Archive for milk price outlook 2025

The Wall of Milk: Making Sense of 2025’s Global Dairy Crunch

This downturn feels different because it is. Four major exporters expanded at once, and $15 milk is testing every assumption. Here’s what the resilient dairies know.

EXECUTIVE SUMMARY: When producers say this downturn feels different, they’re right. For the first time, the U.S., EU, New Zealand, and Argentina all expanded production within the same window—creating a “wall of milk” that pushed July 2025 output to 19.0 billion pounds while Class III dropped from the $20s to around $15. Here’s what makes it unusual: exports are at record levels, confirming this is a supply squeeze, not a demand collapse. Dairy’s 24-month biological timeline means decisions that made complete sense at $22 milk are now delivering into a $15 market, with no quick reversal possible. Beef-on-dairy has added real value but also reduced the number of replacement heifers to 3.9 million head—the lowest since 1978—limiting culling flexibility when some operations need it most. The dairies navigating this effectively share common strategies: precision culling using income-over-feed-cost data, margin protection through DMC and Dairy Revenue Protection, and breeding for feed efficiency using traits like Feed Saved. This cycle will accelerate consolidation, but producers who know their numbers and deploy available tools will emerge stronger when markets rebalance.

As milk checks tightened through 2025, I kept hearing the same thing from producers across the country: “We’ve seen low prices before, but this one feels different.” And as many of you have probably sensed on your own operations, they’re right. This isn’t just one region working through a rough patch. The U.S., the European Union, New Zealand, and key South American exporters all pushed production higher within a fairly tight window. A lot of that milk is now competing for the same buyers at the same time.

The 24‑month lag exposed: production peaks just as prices crash, proving this downturn is about too much milk, not weak demand

What makes this cycle particularly challenging is that feed, labor, interest, and environmental compliance costs haven’t returned to the levels we saw a decade ago. That’s especially true in higher-cost regions like California and parts of Western Europe. So you’ve got more milk hitting the market, softer world prices, and cost structures that remain stubbornly elevated. That combination is creating what many are calling the “wall of milk.”

In this piece, we’ll walk through what farmers and analysts are learning about this cycle: how the 24-month expansion lag plays out in practice, how beef-on-dairy has delivered real benefits while also creating some unexpected ripple effects, why lenders and processors kept supporting growth even as signals shifted, how different regions are experiencing this downturn in very different ways, and what the operations navigating this well seem to have in common. The goal is to offer a clearer view of the bigger picture so the decisions you’re making—about cows, facilities, or risk management—are grounded in how this system actually works.

Why This Cycle Really Does Feel Different

Let’s start with the production numbers and work back toward the parlor.

USDA’s Milk Production reports paint a stark picture:

  • July 2025 Output (24 major states): 18.8 billion pounds initially, revised to 19.0 billion
  • Year-Over-Year Growth: +4.2%—the strongest since 2021
  • Total National Production: 19.6 billion pounds
  • Cow Numbers: Approaching the highest levels seen in decades

On the infrastructure side, the industry has been busy. More than 50 new or expanded dairy plants—particularly cheese and powder facilities in the Upper Midwest, Texas, and the High Plains—have come online, representing roughly $8 billion in capital investment over the past several years.

Leonard Polzin, the Dairy Economist and Farm Management Outreach Specialist at UW-Madison Division of Extension, framed it well at the 2025 Wisconsin Agricultural Outlook Forum. He noted that the industry is seeing “a substantial increase in processing capacity,” with an estimated $8 billion in gross investment creating new demand for milk. The challenge, as he pointed out, is that policy uncertainties—including potential tariffs and questions about labor availability—could affect prices before that demand fully materializes.

