Cheese surges & butter firms despite bearish forecasts! Today’s CME sees spot strength clash with long-term caution amid trade woes.

EXECUTIVE SUMMARY: The CME dairy cash markets displayed broad strength on May 1st, 2025, with Cheddar cheese leading gains, particularly barrels, and butter prices firming despite bearish USDA forecasts. Nonfat dry milk and dry whey also posted modest increases. This spot market rally contrasts sharply with the USDA’s lowered 2025 price projections, which anticipate higher milk production and weaker product prices, compounded by ongoing global trade tensions severely impacting markets like whey. Trading activity supported the day’s gains, but overall sentiment remains cautious due to the disconnect between immediate market strength and negative fundamental outlooks concerning supply, export challenges, and economic headwinds. Stakeholders are advised to manage risk vigilantly amid this uncertainty.

KEY TAKEAWAYS

• Spot Market Strength vs. Bearish Forecasts: Dairy prices (cheese, butter, NDM, whey) rose significantly despite recent USDA forecasts predicting lower prices and higher milk production for 2025.
• Cheese Leads Gains: Cheddar blocks and especially barrels saw strong price increases, narrowing the spread, potentially driven by immediate supply tightness or specific sector demand.
• Butter Firms, NDM/Whey Edge Up: Butter continued its recovery, while NDM and whey saw modest gains, though whey remains heavily impacted by Chinese tariffs.
• Global Factors & Trade Tensions: Ongoing U.S.-China trade disputes (especially impacting whey), shifts in EU/Oceania production, and mixed global demand create significant headwinds and uncertainty.
• Cautious Sentiment Prevails: Despite daily gains, the underlying market sentiment is cautious due to the conflict between spot prices and bearish long-term fundamentals, volatile feed costs, and trade issues.

Cheese Prices Led Gains on Strong Bids, Butter Firms Despite Bearish USDA Outlook, Trade Tensions Simmer

Key Price Changes & Market Trends

Dairy cash markets exhibited broad strength during today’s session at the Chicago Mercantile Exchange (CME), with cheese prices posting significant gains and butter continuing its recovery from recent lows. Nonfat dry milk and dry whey also edged higher. These gains occurred despite increasingly bearish forecasts from the USDA and persistent headwinds from global trade disputes.

The following table details the closing prices and changes for key CME cash dairy products on May 1, 2025:

Commentary:

Cheese (Blocks and Barrels): Cheddar cheese prices surged, with barrels showing strength, gaining 3.50¢ to close at $1.7350/lb, while blocks rose 2.50¢ to $1.7550/lb. This narrows the block-barrel spread. The spot market rally presents a notable contrast to the USDA’s April World Agricultural Supply and Demand Estimates (WASDE) report, which lowered the 2025 average cheese price forecast to $1.790/lb, reflecting expectations of increased milk production. Furthermore, today’s strength follows recent reports indicating tighter cheese inventories, with American-style cheese stocks down 8% at the start of 2025.

Butter: Butter prices firmed, adding 1.50¢ to close at $2.3100/lb. This gain builds on recent rebounds after significant declines earlier in the week and the prior week. While underlying supply fundamentals appear comfortable, with recent USDA Cold Storage data showing butter inventories 4% above last year, today’s price action moves further away from the recent lows. The USDA’s April WASDE report significantly cut the 2025 butter price forecast by 7.0 cents to $2.445/lb.

Nonfat Dry Milk (NDM): NDM prices slightly increased by 0.50¢, settling at $1.1800/lb. This follows a period of relative stability marked by slight weakness earlier in the week. The market faces headwinds from the USDA’s lowered 2025 NDM price forecast of $1.220/lb and reports of sluggish export demand, particularly in Southeast Asian markets.

Dry Whey: Prices ticked up 0.50¢ to $0.5025/lb. This minor gain occurs within a market grappling with severe disruption from trade policy. The implementation of steep retaliatory tariffs by China, reportedly reaching as high as 84% to 150% on whey products, continues to cripple demand from this historically vital export destination.

Volume and Trading Activity

Trading activity varied across products today, providing context for the observed price movements:

Butter: Moderate activity with seven loads traded. Buying interest appeared sustained, with five bids remaining against seven offers at the close and the final price established on a bid at $2.3100/lb.

Cheddar Blocks: Solid trading volume with eight loads changing hands. The price increase was supported by this activity, with the market clearing at $1.7550/lb on a trade. Three bids and three offers remained at the close.

Cheddar Barrels: Trading was light, with only two loads traded. However, the significant price jump to $1.7350/lb occurred as buyers met offers, indicating strong buying conviction despite the low volume.

NDM Grade A: Experienced the highest trading volume of the day, with 12 loads traded. The market closed at $1.1800/lb on a trade, with four bids and one offer remaining.

Dry Whey: Activity was relatively light, with four loads traded. The market closed at $0.5025/lb on a trade, with four bids and no offers remaining.

Overall, the trading volumes, while moderate, generally supported the upward price movements in cheese and butter, suggesting that active buying interest contributed to the rally.

Global Context

International factors continue to exert significant influence on the U.S. dairy complex, with trade policy and regional production shifts playing key roles:

U.S.-China Trade Relations: The ongoing trade dispute remains a major headwind. Severe retaliatory tariffs imposed by China on U.S. dairy products, reported as high as 84% to 150% for specific items like whey, severely restrict access to this major market. This disruption particularly damages the whey complex, which historically relied heavily on Chinese demand.

