of whey and lactose—products that relied heavily on China’s market. With US dairy prices plummeting and surplus inventory flooding domestic markets, competitors like New Zealand and the EU are seizing China’s demand through free-trade agreements. Meanwhile, China faces a paradox: its own dairy production is contracting, yet tariffs block affordable US imports, forcing reliance on pricier alternatives. Global supply chains are scrambling as the US redirects exports to Mexico and Southeast Asia, intensifying competition. The USDA slashed 2025 milk price forecasts, signaling long-term pain unless farmers pivot to value-added products and diversified markets. This crisis exposes the fragility of over-reliance on geopolitically volatile trade partners.

KEY TAKEAWAYS:

  • Prohibitive 125% tariffs have effectively closed China to US dairy, collapsing exports of whey (42% of US sales) and lactose (72% market share).
  • New Zealand and EU dairy giants gain dominance in China via free-trade deals, while US surpluses depress domestic prices and strain global markets.
  • China’s milk production dropped 9.2% in early 2025, yet tariffs lock out US suppliers—creating opportunities for competitors despite weaker Chinese demand.
  • USDA forecasts lower milk prices (-35¢/cwt for Class III) as trade wars disrupt $584M in exports, forcing urgent shifts to Mexico/SE Asia markets.
  • Survival requires diversification: Farmers must explore risk tools, value-added products, and lobby for trade policies to prevent permanent market loss.
US-China dairy trade war, dairy export tariffs, global dairy market, whey and lactose exports, milk price forecast

The numbers are staggering. The implications are far-reaching. And if you’re a US dairy producer, processor, or exporter, the escalating trade war between the United States and China will fundamentally alter your business landscape—much like when a severe mastitis outbreak hits your highest-producing string of fresh cows.

In just the past 75 days, we’ve witnessed a dizzying series of tariff escalations that have effectively shut the door to China for US dairy exports. What began as a 10% Chinese tariff on US dairy products in March has exploded into prohibitive rates of 84% to 125% by mid-April. The result? The third-largest market for US dairy exports—worth $584 million in 2024—vanished overnight, leaving producers with the dairy equivalent of a bulk tank with nowhere to unload.

But let’s be brutally honest here: this isn’t just another trade spat that will blow over with the next administration or diplomatic breakthrough. The current conflict accelerates structural shifts that permanently reshape global dairy trade flows, competitive dynamics, and market opportunities. Understanding these changes isn’t just academic—it’s essential for your farm’s survival and prosperity in the years ahead, as critical as knowing your somatic cell count or feed-to-milk conversion ratio.

The Tariff Avalanche: How We Got Here

The rapid escalation of trade tensions between the world’s two largest economies has followed a breathtaking trajectory in early 2025:

DateActionEffective Rate
February 4, 2025Trump reinstates 10% tariff on Chinese imports10%
March 4, 2025US increased tariffs to 20%20%
March 10, 2025China retaliates with a 10% tariff on US dairy products10%
April 3, 2025Trump declares “Liberation Day” with 34% tariff on Chinese imports34%
April 4, 2025China matches the 34% retaliatory tariff on all US goods34%
April 9, 2025US increases tariffs to 104% on Chinese goods104%
April 10, 2025China retaliates with 84% tariff; Trump raises US tariffs to 125%84-125%

Is this what “winning” a trade war looks like?

By mid-April, the cumulative impact created an effective total tariff on US dairy exports to China ranging from 84% to 125%, depending on the specific product and pre-existing base rates. While President Trump announced a 90-day pause on new tariffs for most countries on April 9, this notably excluded China, maintaining the heightened trade barriers.

The Chinese government has bluntly stated that at the 125% tariff level, US goods are “no longer marketable” in their country. This isn’t hyperbole—it’s economic reality, as stark as a 100-pound drop in production when your TMR mixer breaks down during peak lactation.

Why This Time Is Different (And Worse)

Veterans of the dairy industry might recall the 2018-2019 trade tensions when China imposed 25% retaliatory tariffs on US dairy. That was painful enough, causing US dry whey exports to China to plunge by 55% and lactose exports to fall by 33%.

But today’s situation is dramatically more severe for three critical reasons:

  1. The tariff rates are exponentially higher – 84% to 125% compared to 25% in 2018-2019, like comparing a mild case of milk fever to a full-blown displaced abomasum
  2. US production capacity has expanded since the previous dispute, meaning more product needs to find alternative homes, similar to when you’ve developed your herd but your milk hauler suddenly cuts back on pickups
  3. China’s domestic dairy industry is contracting after years of expansion, creating a vacuum that US suppliers can’t fill due to tariffs, akin to watching your neighbor’s prime hay ground go fallow when your silage bunker is running low

The April 9 Daily Dairy Report highlighted that “milk production in China fell for the seventh straight month in February,” with year-to-date output down 9.2% compared to early 2024. Milk prices in China fell 15% in February compared to a year earlier, and skim milk powder production plummeted more than 30% compared to the same months in 2024.

This contraction would usually create significant opportunities for global exporters—but US suppliers are effectively locked out by prohibitive tariffs, while competitors with free trade agreements (particularly New Zealand) enjoy duty-free access, much like watching your neighbor’s herd get premium contracts while your milk gets downgraded.

And here’s what industry leaders aren’t saying loudly enough: our over-reliance on China as an export market was a strategic mistake from the beginning. Did we think a country with fundamentally different political and economic systems would remain a reliable trade partner indefinitely? The warning signs have been flashing for years, yet we continued building processing capacity targeting Chinese demand.