The picture looks similar in other major producing regions:

  • European Union: EU Milk Market Observatory data show deliveries climbing modestly in 2024, with product stocks building in early 2025 as cheese, butter, and powder production outpaced demand growth
  • New Zealand: Fonterra’s 2025/26 season forecast shows milk solids volumes running several percent ahead of the prior year, with farmgate payouts around NZ$10 per kg of milksolids
  • Argentina: Ministry data and Tridge reports show national milk output in early 2025 running 10.9% above the same period in 2024, with March posting gains of 15.9% year-over-year

Here’s where it gets interesting on the demand side. Exports have actually performed well:

  • July 2025 U.S. Exports: 1.6 billion pounds (milk-fat basis)
  • Year-Over-Year Export Growth: +53%—a record for any single month
  • Yet Class III/IV Futures: Trading in the mid-teens through much of 2025, below full-cost breakeven for many conventional operations
July 2025 was the strongest export month in U.S. history, with shipments up 53% year‑over‑year—yet total production still outran demand by another 4.2%. That’s not a demand collapse; it’s too much milk from too many exporters at once.

The takeaway? World demand hasn’t collapsed. Exports are actually quite strong. But supply from multiple major exporting regions has grown faster than demand can absorb in the near term. That’s what makes this feel different from the regional downturns many of us have worked through before.

The 24-Month Expansion Timeline: When Biology Meets Economics

One of the lessons this cycle keeps reinforcing is how much dairy expansion is a commitment you can’t easily unwind. The biology and capital requirements simply don’t move on futures-market time.

Think back to 2023 and early 2024. Milk prices were strong, butterfat levels were excellent across many herds, and balance sheets looked healthier than they had in years. In that environment, deciding to add a pen, upgrade the parlor, or build out the dry cow facilities made a lot of sense. The numbers supported it.

Land-grant extension economists who model these decisions describe a fairly predictable timeline. In those first few months, you’re signing contracts, ordering equipment, and closing on financing. As one University of Wisconsin farm management publication notes, by the time the ink is dry, most of the financial risk is already committed—even though no extra milk has shipped yet.

Through months four to twelve, the facility goes up while you’re either buying bred heifers or ramping up your own replacement program with sexed semen. Cash is flowing out, but the additional milk revenue hasn’t started. Then in months thirteen through twenty-four, those heifers freshen, pens fill, and milk per stall climbs. The challenge is that the broader market—running on that same 18-24 month biological timeline—may have shifted considerably since you started.

Peter Vitaliano, who served as Vice President of Economic Policy and Market Research at the National Milk Producers Federation before retiring at the end of 2024, was already flagging concerns back in February 2024. He noted that “due to a number of factors, we’ll probably see a larger drop than usual” in dairy farm numbers, partly because USDA counts were likely collected before additional farms closed at the end of 2023 due to margin pressure. He added that any margin improvement wouldn’t “constitute anywhere near a full recovery from the financial stress that dairy farms, pretty much of all sizes, are experiencing.”

The 24-Month Trap in Action

I’ve been hearing about situations like this from lenders and consultants: a 900-cow Wisconsin operation signed expansion contracts in early 2024 for 300 additional stalls, with heifers due to freshen by mid-2025. By the time that barn was full, Class III had dropped from the low $20s to around $15.

The extra milk revenue is real, but so is the debt service. Over six months, the gap between projected and actual margins consumed roughly $180,000 in working capital that had been earmarked for feed prepays and equipment upgrades.

The family isn’t in crisis, but there’s no cushion left. They’re working with their lender on revised cash-flow projections and tightening culling criteria to protect equity.

Decisions that made complete sense at $22 milk are now playing out in a $15 world.

Beef-on-Dairy: Real Benefits with Some Unexpected Effects

Beef-on-dairy has been one of the more significant developments in recent years, and it’s delivered genuine value to many operations. At the same time, as it’s scaled across the industry, it’s also changed some dynamics that historically helped balance supply. What I’ve noticed talking with producers is that most understand the benefits clearly—but the systemic effects are only now becoming apparent.

Where the Value Has Been Clear

The research and market data are consistent on this: well-managed beef-on-dairy programs substantially increase calf value compared to straight dairy bull calves. Day-old beef-cross calves often fetch several hundred dollars more, and in program relationships where carcass performance is documented, they can approach native beef calf values.

