Butter soars 2% Cheese hits 3-year highs! Global dairy markets rocketed by EU milk shortages and US export frenzy. Supply crunch ahead?”
EXECUTIVE SUMMARY: Global dairy markets saw EEX butter futures surge 2% to €7,335/MT last week as EU milk production lagged 0.5% YTD, tightening cream supplies. US cheese prices exploded to .93/lb – highest since January – amid sluggish spring flush progress and export-driven inventory squeezes. Fonterra held firm on 2025 GDT offer volumes, while EU processors prioritized cheese over butter, worsening butterfat scarcity. Oceania’s milk powder prices diverged, with WMP demand softening (-0.3%) but AMF gaining 0.8%. With heifers hitting $4,200/head and feed costs volatile, producers face expansion hurdles despite strong futures signals.
KEY TAKEAWAYS
- Butter vs. Powder Split: EEX butter ↑2% (€7,335) while SMP ↓0.9% – EU’s cheese pivot starves butterfat supplies
- Cheese Fireworks: US CME blocks leapt 11.25¢ to $1.93/lb as exports outpace sluggish spring flush output
- Supply Squeeze Play: EU milk collections ↓0.2% Y/Y with younger, leaner herds; NZ slaughters ↑13.3%
- Fonterra’s Steady Hand: No changes to 2025 GDT volumes (7,109T WMP, 2,260T SMP) despite market turbulence
- Export Wildcard: US whey ↑0.75¢ as China buying resumes, but 10% tariff overhang looms
Buckle up, dairy farmers! Last week’s global dairy markets delivered a wild rollercoaster ride with EEX butter futures climbing against the trend, cheese markets erupting higher on unexpected supply tightness, and powder markets sending mixed signals across regions. Behind these dramatic moves lies a complex web of constrained European milk output, strategic processing shifts, and renewed export demand reshaping prices across the dairy landscape.
TRADING VOLUMES REVEAL MARKET UNCERTAINTY
EEX witnessed frantic activity last week with 3,630 tonnes changing hands. Tuesday’s session alone accounted for a whopping 1,000 tonnes – nearly one-third of the week’s action. Butter dominated with 419 tonnes traded while SMP followed at 307 tonnes.
This isn’t just routine trading. The volume spike signals growing anxiety as buyers and sellers struggle to read market direction amid conflicting production and demand signals. When trading accelerates like this, it typically means someone’s getting nervous about future availability.
Over at SGX, volumes exploded with 13,402 lots traded last week. WMP dominated with 9,946 lots, SMP followed at 2,885 lots, while butter (471 lots) and AMF (100 lots) trailed significantly. New Zealand milk price futures saw decent activity with 438 lots traded, representing 2,628,000 kgMS.
What’s fascinating here? The overwhelming concentration in powder contracts suggests market participants are particularly anxious about securing powder supplies while feeling less concerned about fats. That imbalance itself tells a market story.
BUTTER DEFIES GRAVITY WHILE POWDERS STUMBLE
EEX butter futures stunned market observers by surging 2.0% last week, with the May25-Dec25 strip averaging €7,335. This remarkable strength isn’t happening in isolation – it perfectly mirrors Europe’s ongoing structural issues with milk production and strategic processing decisions.
“European processors are increasingly channeling available milk toward cheese production, creating a serious cream shortage for butter manufacturing,” explains Andrew Martin, market analyst. “The numbers tell us butter makers are fighting over a shrinking cream pool.”
Meanwhile, EEX SMP futures headed south, with the May25-Dec25 strip dropping 0.9% to €2,513. Despite limited European milk production, this downward drift suggests powder buyers are balking at current price levels. EEX whey futures also slipped marginally, with the May25-Dec25 strip edging down 0.1% to €920.
SGX futures painted a similar picture – WMP’s May25-Dec25 curve drifted 0.3% lower to $4,013, while SMP contracts fell 0.8% to $2,926. SGX butter futures dropped more substantially than their European counterparts, losing 1.4% to settle at $6,990, though AMF bucked the trend with a 0.8% gain to $6,964.
The EU’s spot market confirmed butter’s weakness, with the index dropping €61 (-0.8%) to €7,236. This convergence between futures and spot prices suggests the market is finding equilibrium, albeit at historically strong levels that continue to challenge buyers’ budgets.
FONTERRA PLAYS IT STEADY AMID TURBULENCE
Fonterra delivered some in a market desperate for certainty, announcing no changes to its forecasted GDT offer quantities for WMP, SMP, Cheddar Cheese, and BMP for the next 12 months. This stability from the world’s largest dairy exporter provides a rare anchor in today’s choppy waters.
For the upcoming TE380 auction, Fonterra will offer 7,109 tonnes of WMP, 2,260 tonnes of SMP, 370 tonnes of Cheddar, 2,130 tonnes of AMF, and 1,007 tonnes of butter. These volumes align closely with previous forecasts, suggesting Fonterra sees little reason to adjust its sales strategy despite recent price volatility.
“When the biggest player in dairy exports keeps its forecast steady, everyone can breathe a little easier,” notes Andrew Martin. “Fonterra’s consistent projections remove one wild card from an already complex market equation.”
The cooperative’s 12-month cream forecast also remains unchanged at 106,135 tonnes, though the balance between AMF and butter will see some flexibility in contracts C5 and C6, covering October 2025 and beyond.
EUROPE’S MILK STRUGGLES PERSIST DESPITE BETTER COMPONENTS
EU27+UK milk collections continue their disappointing performance, with March totals at just 14.34 million tonnes – down 0.2% year-on-year. This extends the cumulative shortfall to 0.5% below previous year levels at 39.68 million tonnes.