The Whey and Lactose Crisis: Your Immediate Concern

For US dairy, the most immediate and severe impact centers on whey and lactose exports, where dependency on the Chinese market was extraordinarily high:

Product2024 Export Value to ChinaProjected 2025 DeclineHistorical Precedent (2018-2019)
WheyMajor portion of $584M55–70%55% drop under 25% tariff
Lactose110,000 metric tons40–60%33% drop under 25% tariff
CheeseSmall but growingSignificantMinimal impact in prior disputes

When 72% of China’s lactose imports came from the US, where do you think that product will go now?

These aren’t just statistics—they represent billions of pounds of milk solids that now need to find alternative markets or be absorbed domestically, creating significant downward price pressure. It’s like suddenly losing your highest-paying milk market and shipping to a processing plant that pays $3 less per hundredweight.

HighGround Dairy warned in their analysis of February production data: “Dry whey output tanked in February to the lowest volume for the month since the start of the century, yet stocks continued to build. Ultimately, trade wars will dictate the direction of this market.”

That direction is now clear—and it’s downward. The historical precedent from 2019 showed domestic dry whey prices dropped more than 35% following similar (though less severe) trade disruption. With higher current tariffs, the price impact could be even more dramatic, like comparing a minor mastitis flare-up to a full-blown coliform outbreak.

Ask yourself this: how much longer can your operation absorb these market shocks without fundamentally rethinking your business model?

USDA Already Slashing Price Forecasts

The USDA has already incorporated the trade war’s impact into its latest World Agricultural Supply and Demand Estimates (WASDE) report, significantly lowering its milk price forecasts for 2025.

The Class III milk price was projected at $17.60 per hundredweight, down 35 cents from last month’s estimate. This reduction was explicitly attributed to “anticipated lower cheese and whey prices” from the trade disruption.

The Class IV price forecast was cut even more dramatically, down 60 cents to $18.20, reflecting expected weakness in butter and nonfat dry milk markets.

These aren’t just paper forecasts—they represent real money from your milk check in the months ahead, as tangible as watching your bulk tank readings drop during a summer heat wave.

And let’s be clear: the industry’s traditional response of “produce more to make up for lower prices” will only exacerbate the problem this time. The USDA has already raised its milk production forecast, citing larger cow inventories and slightly higher milk per cow. More milk with fewer export outlets is a recipe for even lower prices.

Winners and Losers: The Global Dairy Reshuffling

While US dairy faces significant challenges, the trade disruption creates clear winners and losers across the global dairy landscape:

The Winners

New Zealand: As the dominant supplier with duty-free access via its FTA, New Zealand is perfectly positioned to capture displaced US volume. Strong Chinese demand has supported record NZ milk prices, and Fonterra reports increased sales to China leading into 2025. It’s like getting the first cut of prime alfalfa for New Zealand dairy farmers while US producers are left with weather-damaged hay.

European Union: The EU is expected to gain a share in whey and lactose markets, leveraging its existing presence. However, modest milk production growth forecasts (around 0.5-0.8% for 2025) and potentially higher prices for certain products may be constrained by its ability to replace US volume fully.

Australia: Benefitting from its FTA with China, Australia has increased dairy exports, particularly cheese and skim milk powder, and is positioned to gain market share.

The Losers

US Dairy Farmers: Lower domestic commodity prices, particularly whey and lactose, will translate directly into reduced milk checks. The USDA’s downward revision to milk price forecasts is just the beginning, like watching your component premiums disappear month after month.

US Processors: Companies heavily invested in whey and lactose processing face significant challenges finding alternative markets for displaced volume. This could lead to reduced plant utilization, lower margins, and potential restructuring—similar to when a processing plant suddenly institutes a base program that caps your production.

Chinese Food Manufacturers: Prohibitive tariffs on US dairy significantly increase costs for Chinese food manufacturers and feed producers who rely on these imports. This forces them to seek alternative suppliers, potentially leading to higher input costs if alternatives are more expensive or less readily available.

The hard truth? The industry’s obsession with China as the solution to all our export needs has exposed us dangerously. While our competitors were busy negotiating free trade agreements, we were content to operate without such protections. How many more market disruptions will it take before we demand better trade policies?

The Mexico Lifeline: Your New Best Friend

With China effectively closed, Mexico takes on heightened strategic importance for US dairy exports. Already the largest market for US dairy by value, Mexico’s significance will only grow as exporters seek to redirect displaced volumes.

The good news? Despite the otherwise tenuous trade environment for other US destinations, relations with Mexico appear to be on solid footing. The USMCA provides a stable framework for continued market access, though competition will intensify as more suppliers target this critical market.

For US dairy farmers and processors, cultivating and strengthening relationships with Mexican buyers becomes more important than ever. This isn’t just about maintaining current business—it’s about expanding market share in a region crucial to absorbing displaced volumes from China. Think of it like developing a strong relationship with your nutritionist or veterinarian—it pays dividends when challenges arise.

But here’s the question no one’s asking: are we about to make the same mistake with Mexico that we made with China? Becoming overly dependent on any single export market leaves us vulnerable. Smart operators are already looking beyond Mexico to diversify their risk.

Beyond the Trade War: China’s Evolving Dairy Landscape

While the tariff situation dominates headlines, it’s essential to understand the broader context of China’s evolving dairy market, which influences both its import needs and sourcing strategies.

The Lactose Intolerance Factor

One fascinating aspect highlighted in the Daily Dairy Report is that “Many Chinese are lactose intolerant, which is why milk historically has not been a staple of the Chinese diet and why adoption is slow.”

This biological reality helps explain why per capita dairy consumption in China remains far below global averages despite significant production increases in recent years. Studies show lactase deficiency affects approximately 38.5% of Chinese children aged 3-5, with rates as high as 87% in teens.

