Butter hits record $8k/MT! Global dairy markets split: fats soar as proteins lag. EU supply crunch meets US export boom. Who wins?

EXECUTIVE SUMMARY: Global dairy markets saw butter smash records ($7,992/MT) at May’s GDT auction, while cheese surged 12%, driven by tightening EU supplies and voracious international demand. The fat-protein gap widened sharply, with SMP barely budging (+0.5%) as processors prioritize cheese over powders. US exports hit two-year highs on weak-dollar deals, but Chinese tariffs crippled whey/lactose sales. Despite bullish prices, risks loom: EU herds keep shrinking, US spring flush may flood markets, and China’s import appetite remains shaky. Farmers face a high-stakes balancing act between cashing in on fat premiums and hedging against volatile futures.

KEY TAKEAWAYS:

• Fat rules: Butter/cheddar hit 3-year highs (GDT +3.8-12%) as EU milk shortages force processors to prioritize cheese.
• US exports boom (but with cracks): Record cheese/butter shipments offset by China’s 150% tariffs crushing $1.6B whey trade.
• Supply whiplash: EU herds (-687k cows) tighten markets while US spring flush risks inventory gluts post-peak.
• Ticking clock: Futures outpace USDA forecasts – $18 milk prices face correction risks if China blinks or feed costs rebound.

I’ve spent all morning digging through the latest figures, and let me tell you – this week’s dairy markets are giving us one wild ride. The GDT auction smashed records while EU spot markets softened. Strange times indeed.

The Fat Premium Widens – And Nobody Saw This Coming

Let’s cut straight to what matters. Butter hit a jaw-dropping $7,992/MT at last week’s GDT auction – a record of processors scrambling and buyers panicking. Remember when everyone thought butter prices would stabilize by Q2? Yeah, that prediction aged like milk in summer heat.

The fat premium isn’t just continuing; it’s accelerating. GDT butter jumped 3.8% while Cheddar skyrocketed a stunning 12% to $5,519/MT. Meanwhile, SMP barely moved, increasing just 0.5% to $2,828/MT. This divergence between fat and protein values isn’t some temporary blip – it’s becoming structural, and frankly, I think many farms haven’t fully adjusted their strategies to this reality yet.

What’s fascinating is how differently the markets are responding regionally. While GDT set records, European spot butter declined by €160 (-2.1%) to €7,297/MT. French butter took the biggest hit, tumbling €256 (-3.3%) to €7,490/MT. This disconnect between futures optimism and immediate physical market reality creates opportunity and risk for anyone playing both markets.

I talked with three major processors last week, and none had a consistent explanation for this divergence. Perhaps it’s inventory positioning ahead of summer, or European buyers are showing more price resistance than their global counterparts. Either way, it bears watching closely.

U.S. Export Engine Powers Forward Despite Headwinds

American dairy exports are booming, with March figures showing value and volume hitting two-year highs. Cheese exports nearly matched last year’s record March performance, with shipments to Japan hitting an all-time high. The butter export situation is even more impressive – 53 million pounds of butter and milkfat shipped abroad in Q1 2025, giving us the strongest first-quarter export performance since 2014.

What’s driving this? Two key factors: relatively low U.S. prices compared to international benchmarks, and a strategically advantageous weak dollar that makes our products look like bargains overseas. Without these robust exports, we’d be drowning in product, especially considering U.S. manufacturers churned out 1.4% more cheese and a whopping 8.6% more butter than in March 2024.

But – and this is a significant thing – not all product categories are thriving. The Chinese retaliatory tariffs have hammered our whey and lactose exports. With tariffs reaching 150% for some products, Chinese buyers predictably shift to European and Oceanian suppliers. You can see the evidence in that extraordinary 16.8% surge for lactose at GDT, bringing prices to $1,611/MT as buyers seek non-U.S. origin product.

It reminds me of the trade disruptions we saw in 2019, though the scale is different. The market can adjust to many things, but policy shocks like these tariffs create ripples that take months or even years to play out fully.

The European Supply Puzzle Gets More Complicated

The structural decline in EU milk production continues to shape market dynamics in ways that aren’t always obvious. With cow numbers down by an estimated 687,000 head year-over-year by the end of 2024 (reaching multi-decade lows), processors are making tough choices about milk allocation.

They’re favoring cheese production (projected +0.6% in 2025) at the expense of butter (-1%), SMP (-4%), and WMP (-5%). Given the relative returns, it’s a logical business decision, but it creates this manufactured scarcity for butter that’s keeping prices exceptionally high despite the recent spot market dips.

