Here’s what caught my attention today: Cheese barely budged, but the margin window just cracked wide open

EXECUTIVE SUMMARY: Look, I’ve been watching these markets for years, and the margin spread we’re seeing right now between feed costs and forward milk prices is absolutely historic. While everyone’s fixated on that penny move in block cheese today, December corn just dropped below $4.15 while Q4 Class III futures are trading over $19 – that’s your signal to act. The milk-to-feed ratio jumped from 1.8 to 2.05, putting income over feed cost near $10 per hundredweight… numbers like that don’t stick around long.Here’s the thing – Europe’s cutting production by 0.2%, Australia’s battling a perfect storm of drought and high costs, but we’ve got $8 billion in new processing capacity coming online that needs to be fed. The smart money isn’t waiting for cheese to rally another nickel. They’re locking in feed prices now and hedging 25-30% of their fall milk production while this window’s open.

KEY TAKEAWAYS

• Lock in your feed costs immediately – December corn at $4.13/bu and soybean meal at $274/ton won’t last with this harvest uncertainty. Midwest producers already getting 10-20¢ under futures on their corn basis… that’s real money saved.
• Price 25-30% of Q4 and Q1 production now – December Class III trading $2+ over August futures means the market’s paying you to think ahead. Forward contracts or CME options, doesn’t matter – just get some coverage before this contango flattens.
• Your butterfat is worth more globally than ever – U.S. butter trading $2,400/MT cheaper than European, $1,844/MT under New Zealand. Export demand from MENA and Southeast Asia is pulling our fat premiums higher.
• Regional heat stress = spot milk premiums – Processors paying up to $2 over Class in the Central region right now. If you’re in a cooler microclimate keeping production steady, leverage that advantage.
• Processing demand is structural, not cyclical – These new Hilmar, Leprino, and Fairlife plants need 55 million pounds of milk daily by 2026. Build those relationships now because this demand floor isn’t going anywhere.

Look, if you’re focusing on today’s penny move in block cheese, you’re missing the forest for the trees. Sure, blocks ticked up a cent to $1.6825 on zero trades, but that’s not the most significant development. The game-changer is the bullish gap between declining feed costs and firm milk futures – December corn sitting under $4.15 while Q4 Class III futures trade at a hefty premium to cash. This kind of spread doesn’t come around every day.

Today’s Numbers – And What They Actually Mean for Your Operation

After yesterday’s explosive session with 15 block trades and barrels jumping 4.5 cents, today felt like the market catching its breath. Zero trades in butter or cheese, just two NDM loads changing hands.

What’s particularly interesting is how the order book closed. We had four unfilled bids in blocks at $1.6825 with zero offers. That’s quietly bullish – buyers were still there at the close, but sellers weren’t willing to meet them.

The Global Picture – Where We Stand Against the Competition

I’ve been watching our international competitive position closely, and the current situation is remarkable.

Key Takeaway: This puts U.S. powders at a slight price disadvantage to our competitors—explaining why NDM exports face headwinds when this premium widens.

European Union: According to recent USDA analysis, they’re looking at a 0.2% decline in milk deliveries for 2025. Shrinking herds in Germany and France, plus all those EU Green Deal regulations. European processors are shifting focus to high-value cheese over butter and powders.

New Zealand: Industry reports suggest their production is off to a strong start this season. Early production trends look positive with that $10.00/kgMS opening price. If weather cooperates, current indicators point to potential growth, which will weigh on global powder prices.

Australia: Recent USDA projections show production declining to 8.6 million metric tons – they’re navigating what industry folks call a “perfect storm” of drought, flooding, and high input costs.

Feed Costs – The Story Everyone Should Be Watching

Here’s what’s really driving the margin opportunity:

What strikes me about this setup is the timing. December corn settled at $4.1375 today, significantly below the $4.43 we saw in the expired September 2024 contract. That milk-to-feed ratio of 2.05 is a marked improvement from the 1.8 we saw recently – which is considered tight margin territory.

Production Reality – The National vs Regional Story

According to recent USDA data, we had 18.5 billion pounds in June from the 24 major dairy states, up 3.4% from last year. The dairy herd is expanding – 9.47 million head as of June, up from last year.