MetricJan-Feb 2025YoY ChangeImplication for US Dairy
Milk Production6.1B lbs-9.2%Rising import dependency
Skim Milk Powder Production-30%—Opens gap for competitors
Lactose Intolerance Rate87% (teens)—Limits fluid milk demand

We’ve been pushing fluid milk in a country where most people can’t digest it. How’s that for market research?

It’s similar to how Jersey cows and Holsteins have fundamentally different characteristics and needs—what works for one population doesn’t necessarily work for another. As a dairy farmer adjusts feeding strategies for different breeds, marketers must adapt product offerings to suit the biological realities of different consumer populations.

Yet our industry continued pushing fluid milk consumption in China despite these biological limitations. Wouldn’t our resources have been better spent developing and marketing lactose-free dairy products specifically designed for this market?

Demographic Headwinds

China’s declining birth rate has fallen from 13.03 births per thousand people in 2013 to just 6.39 in 2023, impacting infant formula demand. Combined with economic headwinds, including a real estate crisis, high youth unemployment, and weak consumer confidence, these factors have dampened overall dairy consumption growth.

These structural limitations mean that even if the trade war were resolved tomorrow, China’s dairy market would still face significant long-term challenges that limit its growth potential—much like how a dairy farm might face production limits due to land constraints, water availability, or labor shortages regardless of milk price.

Strategic Responses: What Smart Dairy Businesses Are Doing Now

The current trade disruption demands immediate strategic responses from all segments of the US dairy industry. Here’s what forward-thinking businesses are implementing:

For Dairy Farmers

  1. Explore risk management tools to protect against price volatility, including futures, options, and forward contracting—as essential as having a good vaccination protocol for your herd
  2. Communicate with processors about product mix changes that may affect component valuations—just as you’d consult with your nutritionist about ration adjustments
  3. Consider USDA support programs that might offset trade-related losses—similar to enrolling in Dairy Margin Coverage when margins tighten
  4. Evaluate feed costs in light of potential tariff impacts on grain markets (the WASDE maintained corn price forecasts at $4.35 per bushel but adjusted soybean meal down $10 to $300 per short ton)—as critical as monitoring your feed-to-milk conversion ratio

For Processors

  1. Accelerate development of alternative export markets to replace lost Chinese volume, focusing on Mexico, Southeast Asia, and Latin America—like a farmer diversifying forage sources when alfalfa prices spike
  2. Evaluate product mix adjustments to reduce dependency on China-oriented commodities—similar to adjusting your breeding program when market signals change
  3. Assess capital investment plans in light of potential long-term market access changes—as prudent as reconsidering that parlor expansion when milk prices drop
  4. Develop closer relationships with customers in reliable markets less subject to trade disruption—just as farmers build relationships with reliable feed suppliers and service providers

For Industry Organizations

  1. Continue advocating for policy solutions while preparing for prolonged trade barriers—like how dairy co-ops advocate for favorable policy while helping members navigate market realities
  2. Support market development initiatives in alternative regions—similar to how breed associations promote genetic improvement while adapting to changing market demands
  3. Provide market intelligence to help members navigate rapidly changing conditions—as valuable as a good DHI testing program
  4. Facilitate information sharing about adaptation strategies across the industry—like the knowledge exchange that happens at producer meetings and field days

But let’s be brutally honest: these are band-aid solutions to a gaping wound. The fundamental problem is that we’ve built an industry increasingly dependent on export markets without securing the trade agreements necessary to protect that access. Until we address this core issue, we’ll continue lurching from one trade crisis to the next.

The Cheese Bright Spot: Diversification Pays Off

While the whey and lactose markets face severe disruption, the cheese sector offers a more positive outlook, highlighting market diversification’s value.

US cheese exports globally hit a record high in 2024, exceeding 500,000 metric tons (+17% year-over-year). While China is not a top-tier market for US cheese compared to Mexico or Canada, exports to China showed surprising strength in early 2025 before the tariff spike (up 649% in February 2025, though likely from a small base).

The CME cheese markets have shown remarkable resilience despite the broader trade tensions. Block cheddar climbed to $1.7450 per pound by April 12, up 10.50 cents on the week and 21 cents above a year ago. Barrels reached $1.8050, 14.50 cents higher and 23.25 cents above a year ago.

This resilience underscores a critical strategic lesson: diversification across products and markets provides crucial insulation against geopolitical disruptions. Processors heavily dependent on single commodities or markets face disproportionate risk in today’s volatile trade environment—just as dairy farmers who diversify their income streams (through crops, custom work, or value-added products) weather milk price volatility better than those solely dependent on conventional milk sales.

The question is: why aren’t more dairy operations following this diversification model? The evidence is clear that putting all your eggs in one basket—whether a single export market or a single commodity product—is increasingly risky in today’s geopolitical environment.

The Long Game: Structural Shifts in Global Dairy Trade

Beyond the immediate market impacts, the US-China trade conflict is likely to accelerate fundamental structural changes in global dairy commerce:

1. Regional Trade Bloc Strengthening

The volatility of US-China relations pushes dairy trade toward more predictable regional blocs. The USMCA (North America), EU internal market, and RCEP/CPTPP (Asia-Pacific) may take precedence over truly global trade optimization. This suggests a more fragmented global dairy landscape in the years ahead, similar to how regional milk marketing orders create different pricing structures across the US.

2. Value-Added vs. Commodity Focus

The vulnerability of commodity-dependent export models has been starkly exposed. This will likely accelerate investment in value-added products and stronger B2B relationships that are more resistant to tariff disruptions. The strategic push toward exporting more value-added products like cheese, less vulnerable than bulk commodities, takes on increased importance—much like how selling breeding stock or show animals can provide higher margins than commodity milk production.