Ireland is an exception to the broader European trend, with March milk intake surging 8.1% year-over-year to 818.2 million liters. What’s weird is that this production increase didn’t translate to higher butter output – Irish butter production fell by 1,500 MT compared to March 2024. I suspect they’re diverting more milk to cheese or infant formula, but the data doesn’t give us a clear picture yet.

There’s another wrinkle in the Irish story that deserves attention. Their dairy calf registrations dropped significantly early in 2025, which could signal future constraints on Irish dairy herd growth. If Ireland’s production boom proves temporary, we might see its supply trajectory align more closely with the rest of the EU later this year.

What This Means for Dairy Farms Right Now

The current market environment offers both opportunities and risks for dairy operations worldwide. Here’s what I’m telling the farmers I work with:

1. Double down on butterfat production – With the extreme premium on fat components, you should evaluate every aspect of your operation – from genetics to feeding programs – to maximize fat content. I know a producer in Wisconsin who adjusted his feed ration last quarter and boosted butterfat by 0.3% with minimal disruption to overall volume. The return on that investment was phenomenal.
2. Watch regional signals, not just global ones – The disconnect between futures, GDT results, and EU spot prices shows that markets aren’t moving in lockstep. If you’re in Europe, don’t assume the GDT rally automatically translates to your milk check.
3. Lock in some margins where possible – Current Class III and IV futures prices in the U.S. offer solid hedging opportunities, especially given the risk of increased production pressuring prices later in the year. Don’t get greedy waiting for the absolute top – protect what you can.
4. Capitalize on strong beef values – With cattle futures at all-time highs, strategic decisions about culling, beef-on-dairy breeding, and raising dairy beef can significantly enhance farm profitability. Many producers I speak with are seeing 25-30% higher cull values than last year.
5. Consider feed buying opportunities – Corn futures recently hit five-month lows. While they’ve bounced back slightly, there are still opportunities to lock in favorable feed costs. Don’t wait too long – weather markets can turn on a dime.

Will This Rally Last? I’m Cautiously Optimistic, But…

The sustainability of current dairy strength depends on several factors, and I’m honestly a bit concerned about some of them. The most significant risk is whether global milk production will grow at rates that eventually outpace demand. The U.S. Spring flush is adding significant volume, and while exports are absorbing this production for now, any export disruption could quickly create inventory problems.

The Chinese market remains frustratingly opaque. Their purchasing decisions, particularly for products like whole milk powder and whey, can single-handedly shift market balances. When they sneeze, global dairy markets catch pneumonia. Their recent procurement strategies – particularly avoiding American products subject to tariffs – show how sensitive these trade flows are to policy decisions.

This tension between current market strength and potential future risks is keeping me up at night. Spot prices for cheese, NDM, and whey strengthened significantly last week, and nearby futures contracts are trading well above the USDA’s average forecast for 2025. However, official USDA forecasts anticipate higher overall U.S. milk production later in the year, which could pressure prices downward. Something’s gotta give.

Bottom Line

If you’re producing milk with high butterfat right now, you’re in the market’s sweet spot. The fat component premium will likely persist through 2025, driven by European structural constraints and strong global demand. But don’t get complacent – increasing production in the U.S. and uncertain Chinese demand create potential headwinds.

The smart play for the next quarter? Focus on component optimization, carefully manage your risk exposure through appropriate hedging strategies, and closely monitor regional price signals that might diverge from global trends. The market’s giving us plenty to work with now, but that can change faster than we’d like to admit.

I’ve been through enough dairy cycles to know that when prices look this good, it’s usually time to start looking over your shoulder. Not to be pessimistic – just realistic. The current strength offers a chance to build a financial cushion for whatever comes next. And something always comes next in dairy, doesn’t it?

Learn more:

• Weekly Dairy Market Recap April 28th, 2025: Fat Leads the Way While Powders Take a Breather
  Dive into the previous week’s market dynamics-discover how milk fat continues to outpace powders, with Argentina’s production boom and China’s surging demand redrawing the global dairy map.
• Global Dairy Market in 2025: Production Shifts, Demand Fluctuations, and Trade Dynamics
  Explore the big-picture trends shaping 2025: shifting production powerhouses, evolving trade flows, and the competitive pressures facing U.S. and EU dairy exporters.
• March 24, 2025: Fonterra’s Profit Surge, EU Butter Prices Skyrocket, and Markets Defy Forecasts
  Get the story behind Fonterra’s profit jump, surging EU butter prices, and why traders are betting on dairy despite USDA’s bearish outlook.

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