With milk prices softening in the first half of 2025, beef has become a driver of dairy farm profitability through both cull cows and dairy-beef calves. For many operations, this revenue stream has made a meaningful difference in a tight-margin year.

Some Effects Worth Understanding

What’s become clearer over the past year is how beef-on-dairy interacts with culling decisions and replacement availability when prices fall.

Consider the culling dynamic. A few years ago, that seven- or eight-year-old cow with middling production and some foot issues—bred to a dairy bull and carrying a $50-100 calf—was an easier decision when milk prices dropped. Today, if she’s carrying a beef pregnancy that could bring four figures at calving, the economics pull toward keeping her “one more lactation.” Across a larger herd, those decisions on the bottom 15-20 percent of cows can add meaningful volume that wouldn’t have been in the tank in previous downturns.

Culling DecisionDaily Milk RevenueDaily Direct CostsDaily Net MarginStrategic Action
Keep Low Performer$9.00$8.00$1.00Deferred culling
Replace with High Performer$13.00$9.00$4.00Aggressive culling
Daily Margin Difference+$4.00+$1.00+$3.00Per stall advantage
Impact Over 6 Months$540Single cow (180 days)
Scale: 30 Cows in 600-Cow Herd$16,20030 decisions

On the replacement side, the numbers tell a striking story:

  • January 2025 USDA Cattle Report: Dairy replacement heifers over 500 pounds dropped to just 3.914 million head—the lowest since 1978
  • Heifer-to-Cow Ratio: 41.9%, the smallest since 1991 (per CoBank lead dairy economist Corey Geiger)
  • Primary Driver: More matings going to beef semen, fewer dairy heifer calves being raised

That pruning made sense when heifer-raising costs were high, and beef calves commanded strong premiums. But it also means some operations that would like to cull more aggressively now don’t have the springers available to maintain stall utilization.

From windfall to choke point:” day‑old beef‑cross calves jumped from roughly $650 to $1,400, replacement heifers surged past $3,000, and heifer inventories fell nearly 20%. The same strategy that rescued margins is now what’s limiting culling options in a $15 milk world.

And there’s a productivity element worth noting. Because the heifers that are raised tend to come from the top of the genetic pool—identified through genomic testing—they often bring stronger milk and component performance than the animals they replace. Leonard Polzin noted at the 2025 Wisconsin Ag Forum that “despite a 0.35 percent year-to-date decline in total milk production, calculated milk solids production increased by 1.35 percent.” The industry is meeting demand “more quickly than in the past,” even with somewhat fewer total gallons.

None of this suggests beef-on-dairy is problematic. It’s been valuable for many operations. The consideration is managing it as part of an overall herd and business strategy rather than simply as a breeding decision.

Understanding Why Growth Continued

A reasonable question producers ask is why banks, co-ops, and processors kept supporting expansion even as supply signals shifted. You know, it’s easy to look back and wonder what everyone was thinking. But looking at the incentive structures helps explain the pattern—and honestly, it makes more sense than it might first appear.

The Lender Perspective

Ag lenders work within risk models and regulatory frameworks that emphasize historical cash flow, current balance sheet strength, and collateral values. In 2022-2023, many dairy clients showed multiple years of positive returns and improved equity. Land values in dairy regions were firm. Cull cow and breeding stock values had recovered.

Farm finance research consistently shows that lenders lean heavily on these historical and collateral metrics rather than attempting to time commodity cycles. Add competitive pressure—banks and farm credit systems competing for the same well-run operations—and you can see how turning down an expansion with strong historical numbers often meant losing that relationship to a lender willing to proceed.

From the credit committee’s perspective at the time, financing expansion with their strongest clients appeared reasonable and well-supported by the available data. The depth of the 2025 correction wasn’t yet visible in those metrics.