3. Supply Chain Resilience Over Pure Efficiency

The trade conflict highlights the risks of extended, complex global supply chains optimized solely for cost efficiency. Companies throughout the value chain will likely prioritize resilience, diversification of suppliers and markets, and robust risk management strategies, potentially at the expense of maximum short-term cost efficiency—similar to how prudent dairy farmers maintain feed reserves even when it ties up capital or invest in backup generators despite the cost.

4. Permanent Sourcing Shifts

China’s reduced reliance on the US as a supplier may permanently alter global dairy trade flows. Once supply chains are reconfigured and relationships established with alternative suppliers, they rarely revert completely, even if tariffs are eventually reduced—just as when a milk processor loses a customer to a competitor, regaining that business is far more difficult than maintaining it would have been.

The uncomfortable truth? Our industry has been too slow to adapt to these structural shifts. While individual operations might be nimble, our collective response through cooperatives, processors, and industry organizations has often been reactive rather than proactive. How many more market disruptions will it take before we fundamentally rethink our approach to global markets?

The Dairy Futures Paradox: Markets Sending Mixed Signals

One of the most fascinating aspects of the current situation is the conflicting signals from dairy futures markets. StoneX noted in their analysis: “The level of skepticism on any market strength, be it spot or futures, is rather staggering these days. And for good reason, as worries over demand and liquidity continue to plague outside energy and equity markets.”

CME markets have displayed particularly puzzling behavior, with spot prices for cheese and butter sometimes rallying against bearish fundamental news (tariffs, negative WASDE reports). At the same time, futures reflected broader concerns or specific commodity weakness (whey).

This disconnect highlights the extraordinary uncertainty in today’s market and the challenges of using traditional price discovery mechanisms in a trade environment dominated by geopolitical factors rather than fundamental supply-demand dynamics—not unlike how a dairy farmer might see contradictory signals between milk futures, feed costs, and heifer prices when making expansion decisions.

But here’s what no one wants to admit: our price discovery mechanisms are increasingly disconnected from market realities. When spot markets move in the opposite direction of fundamentals, how can producers make informed decisions? It’s time to question whether our current pricing systems are still fit for purpose in this new environment.

Conclusion: Adapting to the New Reality

The escalating trade conflict between the United States and China represents a fundamental challenge to established global dairy trade patterns. With tariffs reaching prohibitive levels, US dairy exports to China—particularly whey and lactose—face effective market closure, forcing significant volume redirection and creating downward pressure on domestic prices.

These disruptions occur against an already evolving Chinese dairy market backdrop, with domestic production contracting after years of expansion and consumption growth limited by structural factors. The immediate impacts include heightened price volatility, intensified competition in alternative markets, and significant operational adjustments throughout the supply chain.

The trade conflict may accelerate more fundamental changes in global dairy commerce, including strengthening regional trade bloc, increased emphasis on supply chain resilience, and potentially permanent alterations to established trade flows. This new reality demands strategic adaptations from all industry stakeholders, with market diversification, product mix reconfiguration, and robust risk management becoming increasingly critical.

The dairy industry has demonstrated remarkable resilience through previous market disruptions, and the current challenges, while significant, will likely catalyze innovations and adaptations that strengthen its long-term sustainability. However, the path forward requires a clear-eyed assessment of the new trade landscape and proactive strategies to navigate its complexities successfully—much like how successful dairy farmers adapt to changing weather patterns, feed markets, and consumer preferences.

The message for US dairy farmers, processors, and exporters is clear: the Chinese market as we knew it is effectively gone for the foreseeable future. Success will depend on how quickly and effectively you can pivot to alternative markets, adjust product mixes, manage price risk, and build resilience into your business model.

The winners in this new environment won’t be those who wait to return to the old normal—they’ll embrace the new reality and adapt accordingly. As any dairy farmer knows, you can’t control the weather but you can prepare for it. Similarly, we can’t control geopolitics, but we can position our businesses to weather the storm.

It’s time to ask yourself: Are you clinging to outdated export strategies or ready to rethink your approach to global markets fundamentally? The choice is yours, but the clock is ticking. Those who adapt first will have a competitive advantage, while those who wait for the market to “return to normal” may find themselves permanently disadvantaged in this new dairy landscape.

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CME Dairy Market Report: April 14, 2025 – Cheese Prices Surge on Active Trading Despite Bearish USDA Outlook; Butter, Powders Remain Static Amid Market Pause

Monday, April 14th, 2025

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.

ProductClosing Price ($/lb.)Change from Yesterday (¢/lb.)
Cheese (Blocks)1.7700+2.50
Cheese (Barrels)1.8400+3.50
Butter2.3475Unchanged
Nonfat Dry Milk1.1675Unchanged
Dry Whey0.4650Unchanged

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.

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CME Dairy Market Report: April 10, 2025 – Cheese Blocks and Butter Prices Surged Despite Bearish USDA Outlook

Thursday, April 10th, 2025

Cheese and butter prices surge despite bearish USDA forecast and 84% China tariffs. What’s driving this contradictory market behavior?

EXECUTIVE SUMMARY: CME dairy markets on April 10 revealed a striking disconnect between spot market strength and bearish fundamentals, with cheddar blocks surging 3.25¢ to $1.7400/lb and butter gaining 2.00¢ to $2.3325/lb despite the USDA releasing a significantly lower milk price forecast in its April WASDE report. Implementing China’s 84% retaliatory tariff on U.S. dairy products effective today creates another significant headwind, particularly for whey exports. Trading activity varied widely across commodities, with butter exhibiting exceptional volume (24 trades) while dry whey recorded zero transactions. This contradictory market behavior—strong spot prices amid deteriorating fundamentals—suggests a complex interplay between immediate physical market dynamics and longer-term bearish projections. This creates significant uncertainty for dairy stakeholders and points to potential volatility ahead.