But here’s what’s fascinating… for a producer dealing with summer heat stress, that “Milk Production Up 3.4%” headline can feel completely disconnected from reality. Processors in the Central region are actively hunting for spot loads, paying up to $2 over Class. This dichotomy is crucial – national supply provides a ceiling on prices, while regional weather-driven tightness creates a floor.

What’s Really Moving These Markets

Consumer demand? Steady but uninspired. Recent quarterly reports from major pizza chains indicate year-over-year declines in same-store sales – a key cheese demand indicator. This lackluster consumer pull is capping cheese prices.

Processing demand? According to recent industry analysis, the U.S. dairy industry is in the middle of a massive capital investment cycle exceeding $8 billion. These new plants are already pulling milk from the market, running at two-thirds capacity or more.

Export markets continue telling that component story. Mexico remains our most reliable partner. Industry trends suggest butterfat exports have been strengthening. The MENA region has shown substantial growth in demand for U.S. butterfat – industry reports indicate significant increases in early 2025.

Forward Curve – The Opportunity Staring Us in the Face

USDA’s latest WASDE forecasts all-milk price for 2025 averaging $21.60/cwt. But the futures market shows clear contango:

• August ’25: $17.12
• September ’25: ~$17.79
• October ’25: ~$18.78
• December ’25: ~$19.15

For producers, this transforms abstract market concepts into concrete business opportunities. The market is explicitly offering higher prices for future milk than today’s cash price.

Regional Spotlight: Upper Midwest Dynamics

Regional trends suggest Wisconsin and Minnesota production showed growth patterns consistent with national data. Cool overnight temperatures are mitigating daytime heat impacts, keeping volumes relatively steady.

Feed cost advantage for Midwest producers is significant. Local corn basis trades at a discount to CME futures. Wisconsin hay reports show Prime Alfalfa small squares averaging ~$290/ton.

What Producers Should Actually Do Right Now

Pricing & Risk Management: Seriously consider pricing 25-30% of Q4 2025 and Q1 2026 projected production. December Class III trading over $2.00/cwt above August protects excellent current margins.

Feed Procurement: Contact suppliers immediately for firm quotes on corn and soybean meal through end of 2025. Corn and meal futures are soft due to large harvest expectations.

Cash Flow Planning: Strong margins projected for second half of 2025 make this ideal for detailed planning. Model expected cash flow based on locked-in prices for strategic debt reduction or capital improvements.

Industry Intelligence You Should Know

The processing expansion wave is fundamentally reshaping our landscape. Hilmar Cheese in Dodge City, Kansas; Leprino Foods in Lubbock, Texas; Fairlife in Webster, New York – they’re part of an expansion exceeding $8 billion creating massive, long-term milk demand.

June 2025 brought significant FMMO pricing formula changes. New “make allowances” for manufactured products reflect rising processing costs. Net impact varies by region depending on local milk utilization mix.

Putting Today in Perspective

Today’s quiet session was consolidation – a pause following this week’s significant, volume-driven cheese rally. Despite the flat close, spot block and barrel cheese prices are still up over 3% for the week.

The most significant story isn’t the silent CME screen. It’s that powerful, actionable margin opportunity opening up for producers. The divergence between falling new-crop feed costs and strong forward milk prices has created historically favorable profitability windows.

Producers who recognize this opportunity and take strategic action managing both input costs and milk price risk will position their operations for success through the second half of 2025 and beyond.

And honestly? That opportunity might not stay open forever.

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

Learn More:

• Dairy Feed Costs: Top 10 Ways To Tame The Feed Bill Beast – This article reveals 10 practical strategies for cutting on-farm feed expenses. It provides the tactical know-how to actively lower your cost of production and fully capitalize on the margin opportunity identified in today’s report.
• The 5 Unbreakable Rules for Profitable Dairy Farming – To complement the report’s market tactics, this piece outlines the core strategic principles for long-term success. It demonstrates how to build a resilient, low-cost operation that can consistently thrive through any market cycle, not just the current one.
• Genomics: The Secret Weapon for Accelerated Genetic Progress – The report highlights new processing plants demanding high-quality milk. This article provides a blueprint for using genomic testing to breed healthier, more efficient cows specifically tailored to deliver the high-component milk these new facilities require.

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