The Processor View

For processors, the math centers on fixed costs and throughput. Depreciation, labor, and energy don’t decline proportionally when a plant runs below capacity. With billions invested in new cheese, powder, and specialty facilities over the past decade, plant managers face pressure to run at high utilization, spread fixed costs effectively, and maintain market share.

That creates incentives to encourage volume growth from existing shippers, sign new suppliers, and move cautiously on base-excess programs that might push producers toward competitors. Some buyers have implemented tiered pricing systems that discount over-base milk, but these tools are often adopted late in the cycle and rarely coordinate across an entire region.

The result is a system in which internal metrics rewarded growth and utilization, even as external data pointed to a building supply. That’s not a criticism—it’s recognizing how institutional incentives shape behavior.

Regional Variations: Same Prices, Different Realities

One aspect that gets lost in national averages is how differently the same price environment affects operations across locations. As many of us have seen firsthand, cost structure, regulatory environment, and market access all matter enormously.

California: Navigating Significant Headwinds

California operations face several overlapping pressures this cycle.

Water constraints continue tightening. Implementation of the Sustainable Groundwater Management Act and new dairy waste discharge requirements from the State Water Resources Control Board are limiting groundwater pumping and establishing stricter nitrate standards in parts of the Central Valley. Environmental compliance costs—for covered lagoons, digesters, and monitoring systems—continue adding capital and operating expenses. And labor costs, housing prices, and land values remain substantially higher than in most other dairy regions.

When Class IV prices are in the low teens and world butter and powder prices are soft, those structural costs make breakeven difficult, particularly for operations that recently invested in facility upgrades. Understandably, some families are evaluating whether another 20-year investment cycle makes sense in that regulatory and cost environment.

Upper Midwest: Cost Structure Advantages

Wisconsin and neighboring states present a different picture.

A November 2024 University of Wisconsin-Madison study found that dairy contributes about $52.8 billion annually to Wisconsin’s economy, with substantial value coming through processing rather than just farm-level milk sales. The region’s processing network has grown considerably, with cheese plant expansions and new facilities drawing milk from an expanding geography. Feed costs benefit from local production, and land and labor costs, while rising, remain below coastal levels.

Low Class III prices continue to pressure margins, and smaller operations face ongoing consolidation. But many Upper Midwest producers describe having a cost structure that provides a path through this downturn with good management, even if it’s not comfortable.

New Zealand: Low Costs, High Exposure

New Zealand’s pasture-based system delivers meaningful cost advantages—solids produced with less purchased feed and lower energy use in favorable seasons. The 2025/26 forecast payout around NZ$10 per kgMS suggests many operations are maintaining positive margins, though narrower than recent years.

The trade-off is exposure. New Zealand sells the vast majority of its production into export markets. Shifts in Chinese demand, Southeast Asian buying patterns, or currency movements translate quickly into payout adjustments. Low production costs provide resilience, but global market volatility is a constant factor.

Europe and South America: Policy and Economic Dynamics

EU production has edged modestly higher overall, but policy pressure to limit cow numbers in high-density areas for environmental reasons is influencing regional patterns. The bloc appears to be shifting toward cheese and higher-value products while moderating output of commodity powders and butter.

Argentina’s production surge—that 10.9 percent first-quarter increase—reflects improved weather and on-farm economics. But Argentine producers also navigate inflation, policy uncertainty, and volatile input costs that can shift margins dramatically in short periods.

The point is that $15 milk creates very different situations in Tulare, Green County, Canterbury, and Santa Fe. Regional context matters enormously.

The Breeding Solution: Selecting for Feed Efficiency in a Low-Margin World

Here’s something that deserves more attention in these conversations: your genetic decisions today are one of the most powerful tools you have for navigating tight margins over the next decade. And there are now specific, measurable traits designed exactly for this environment.