KEY TAKEAWAYS

  • Conflicting Market Signals: A significant disconnect exists between strong spot market performance (particularly in cheese blocks and butter) and bearish fundamentals, including lower USDA price forecasts and new Chinese tariffs, creating potential volatility.
  • China Tariff Impact: Implementing an 84% retaliatory tariff by China on U.S. dairy products represents a substantial blow to export potential, particularly for whey, which has traditionally been a significant U.S. export to the Chinese market.
  • Divergent Price Forecasts: Current CME Class III futures ($17.22/cwt) are trading substantially below USDA’s Q2 projection ($18.50/cwt), indicating market skepticism about potential price strength despite today’s spot market rally.
  • Margin Pressure Looming: The combination of lowered milk price forecasts (all-milk price reduced to $21.10/cwt) and rising near-term feed costs presents concerning margin implications for producers despite projections for lower average feed costs throughout 2025.
  • Strategic Recommendations: Market participants should closely monitor upcoming export data for concrete evidence of tariff impacts, consider hedging opportunities during current market strength, and prepare for potential increased volatility as markets reconcile the divergence between spot prices and fundamental outlooks.

Cheese blocks and butter prices surged despite a bearish USDA outlook and newly implemented Chinese tariffs on U.S. dairy products. Market participants showed strong buying interest in several key dairy commodities, seemingly defying fundamental headwinds.

Key Price Changes & Market Trends

ProductClosing Price ($/lb)Change from Yesterday (¢/lb)
Cheese (Blocks)$1.7400+3.25¢
Cheese (Barrels)$1.7800+0.75¢
Butter$2.3325+2.00¢
Nonfat Dry Milk (NDM)$1.1675+1.00¢
Dry Whey$0.4850+0.50¢

Commentary: Cheddar blocks demonstrated significant strength, gaining 3.25 cents and continuing an upward trajectory observed earlier in the week. This robust performance likely reflects persistent tightness in inventories coupled with renewed buyer interest possibly aimed at securing supplies ahead of anticipated spring demand increases. Butter prices advanced firmly by 2.00 cents, continuing a recovery from levels seen the prior week despite reports of ample domestic inventories. NDM gained a solid 1.00 cent, reversing some weakness observed earlier in the week, potentially reflecting buyers responding to improved export competitiveness. Dry whey edged up by 0.50 cents without any trades being executed, suggesting cautious sentiment amid new Chinese tariffs.

Volume and Trading Activity

Weekly CME Cash Dairy Product Prices ($/lb.)


MonTueWedThurFriCurrent Avg.Prior Week Avg.Weekly Volume
Butter2.30002.31002.31252.3325–2.31382.329027
Cheddar Block1.67001.70251.70751.7400–1.70501.645523
Cheddar Barrel1.68001.75501.77251.7800–1.74691.66058
NDM Grade A1.15751.15251.15751.1675–1.15881.166510
Dry Whey0.49250.49250.48000.4850–0.48750.49354

Butter led the market with exceptionally high activity, recording 24 trades with relatively balanced bids (6) and offers (5) at close. This high volume underscores butter’s position as the most actively contested market today, aligning with its significant price movement. Cheese blocks saw moderate activity, with nine trades completed and balanced bids (4) and offers (5), providing reasonable volume support for the day’s price increase.

Cheese barrels experienced lower activity with only four trades executed, though slightly more bids (2) than offers (1) remaining at close suggests underlying support despite limited transactions. NDM recorded four trades with closely matched bids (5) and offers (4). Dry Whey saw no trades executed today, though four outstanding bids against only one offer at close indicate buying interest remained present despite no confirmed transactions.

Global Context

International market dynamics continue to exert significant influence on U.S. dairy markets. Most notably, China implemented an 84% retaliatory tariff on U.S. dairy products effective today, severely hindering U.S. competitiveness in the Chinese market, particularly for whey products. This action comes despite reports of declining Chinese domestic milk production.

The European Union is projected to see a slight decline in milk production (-0.2%) in 2025, driven by regulatory pressures, shrinking herds, and disease concerns, potentially tightening global supplies. EU processors are expected to prioritize cheese production, potentially impacting butter and powder availability. Meanwhile, New Zealand’s 2025 milk production is forecast to be around 21.3 MMT, slightly below the five-year average, influenced by weather and input costs.

Southeast Asia remains a vital growth region for dairy imports, though U.S. NDM/SMP exports have faced challenges recently due to uncompetitive pricing. While U.S. prices have moderated, potentially stimulating renewed interest, competition may intensify if New Zealand diverts products from China to this region. Mexico continues to be a cornerstone market for U.S. dairy, especially NDM/SMP, with domestic production challenges, including drought, potentially sustaining demand for U.S. imports.

Forecasts and Analysis

Today, the USDA released its April World Agricultural Supply and Demand Estimates (WASDE) report, presenting a more bearish picture than previous forecasts. The report raised milk production forecasts, attributing this to more extensive expected cow inventories and slightly higher output per cow. Consequently, annual average price forecasts for 2025 were lowered across the board for butter, cheese, NDM, and dry whey compared to the March forecast.

The all-milk price forecast for 2025 was lowered significantly to $21.10 per cwt. This marks a substantial downward revision from the $21.60 projected in March and $22.60 in February, highlighting rapidly evolving expectations toward a weaker price environment.

Feed cost analysis presents a mixed picture. While nearby feed futures showed strength this week, with May Corn settling at $4.8250/bushel and May Soybean Meal at $297.60/ton, the broader outlook suggests lower average feed costs throughout 2025 compared to 2024. The combination of rising near-term feed futures and sharply lower milk price forecasts suggest potential margin pressure for producers in the immediate term.

