EU milk prices plateau at 16% surge as butter defies gravity while powders slump. Costs ease but risks loom for 2025’s fragile dairy balance.

EXECUTIVE SUMMARY: Europe’s dairy rebound hit a pivot point in early 2025, with milk prices stabilizing at 53.7¢/kg after a 16% year-on-year surge. Butter prices held firm at €739/100kg amid tight supplies, while skimmed milk powder and cheddar slumped-exposing a market split driven by processors prioritizing cheese over commodity production. Input costs finally eased (energy -7.1%, feed stabilizing), but margins remain squeezed by structural hurdles like shrinking herds and Green Deal regulations. With EU milk supply flatlining and global demand shaky, farmers face a high-stakes year: China’s import appetite, disease risks, and trade tensions could upend cautious optimism. The takeaway? Adaptability trumps expansion in this new era of constrained growth.

KEY TAKEAWAYS:

• Price paradox: Butter thrives (€739/100kg) as powders/cheddar slump, reflecting processors’ cheese-first milk allocation.
• Supply squeeze: EU herds shrink (-0.2% to +0.4% 2025 output) amid regulations, while US/NZ ramp up production.
• Cost relief: Energy (-7.1%) and feed trends boost margins, but remain 29% above pre-crisis levels.
• Strategic shift: 0.6% cheese production growth steals milk from butter/powders, reshaping EU dairy economics.
• Global gamble: China’s +2% import rebound could make/break 2025’s fragile balance-if inflation and HPAI don’t strike first.

The latest European dairy market data reveals a Jekyll and Hyde scenario: milk prices have stabilized at 16% above last year while a dramatic product divide emerges. Butter prices remain rock-solid, while SMP, WMP, and cheddar all face downward pressure – creating both opportunities and challenges for dairy operations across the continent.

Ever wondered what happens when dairy markets start behaving like they can’t make up their mind? That’s exactly what we’re seeing across Europe right now. The European Milk Market Observatory just released its latest batch of data, and I’ve spent the weekend digging through the numbers to bring you the real story behind the headlines.

Milk Prices Hit Ceiling After Year-Long Climb

The good news? EU average raw milk prices reached an impressive 53.8 cents per kilogram in February 2025, towering 16% above February 2024 levels. The reality check? That upward momentum we’ve been riding since late 2023 has finally hit a wall.

March data confirms what many farm managers suspected – prices dipped slightly to 53.7 cents, representing the first monthly decline after several consecutive increases. After climbing steadily from the brutal lows of 2023, the market appears to be catching its breath.

But let’s not lose perspective. Even with this plateau, prices remain significantly above historical averages. Remember those dark days of 2017 when prices hovered around €34/100kg? We’re still operating in a completely different universe compared to those times.

Why is this happening now? The answer lies in a complex interplay between tight supply, strategic processing decisions, and uncertain global demand signals.

Europe’s Price Premium Widens: Are We Becoming an Island?

Have you ever considered why European milk consistently commands higher prices than our global competitors? The gap just got even wider.

European producers are now enjoying an eye-popping 23% price advantage over New Zealand, with February figures showing EU milk at 53.8 cents/kg compared to just 41.5 cents/kg for Kiwi producers. The US isn’t far behind New Zealand at 48.4 cents/kg.

What’s fascinating isn’t just the size of the gap but the divergent trajectories. While EU prices rose 0.6% from January to February and New Zealand inched up 0.3%, American prices dropped 1.5% during the same period.

This transatlantic split creates both opportunities and challenges. The premium reflects Europe’s unique position – constrained supply, higher production costs, and a strategic focus on value-added products rather than commodities. But it also raises critical questions about global competitiveness – can we maintain this premium without losing export market share?

European dairy insiders point to three key factors driving this price differential:

1. Our structural supply limitations from environmental regulations, high costs, and disease challenges (like that persistent bluetongue outbreak) restrict growth.
2. Our processing strategy increasingly targets higher-value products rather than competing with New Zealand and the US in commodities.
3. Our cost structure remains fundamentally higher due to stricter regulations and smaller average farm sizes.

The Great Dairy Split: Why Butter Defies Gravity

You can’t talk about today’s EU dairy market without addressing the elephant in the room – the dramatic split between product categories. While butter remains buoyant (+0.3% over four weeks), everything else is sinking: SMP (-0.6%), WMP (-0.4%), and cheddar taking the biggest hit (-2.4%).

“Butter’s strength amid general weakness is like watching a salmon swimming upstream,” one trader told me last week. “It’s defying market gravity.”

How is this possible? It’s not just random market noise – it reflects a fundamental realignment of Europe’s milk utilization. Processors are making a strategic pivot toward cheese, which will see production growth of 0.6% this year. This cheese-first approach directly creates the forecast production declines in butter (-1%), SMP (-4%), and WMP (-5%).

Let’s be honest – it’s a high-stakes game of dairy Tetris. Processors are shifting milk blocks into cheese, where they see the best returns, which leaves gaps in other product categories.

The butter market’s resilience stems from genuinely tight supplies. Industry reports consistently mention limited product availability and robust demand for milk fat. This tightness isn’t accidental – it directly results from strategic decisions prioritizing cheese manufacturing over butter production.