Feed Saved: A Trait Built for This Moment

The Council on Dairy Cattle Breeding (CDCB) launched Feed Saved (FSAV) back in December 2020, and it’s become increasingly relevant as margins compress. The trait combines two components:

  • Body Weight Composite (BWC): Selecting for moderate-sized cows that require less feed for maintenance
  • Residual Feed Intake (RFI): Identifying cows that are metabolically more efficient—eating less than expected based on their production and body weight

According to Holstein USA’s April 2025 TPI formula update, every pound of feed saved returns approximately $0.13 per cow per lactation. That might sound modest, but across a 500-cow herd over multiple generations, the cumulative impact is substantial.

What’s particularly interesting is the research backing this. A November 2024 study published in Frontiers in Geneticsexamining genomic evaluation of RFI in U.S. Holsteins found that the difference between the most and least efficient first-lactation cows averaged 4.6 kg of dry matter intake per day—while producing similar amounts of milk. Over a 305-day lactation, that’s a significant difference in feed costs. The same study found even larger spreads in second-lactation animals.

How the Industry Is Weighting Efficiency

The April 2025 Net Merit update from CDCB reflects this shift. As Holstein Association USA’s TPI formula now shows:

  • Production (including Feed Efficiency): 46% of total index weight
  • Feed Efficiency $ Index: Combines production efficiency, lower maintenance costs from moderate body weight, and better feed conversion (RFI)

What’s encouraging is that research shows meaningful genetic variation in feed efficiency—the November 2024 Frontiers in Genetics study found RFI heritability in lactating U.S. Holsteins at approximately 0.43 (43%), indicating substantial potential for genetic progress through selection. That’s higher than many health and fertility traits, which means you can actually move the needle on this.

Efficiency MetricDaily Feed (lbs DM)Annual Feed Cost @ $0.12/lbMilk Production (lbs/day)Breeding Strategy Impact
Standard Efficiency Cow55$2,40985Baseline
High Efficiency Cow (Feed Saved)50$2,19085RFI + Feed Saved traits
Annual Advantage per Cow-5 lbs/day$219 savedSame outputImmediate selection
500-Cow Herd Annual Impact$109,500Same outputHerd-wide savings
10-Year Genetic Improvement$1,095,000Same outputCompound benefits

Practical Application

For producers looking to incorporate feed efficiency into their breeding programs:

  • Look for bulls with positive Feed Saved (FSAV) values in their genomic evaluations
  • Consider Body Weight Composite alongside production traits—extreme frame size increases maintenance costs
  • Balance feed efficiency with health and fertility traits; the most efficient cow isn’t profitable if she doesn’t breed back or stay healthy
  • Work with your AI representative or genetics consultant to model how different selection emphases might affect your herd’s economics over 5-10 years

This isn’t about abandoning production goals. It’s about recognizing that in a low-margin environment, the cow that produces 85 pounds while eating 10% less feed may be more profitable than the cow producing 90 pounds at average efficiency.

What the More Resilient Operations Have in Common

Every downturn separates operations that preserve equity and position well for the recovery from those that don’t. Several patterns are emerging among farms navigating this cycle effectively—and what’s encouraging is that most of these are things within a producer’s control.

Making Culling Decisions with Better Data

Operations that are doing well are generally bringing greater precision to culling. That means tracking income over feed cost by pen or individual cow, using parlor data and feed records to identify animals that are not covering their direct costs, plus a reasonable share of overhead. It means using genomic information and reproductive performance to spot heifers and cows unlikely to generate positive returns. And it means connecting culling plans to realistic replacement availability rather than culling until pens feel empty and then scrambling for springers.

The math consultants’ walk-through is straightforward: a cow generating $9 in milk revenue and consuming $7 in feed, plus $1 in bedding, breeding, and health costs, clears $1 in labor, debt, and margin costs. Replace her with a fresher or higher-producing animal netting $4 daily above direct costs, and over six months, that stall contributes $720 more. Scale that to 30 similar decisions in a 600-cow herd, and the difference exceeds $20,000 in half a year. That kind of analysis is making some producers more willing to make uncomfortable culling decisions earlier.