Market Sentiment

Market sentiment today appeared fragmented and somewhat contradictory. The firm price action in spot cheese and butter, supported by moderate to high volume, suggests resilience and perhaps a degree of short-term optimism among physical market participants. This aligns with earlier observations of buyers returning to the market after price dips or seeking to secure inventory ahead of seasonal demand.

However, this apparent spot market confidence contrasts sharply with the more cautious, if not bearish, longer-term outlook implied by the significantly lowered USDA price forecasts in today’s WASDE report. Furthermore, China’s imposition of steep retaliatory tariffs introduces a significant negative externality, particularly for export-sensitive commodities like whey.

Overall sentiment can best be described as mixed and divergent. Participants focused on the immediate physical market demonstrated confidence today, pushing prices higher. Yet, this occurred against deteriorating official forecasts and escalating trade tensions.

Closing Summary & Recommendations

In summary, the CME dairy markets on April 10 exhibited notable strength in cheese blocks and butter, with butter seeing particularly high trading volume. This positive price action occurred despite the release of a bearish USDA WASDE report forecasting lower average dairy prices for 2025 and China’s simultaneous implementation of substantial retaliatory tariffs on U.S. dairy products.

Given these conflicting signals and the potential for increased volatility, stakeholders should consider several key strategies. First, closely monitor price action and trading volumes in coming sessions to gauge whether today’s spot strength persists or if markets begin to price in WASDE implications and trade tariffs. Second, producers should actively review risk management strategies given the lower official price forecasts, as current market rallies may present hedging opportunities. Finally, close attention should be paid to upcoming export data releases, providing crucial evidence regarding the impact of U.S. price competitiveness and newly imposed trade barriers, particularly for whey exports to China.

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Fonterra’s Passage to India: World’s Dairy Goliath Targets 1.4 Billion New Customers

Wednesday, March 19th, 2025

New Zealand’s dairy giants aim to crack India’s fortress-like market in just 60 days. Will 70 million small farmers pay the price?

EXECUTIVE SUMMARY: New Zealand and India have launched an ambitious 60-day push to finalize a free trade agreement that had stalled for a decade, specifically over dairy market access. Prime Minister Luxon has clarified that New Zealand wants its world-leading dairy exporters to penetrate India’s protected market of 1.4 billion consumers, currently shielded by 30-60% tariffs. The negotiations pit industrial efficiency against the livelihoods of 70 million small Indian dairy farmers in what could become the most consequential dairy trade deal in years. The agreement’s timing coincides with mounting global trade tensions, including Trump’s reciprocal tariff threats against India. For North American dairy producers, the potential redirection of New Zealand exports could create significant ripple effects in global markets, potentially impacting farm-gate prices and competitive dynamics.

KEY TAKEAWAYS

  • Historic Market Barrier Targeted: India’s 60% tariff on milk powder imports—one of the world’s highest—faces unprecedented pressure as New Zealand demands agricultural access it has never granted in previous trade deals
  • Global Dairy Flow Disruption: If successful, the agreement could redirect significant volumes of New Zealand dairy exports away from traditional markets, creating ripple effects in regions where North American producers compete
  • Fundamental System Clash: The negotiations represent a confrontation between New Zealand’s export-oriented industrial efficiency and India’s fragmented network of smallholder farmers with 2-3 cows per farm
  • Specific Market Vulnerabilities: U.S. dairy exports of milk powder to Southeast Asia, specialty ingredients to Latin America, and cheese to Mexico and Japan face the highest risk from potential market shifts
  • Strategic Timing: Both countries are responding to changing global trade patterns, with India accelerating agreements to cushion against Trump’s tariff threats while New Zealand seeks to diversify beyond reliance on China
India-New Zealand dairy trade, dairy export tariffs, global dairy markets, Fonterra India access, small farm protection

The world order of dairy is about to be upended. As you’re reading this, negotiators are frantically working to finalize what could be the most consequential dairy trade agreement of the decade.

New Zealand’s Prime Minister Christopher Luxon has brazenly announced a 60-day deadline to crack open India’s fortress-like dairy market—home to 70 million small producers and the world’s most extensive milk production base.

Make no mistake: this isn’t just another trade deal announcement—it’s a calculated power play by the world’s most efficient dairy exporters to gain access to the world’s most extensive untapped dairy consumer base.

“I just don’t want us to give up on dairy. We will try and find a way to make dairy work.” — New Zealand’s Prime Minister Christopher Luxon.

The stakes? Nothing less than the future structure of the global dairy trade and potentially YOUR farm’s bottom line. Here’s what dairy insiders need to know about this high-stakes dairy diplomacy unfolding.

DECADE-LONG STANDOFF FINALLY BREAKS: THE RUSH TO SIGN

After a ten-year freeze in negotiations, India and New Zealand have dramatically restarted talks for a comprehensive Free Trade Agreement. Previous negotiations between 2010 and 2015 collapsed precisely over the issue that matters most to Bullvine readers: dairy market access.

“Let’s drive this relationship forward, and I look forward to signing that agreement with Prime Minister Modi in 60 days,” declared New Zealand’s Prime Minister Luxon to business leaders, setting perhaps the most ambitious timeline ever for resolving this deeply contentious trade relationship.

This isn’t merely ambitious—it’s borderline audacious. Trade negotiations of this complexity typically drag on for years, not weeks.

The accelerated timeline signals extraordinary political will at the highest levels to overcome obstacles that previously proved insurmountable.

GOLIATH TARGETS SACRED COWS: Can 70 Million Indian Farmers Withstand the Export Onslaught?

Do you think your operation faces competitive pressure? Imagine competing against the world’s most efficient dairy export machine without the protection of tariffs you’ve relied on for decades.