Cost Relief Finally Arrives – But Don’t Pop the Champagne Yet

After years of relentless input cost pressure, European dairy farmers are finally seeing some relief. Recent data shows energy costs falling 7.1% over four weeks while feed costs have stabilized.

What’s driving this improvement? We’re seeing a combination of better global grain harvests, normalized energy markets following the extreme volatility of 2022-23, and adjustments in supply chains. Irish forecasts project a 9% drop in feed expenditure per liter and a 5% decline in fertilizer prices compared to 2024.

Processing costs also benefit from moderating energy prices, with European electrical and natural gas declining month-on-month. Couldn’t this relief have come at a better time after the extraordinary input price volatility since 2022?

But don’t break out the champagne just yet. Despite these improvements, input costs remain significantly elevated compared to historical norms. The Irish analysis, while optimistic, still characterizes 2025 as operating in a “high-cost environment.”

The good news? Easing input costs and firm milk prices should deliver meaningful margin improvements. Irish forecasts project increases in net margin per liter (+29%) and per hectare (+35%) for 2025. That’s a welcome relief after the brutal squeeze many farmers endured in 2023/24.

Italian Market Spotlight: Premium Prices Under Pressure

Italy’s dairy sector, anchored by world-famous PDO cheese production, offers a fascinating microcosm of broader European trends with distinctive local dynamics.

Italian spot milk prices remain seasonally high but have softened recently. Early April saw prices ease to €0.55 per liter, continuing a gradual decline from February peaks. By late April, the price range had settled at €53.50-55.00/100kg.

Despite this dip, Italian dairy farmers maintain a relatively strong position. In five years, the early April price level was the highest recorded for that specific month. Italy also ranked among the member states, seeing the strongest year-on-year price increases.

What makes the Italian market particularly interesting isn’t just the raw milk price but how it connects to PDO cheese economics. Rather than focusing solely on generic milk prices, Italian farmers closely track indicators like the “Grana Padano Payout” – the theoretical value of milk destined for this prestigious cheese production.

Similarly, the critical “Milk: Feed Ratio” provides crucial insight into Italian dairy farm profitability. When this ratio falls below 1.5, farmers typically struggle to break even. The ratio’s recent improvements reflect higher milk prices and moderating feed costs.

What’s Next? The 2025 Outlook

Looking ahead through 2025, what can European dairy farmers expect? The markets face a delicately balanced outlook with encouraging signs and significant risks.

On the supply side, the structural limitations constraining EU milk production show no signs of easing. Neither major forecast suggests any meaningful production growth in 2025. The continued prioritization of cheese production at the expense of butter and powders will further reshape product availability.

In contrast, global milk production is expected to recover modestly, with aggregated growth across major exporters forecast between 0.6% and 0.8%. The US expansion continues, New Zealand is recovering output, and Argentina rebounds strongly.

The critical question mark hangs over global demand, particularly from China. After three consecutive years of import declines, Rabobank forecasts a modest 2% increase in Chinese dairy imports for 2025. But can we count on this recovery if China’s broader economic challenges persist?

Several key risk factors could disrupt market stability:

1. Disease outbreaks like the bluetongue virus in Europe and highly pathogenic avian influenza in US cattle herds could unexpectedly limit supply.
2. Trade tensions threaten established trade flows, including China’s investigation into EU dairy subsidies and potential protectionism elsewhere.
3. Weather events could impact feed availability and production costs, particularly in pasture-based systems.
4. Economic pressures from inflation, recession risks, and fluctuating consumer confidence influence purchasing power and dairy demand.

What This Means for Your Operation

For dairy producers across Europe, 2025 presents an opportunity for financial recovery after challenging years but demands continued vigilance and strategic thinking.

The potential for improved margins offers welcome relief, though it requires ongoing focus on cost management and operational efficiency. You’ll want to lock in feed costs when advantageous opportunities arise rather than assuming the current easing trend will continue indefinitely.

Evaluate your product mix and contracts to capitalize on the strong butter market while preparing for potential weakness in other categories. Monitor key indicators beyond basic milk prices, including product-specific returns and relevant cost ratios that provide deeper insight into profitability.

Perhaps most importantly, avoid dramatically expanding production based on current favorable prices. The structural constraints limiting EU growth aren’t temporary aberrations but the reality of the new market.

As one industry veteran said, “2025 isn’t about getting bigger – it’s about getting better.” In a market defined by complex regional dynamics, strategic production choices, and ongoing uncertainty, that’s advice worth heeding.

Learn more:

• Global Dairy Market Trends 2025: European Decline, US Expansion Reshaping Industry Landscape
  Explores how EU production constraints contrast with US growth, aligning with the structural supply limitations and international price disparities highlighted in the main analysis.
• EU Dairy Forecast 2025: Milk Production Declines as Cheese Demand Rises
  Details the strategic shift toward cheese production and its impact on butter/powder markets, mirroring the derivative market divergence discussed in the original report.
• EU Dairy Production Falls as Brussels Pivots from Farm to Fork to New Vision
  Examines evolving EU agricultural policies and their economic implications, contextualizing the regulatory pressures shaping 2025’s production constraints and cost structures.

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