China’s Domestic Market Dynamics: China’s internal dairy market is undergoing significant adjustments. Following years of rapid expansion, the sector faces oversupply issues, resulting in crashing farmgate milk prices (declines of 15-28% reported) and falling raw milk collections (down 9.2% in early 2025 vs. the prior year). While shrinking domestic production could eventually necessitate increased imports, China’s current economic challenges limit purchasing power and delay a significant rebound in import demand.

European Union (EU) Production: EU milk production is forecast to contract slightly in 2025 (around 0.2%) due to declining cow numbers, environmental regulations, and lingering animal health concerns. Despite lower overall milk availability, EU processors are expected to prioritize cheese production (forecast +0.6%), potentially at the expense of butter and milk powders.

Oceania Production: Dairy production in Oceania (Australia and New Zealand) is projected to see modest growth in 2025, with Australia potentially increasing output by 0.7% to 1.1% and New Zealand stabilizing or growing slightly after prior declines. Oceania suppliers maintain strong trade relationships and logistical advantages in key Asian markets.

Forecasts and Analysis

The latest USDA projections and market analysis provide a critical context for evaluating today’s market movements:

USDA April 2025 WASDE Outlook: The USDA’s most recent forecasts, released in April, painted a generally bearish picture for the U.S. dairy sector in 2025:

Milk Production: The 2025 milk production forecast was increased by 0.7 billion pounds compared to the March estimate, reaching 226.9 billion pounds. This upward revision was attributed to expectations of larger average dairy cow numbers and slightly higher milk yield per cow.

Milk Prices: Reflecting the higher production forecast and lower anticipated product prices, the USDA made significant downward revisions to its 2025 milk price projections. The all-milk price forecast was cut by $0.50 to $21.10/cwt, marking a cumulative drop of $1.95/cwt since the January 2025 forecast. The Class III price forecast was lowered by $0.35 to $17.60/cwt, and the Class IV forecast was reduced by $0.60 to $18.20/cwt.

Feed Cost Considerations: The feed cost outlook presents a mixed picture. Longer-term projections suggest lower average feed costs in 2025 compared to the highs of 2022-2023, which could support margins. The USDA forecasts an average farm price for corn at $4.20/bushel for 2025, and soybean meal prices are projected to be around $310/ton. Today’s May Corn futures settled at $4.6375/bushel, while May Soybean Meal closed at $307.80/ton.

Analysis & Implications: A significant disconnect exists between today’s stronger spot market prices, particularly for cheese ($1.7550 blocks, $1.7350 barrels), and the USDA’s sharply lower annual Class III forecast ($17.60/cwt). May Class III futures settled today at $18.43/cwt, well above the USDA’s yearly projection, indicating market skepticism or a focus on shorter-term factors. The combination of lower projected milk prices and volatile, uncertain feed costs suggests producer margins will likely remain under pressure.

Market Sentiment

Despite the positive price action in today’s spot market, the underlying market sentiment remains cautious and uncertain, leaning towards bearish in the medium term. This caution stems from several key factors:

Bearish Forecasts: The significant downward revisions in the USDA’s April WASDE forecasts for milk production, milk prices, and dairy product prices have weighed heavily on sentiment. The projected increase in milk supply, coupled with lowered price expectations, signals potential challenges ahead.

Trade Disruptions: Persistent trade tensions, particularly the severe tariffs impacting U.S. dairy exports to China (especially whey), continue to create significant uncertainty and limit optimism regarding export-driven price support.

Economic Concerns: Broader economic headwinds and concerns about consumer purchasing power, both domestically and internationally, contribute to the cautious outlook. Global dairy demand is described as mixed, lacking strong upward momentum.

Spot vs. Fundamental Disconnect: Analysts and traders acknowledge the disconnect between the recent strength in spot and futures markets and the more bearish fundamental outlook presented by official forecasts and trade realities. This divergence fuels uncertainty about the sustainability of current price levels.

“While the spot cheese market showed impressive strength today, it feels disconnected from the fundamental headwinds highlighted by the latest USDA numbers and the ongoing trade friction. We’re advising clients to view this rally with caution.”

Closing Summary & Recommendations

Today’s CME dairy markets exhibited broad strength, led by notable gains in Cheddar cheese (especially barrels) and a firming butter price, with NDM and whey also increasing. This positive price action occurred despite an increasingly bearish backdrop defined by lower USDA price forecasts for 2025, expectations of higher milk production, and significant ongoing challenges in key export markets due to trade tensions. Trading activity supported the price increases, but overall market sentiment remains cautious given these substantial fundamental headwinds.

Recommendations/Outlook:

Producers: Today’s spot market strength presents potential selling opportunities. However, USDA’s sharply lower long-term price forecasts necessitate a continued focus on vigilant risk management to protect margins. Evaluate opportunities to lock in favorable feed costs, particularly for inputs like soybean meal where prices appear advantageous. Consider utilizing risk management tools such as forward contracts or LGM-Dairy insurance to mitigate downside price risk highlighted by forecasts.

Traders: The disconnect between stronger spot/futures prices and the bearish fundamental outlook creates the potential for volatility. Closely monitor key data releases, including inventory reports, export sales data (particularly to alternative markets like Mexico and SE Asia), and global milk production trends to confirm or contradict current price trajectories.

Analysts: Focus research on reconciling the divergence between current market pricing and the underlying supply, demand, and trade policy realities. Track the performance of U.S. exports into non-traditional markets and monitor evolving production dynamics in the EU and Oceania.

Learn more:

• CME Dairy Market Report: April 28, 2025 – Bearish Forecasts and Trade Headwinds
• CME Daily Dairy Market Report: April 29, 2025 – Cheddar Blocks Defy Bearish Trends as Butter Plunges
• Behind The Numbers of April’s Milk Production Report

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