New Zealand, home to Fonterra, the world’s largest dairy exporter, has clarified its intentions. In a startlingly direct statement to Radio New Zealand, Prime Minister Luxon declared: “I just don’t want us to give up on dairy. We are going to try and find a way to make dairy work”.

“No free trade agreement is ever negotiated with a gun on anybody’s head.” — Piyush Goyal, India’s Trade Minister.

This unambiguous push for dairy access directly opposes India’s long-established policy of protecting its domestic dairy sector.

Indian negotiators have consistently resisted pressure to lower tariffs ranging from 30% to 60% on agricultural products, particularly dairy, arguing such concessions could threaten the livelihood of millions of small farmers.

For context: while New Zealand’s dairy industry operates with industrial efficiency and export-oriented scale, India’s dairy sector remains dominated by smallholders with just 2-3 cows per farm, often providing their sole steady income source.

VOICES FROM THE BARN: Producer Perspectives on the Trade Face-Off

“This trade push is fundamentally asymmetric. Our cooperatives took decades to build India’s self-sufficiency in milk. Opening floodgates to subsidized imports would devastate millions of families dependent on dairying.” — Dr. R.S. Sodhi, former Managing Director, Amul (Gujarat Cooperative Milk Marketing Federation)

“New Zealand farmers produce to world-class environmental and animal welfare standards. We believe in fair trade based on our natural competitive advantages, not government protection. Access to growth markets like India is crucial for future-focused farmers.” — Andrew Hoggard, Past President of Federated Farmers of New Zealand

“We’ve seen what happens when markets open overnight – small farmers pay the price. Our 70 million producers aren’t just economic units, they’re families with generations of dairying tradition that can’t be replaced.” — Kuldeep Sharma, President, Indian Dairy Association

THE TARIFF BATTLEGROUND: Numbers That Matter

DAIRY DOMINANCE AT A GLANCE:

  • India’s Protection Wall: 30-60% tariffs on dairy imports
  • India’s 2025 Production Forecast: 216.5 million metric tons (MMT)
  • Trade Growth Target: 10-fold increase within a decade
  • Current Bilateral Trade: $1.54 billion in 2023-24; $1.2 billion in 2024 (different reporting periods)

The following verified data from USDA’s October 2024 Dairy Products Annual report for India reveals exactly what barriers Fonterra and other New Zealand exporters are fighting to dismantle:

Table 1: India’s Current Dairy Import Tariffs

ProductHS CodeBasic Custom DutyImport Policy
Milk and cream (not concentrated)040130%Free with sanitary requirements
Milk powder/concentrated milk0402.1060%Free with sanitary & BIS requirements
Butter and milk fats0405.10/0405.9040%Free with sanitary requirements
Lactose and lactose syrup1702.11/1702.1925%Free
Albumins/whey proteins (>80% protein)350220%Free

“India maintains one of the highest dairy tariff regimes in the world, with most-favored-nation rates of 30-60% effectively insulating domestic producers from international competition.” — USDA Foreign Agricultural Service, 2024 India Dairy Annual

Table 2: India’s Tariff Rate Quotas for Key Dairy Products

Product DescriptionHS CodeQuota Quantity (MT)In-Quota TariffOut-of-Quota Tariff
Milk powder0402.10/0402.2110,00015%60%
Butter and other fats0405.1015,0000%30%
Dairy spreads0405.2015,0000%40%

DAIRY TRADE TERMINOLOGY: Quick Reference Guide

MFN Rates — “Most Favored Nation” tariffs represent the standard rate countries charge on imports from WTO members when no special trade agreement exists.

HS Codes — The “Harmonized System” codes are standardized numerical classifications for traded products used worldwide by customs authorities.

Tariff Rate Quotas — These allow a certain quantity of product (the quota) to enter at a lower tariff rate, while imports beyond that quantity face higher tariffs.

Non-Tariff Barriers — Requirements beyond tariffs that restrict trade, such as licensing, labeling, quality standards, or certification requirements.

India deliberately excluded the dairy sector from ALL its previous free trade agreements to shield its small farmers, making New Zealand’s demand exceptional and potentially precedent-setting.

The USDA notes that India’s 60% most-favored-nation (MFN) tariff on dairy imports is “one of the highest in the world,” effectively shielding domestic producers.

Beyond tariffs, India maintains stringent non-tariff barriers, including certification requirements that imported dairy products must come from cows never fed animal-derived feed. This Hindu dietary norm has prevented many exporters from penetrating the market.

Commerce Minister Piyush Goyal has acknowledged the sensitivity, noting that both countries can “easily navigate few areas where there are sensitivities or respect each others’ sensitivities given the different levels of development and prosperity in each country.”

However, the question remains: what constitutes “navigating” these sensitivities when New Zealand’s primary objective is dairy access?

MARKET ACCESS BATTLEFIELD: A Timeline of Dairy Diplomacy

  • 2010-2015: Initial FTA negotiations stall specifically over dairy access demands
  • 2018: Fonterra’s “Dreamery” joint venture with Future Consumer in India collapses after struggling with supply chain and market penetration
  • March 2025: Negotiations dramatically restart with a 60-day deadline
  • May 2025: Projected signing date (if deadline holds)

Goyal offered the diplomatic assurance that “no free trade agreement is ever negotiated with a gun on anybody’s head.” Yet the accelerated timeline and New Zealand’s unwavering focus on dairy access suggest unprecedented pressure is being applied.

GLOBAL CONTEXT: Why This Deal Is Happening Now

This sudden urgency doesn’t exist in a vacuum. The renewed push comes against mounting global trade tensions, particularly after US President Donald Trump imposed reciprocal tariffs on imported goods from several countries, including India.