Don’t be fooled by these seemingly small percentage drops. For Europe’s massive dairy industry, even slight declines represent enormous volumes of missing milk that processors simply can’t replace.
The silver lining? Components are improving, with average milkfat hitting 4.20% compared to last year’s 4.17%, while protein also climbed to 3.47%. These composition gains partly offset the volume decline, resulting in milk solids collections for March reaching 1,100 kt, up 0.7% year-on-year.
This improved component picture while volume slumps suggest European farmers strategically focus on milk quality over quantity – a logical response to environmental regulations and payment systems that reward component levels.
Ireland’s dairy sector tells a particularly interesting story, with April dairy cow slaughters dropping 5.0% year-over-year to 25,335 head. Yet the Irish dairy herd shrank by 3.0% (49,350 head) compared to last year, settling at 1.62 million animals with a generally younger age profile.
“Irish farmers are brilliantly adapting to new realities,” explains Andrew Martin. “They’re culling fewer cows but still reducing overall numbers, focusing on keeping only top performers while navigating environmental constraints. It’s quality over quantity in action.”
US CHEESE MARKET ERUPTS IN SURPRISE RALLY
Nobody saw this coming! The US cheese market delivered the most shocking move of the week, with CME spot cheddar blocks skyrocketing 11.25¢ to hit $1.93 per pound – levels not seen since January. This dramatic surge blindsided many analysts who confidently predicted increased production and softer prices during spring’s milk flush.
Instead, cheese buyers who gambled by postponing purchases now scramble for products in unexpectedly tight markets. USDA’s Dairy Market News confirms spot cheese inventories are “somewhat tight” in the Central region, while Western processors report “Q2 production is heavily committed” due to booming export sales.
This explosive rally exposes a fundamental miscalculation by market participants about the balance between domestic production growth and surging export demand. While new US cheese processing capacity is coming online, the ramp-up has been slower than expected, and international buyers are gobbling up available supplies at a feverish pace.
Other dairy markets strengthened too, though less dramatically. Spot whey powder jumped 0.75¢ to 55¢, hitting a three-month high. This improvement reflects a temporary breathing space in US-China trade tensions, triggering opportunistic buying of US whey. However, structural challenges remain, with China still imposing tariffs on US imports at rates 10% higher than last year.
GLOBAL SUPPLY CONSTRAINTS BOOST US EXPORT POSITION
The US dairy export outlook has brightened considerably thanks to supply limitations elsewhere. Oceania’s production has entered its seasonal trough, slashing SMP availability from that region, while European milk output remains stubbornly below last year’s already disappointing levels.
This global supply squeeze redirects international buyers toward American suppliers, particularly for milk powders. Mexican importers have been especially aggressive US powder purchasers, helping drive higher prices. The proof? CME spot nonfat dry milk jumped 1.75¢ to $1.225, reflecting this renewed international interest.
Even US butter, traditionally focused on domestic markets, benefits from global dynamics. CME spot butter added 1.25¢ to close at $2.3425. American butter remains the cheapest globally, attracting export enquiries while domestic manufacturers build inventories for holiday season needs later this year. However, plentiful domestic cream is preventing more dramatic price increases.
PRODUCERS FACE TOUGH EXPANSION CHOICES
Today’s market presents a fascinating contradiction for dairy farmers – disappointing April milk checks followed by significantly brighter prospects for the remainder of 2025.
This improving outlook has fired up expansion interest among some producers. However, a critical bottleneck exists: replacement heifer availability and cost. At the latest Pipestone, Minnesota dairy auction, top springers commanded between $3,800 and $4,200 per head – eye-watering prices dramatically changing expansion economics.
“When replacement animals cost north of $4,000 each, expansion becomes a strategic board-room decision rather than an impulsive reaction to better milk prices,” notes Andrew Martin. “These heifer prices are forcing farmers to think long-term rather than chase short-term market signals.”
The USDA has nudged its forecast for 2025 US milk production higher to 103.15 million tonnes, representing growth of 0.6% from 2024 levels, up from its previous projection of 0.4%. This modest adjustment suggests regulators anticipate slightly improved production conditions but still expect relatively constrained growth compared to historical patterns.
TACTICAL MOVES FOR SMART OPERATORS
What should savvy dairy producers and buyers do in today’s volatile markets? Here’s my blunt advice:
- Lock in upside now: With futures markets showing unexpected strength in cheese and butter, consider securing favorable prices for a portion of your production.
- Focus on your components: European producers show us how to maximize revenue by emphasizing milk components over raw volume. This strategy pays dividends when processor demand for butterfat and protein intensifies.
- Watch processing capacity: The surprising tightness in US cheese markets demonstrates how processing bottlenecks can create pricing opportunities even when milk is relatively abundant.
- Monitor trade developments like a hawk: The whey market’s dramatic response to US-China tensions proves how quickly policy shifts can upend specific dairy categories.
The message couldn’t be clearer for buyers and processors – secure your near-term needs immediately. The expected spring flush price weakness hasn’t materialized in key categories, and waiting for lower prices looks increasingly like a losing strategy.
“Traditional seasonal patterns are being completely rewritten by structural changes in production capacity, environmental regulations, and shifting trade relationships,” concludes Andrew Martin. “The winners in today’s dairy market won’t be those waiting for normal patterns to return – they’ll adapt fastest to our new reality.”
Learn more:
- CME Dairy Market Report – May 14, 2025: Cheese Blocks Surge as Butter Holds Steady
- Weekly Global Dairy Market Recap April 28th, 2025: Fat Leads the Way While Powders Take a Breather
- Global Dairy Disruption: How to Capitalize on International Market Shifts
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