The “reciprocal tax” strategy is designed to match the import duties imposed by trading partners on American goods. Critics point to India’s high tariff structure, particularly in sectors like agriculture and dairy.

If implemented, such a reciprocal tax would dramatically increase the average U.S. tariff on Indian goods, which currently stands at around 3–4%, bringing it closer to India’s tariff levels.

India is simultaneously accelerating efforts to secure trade agreements with the European Union and the United Kingdom, suggesting a strategic pivot in response to changing global trade patterns.

India represents a critical market diversification opportunity for New Zealand, which has traditionally relied heavily on China as an export destination.

“Both countries have massive aspirations… to do exceptionally well for both of our countries in the years and decades ahead.” — Christopher Luxon, Prime Minister of New Zealand.

WHAT THIS MEANS FOR NORTH AMERICAN DAIRY

This potential agreement represents both a threat and an opportunity for North American dairy producers. Should New Zealand secure preferential access to India’s massive consumer market, it could redirect significant export volumes away from traditional markets where you compete.

NORTH AMERICAN IMPACT: Specific Market Vulnerabilities

According to an analysis from the U.S. Dairy Export Council (USDEC), these specific product categories face the highest risk from potential market shifts:

  • Milk Powder Markets: Southeast Asian destinations where U.S. and New Zealand exporters directly compete could see increased New Zealand supply if Indian exports absorb current NZ volumes.
  • Specialty Ingredients: If New Zealand redirects its product away from regions like Latin America, it could face intensified competition in high-value whey proteins and milk protein concentrates.
  • Cheese Exports: Mexico and Japan—key U.S. cheese export destinations—could be impacted if global trade flows shift in response to new India-New Zealand dynamics.

“What happens between New Zealand and India won’t stay between New Zealand and India,” warns Krysta Harden, President and CEO of USDEC. “Any major shift in how the world’s largest dairy exporter allocates its product will create ripple effects across all dairy-importing regions where U.S. suppliers compete.”

Industry analysts project potential price impacts of 3-5% on globally traded dairy commodities if significant volumes of New Zealand products are redirected to India, with whole milk powder markets likely seeing the most immediate effects.

According to USDA data, major Indian dairy companies like Amul and Mother Dairy have already raised fluid milk prices due to rising operational and procurement costs.

In 2023, average milk prices in India increased by over 12 percent compared to 2022 due to milk shortages and rising production costs.

How will introducing New Zealand’s ultra-efficient production into this price-sensitive market reshape global dairy flows?

WHO WINS, WHO LOSES: Sector Impact Analysis

SECTORWINNERSLOSERS
Commodity ProducersLow-cost, large-scale NZ operatorsSmall-scale Indian farmers, especially in fluid milk
Specialty IngredientsHigh-tech NZ processors with specialty capabilitiesNorth American exporters to third-country markets
Consumer MarketIndian consumers (potentially lower prices)Indian cooperatives with higher production costs
Dairy TechnologyNZ equipment/system providersTraditional dairy production systems
Dairy GeneticsNZ genetics companiesTraditional Indian cattle breeding programs

5 QUESTIONS EVERY DAIRY PRODUCER SHOULD ASK

  1. How might this deal shift global dairy trade flows away from your current export markets?
  2. Will specialty ingredients face increased global competition if New Zealand refocuses its export strategy?
  3. Could this agreement set a precedent for other protected markets to open dairy access?
  4. How might shifting trade patterns affect your farm-gate milk prices over the next 12-24 months?
  5. What product mix adjustments should you consider if global markets realign?

THE PATH FORWARD: Three Potential Outcomes

  • Complete Agreement With Dairy Access: New Zealand secures significant reductions in India’s dairy tariffs, creating immediate market access for its exporters. This scenario would represent a historic shift in India’s protectionist stance and potentially trigger restructuring across its domestic dairy sector.
  • Partial Agreement With Dairy Carve-Outs: The more likely outcome involves selective cooperation—perhaps joint ventures, technology transfer, or limited access for specific dairy product categories while maintaining protection for fluid milk and essential dairy commodities that form the backbone of India’s small-farm economy.
  • Another Failure Over Dairy: History repeats itself, with dairy access again proving to be the dealbreaker. Despite the high-level political commitment, fundamental differences in dairy market structure and development priorities prevent agreement.

Kimberley Crewther, Executive Director of the Dairy Companies Association of New Zealand (DCANZ), insists that excluding dairy would be a “lost opportunity” to look for win-win opportunities where New Zealand could complement Indian local dairy supply, such as through specialist dairy ingredients.

“Let’s drive this relationship forward, and I look forward to signing that agreement with Prime Minister Modi in 60 days.” — Christopher Luxon to Indian business leaders.

CONCLUSION: Watching the Clock

The dairy world now enters a critical 60-day window that could reshape global trade patterns for decades. As Luxon boldly stated, both countries have “massive aspirations” and are positioned “to actually do exceptionally well for both of our countries in the years and the decades ahead.”

For The Bullvine readers, the message is clear: stay vigilant. These negotiations may be happening half a world away. Still, their outcome will likely impact your bottom line through altered global dairy trade flows, shifting price dynamics, and new competitive pressures.

Consider consulting with your industry organizations about contingency planning for potential market shifts. Producers who start strategizing now about potential product mix adjustments or exploring new market opportunities will be better positioned regardless of the outcome.

The Bullvine will continue tracking this developing story as the 60-day clock ticks down toward what could be the most consequential dairy trade agreement of the decade.

Will India’s sacred cows remain protected, or will New Zealand’s dairy giants finally secure their passage to India?

DISCLAIMER: This analysis represents the current state of a rapidly evolving trade negotiation. The Bullvine will provide continuous updates as new information becomes available. Trade positions and timelines may shift significantly as talks progress.

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