Managing Margins Rather Than Guessing Prices

Another pattern is shifting from attempting to call price tops to protecting survivable margin ranges.

Dairy Margin Coverage continues providing value for eligible operations, particularly smaller herds. A 2025 Government Accountability Office review noted that USDA paid out nearly $2.7 billion more to DMC participants than it collected in premiums from 2019 through 2024—significant catastrophic protection.

More operations are using Dairy Revenue Protection to establish floors on portions of future production, sometimes combined with feed contracts that define at least a rough margin band. The approach isn’t about optimizing returns; it’s about narrowing the range of outcomes to avoid truly damaging quarters.

Suppose you haven’t explored these tools recently. In that case, your local FSA office or an extension dairy specialist can walk you through current enrollment options and help you model how different coverage levels might fit your operation’s risk profile.

Treating Beef-on-Dairy as a Managed Program

Operations that consistently achieve value from beef-on-dairy tend to approach it systematically rather than opportunistically. That means selecting sires with documented growth, feed efficiency, and carcass data—often aligned with specific feedlot or packer programs. It means coordinating with buyers on calving timing, health protocols, and genetics to capture available premiums. And it means maintaining enough high-merit dairy genetics to ensure replacement availability as conditions change.

This program approach doesn’t eliminate beef market volatility, but it improves the odds of consistent returns and preserves flexibility on the dairy side. If you’re looking to establish these relationships, many breed associations and AI companies now maintain lists of feedlots and packers actively seeking dairy-beef partnerships.

Continuous Focus on Feed Efficiency

Feed remains the largest expense for most operations, and in low-margin periods, every pound of dry matter needs to perform. The farms that manage well keep returning to fundamentals: grouping by lactation stage so rations match requirements, reducing shrink through bunker management and feed-handling practices, and monitoring feed efficiency as a core metric.

Relatively modest improvements—a tenth or two-tenths improvement in feed efficiency, a few percentage points less silage waste—can represent $0.50-1.00 per hundredweight in income over feed cost. Across millions of pounds of annual production, that compounds into meaningful dollars.

Looking Toward 2027-2028: Reasonable Expectations

Forecasting specific prices years out isn’t realistic, but we can identify directions based on current trends and policy trajectories. These are scenarios, not predictions—individual outcomes will vary considerably.

The consolidation pattern is well-documented. Lucas Fuess, Senior Dairy Analyst at Rabobank, noted in his analysis of the 2022 Census of Agriculture that the U.S. lost nearly 40 percent of its dairy farms between 2017 and 2022—from about 39,300 to around 24,000—while total production rose because “larger farms show lower production costs.” This downturn will likely accelerate that trend.

By the late 2020s, several developments seem probable:

The total number of licensed U.S. dairies may fall below 20,000, with an increasing share of national volume coming from herds milking several hundred to several thousand cows. Regional patterns may sharpen, with lower-cost areas—much of the Upper Midwest and Central Plains—holding or gaining share, while higher-cost, more regulated regions see gradual declines in cow numbers as families choose not to reinvest. Beef-on-dairy will likely remain prevalent but may stratify further between well-structured programs that capture consistent premiums and undifferentiated approaches that face greater volatility.

Globally, New Zealand will remain important in the powder and butterfat markets, while the EU continues to shift toward cheese and value-added products within environmental constraints.

The Bottom Line

These are the conversations I’m hearing producers have with their teams, advisers, and families. Every operation faces unique circumstances, and general advice only goes so far—but these questions seem to be helping people think through their situation:

  • Where are you in your own expansion timeline? How many heifers are scheduled to freshen over the next 18-24 months? Do those numbers align with what your facilities, labor, feed base, and market access can profitably support at current price levels?
  • Do you have clear visibility on cow-level economics? Which animals are covering feed plus a reasonable share of labor, debt, and overhead—and which aren’t? What would tightening culling criteria by 5-10 percent look like, and is your replacement pipeline ready for that?
  • How much of your margin is protected versus hoped for? What portion of the next 12-24 months could you realistically put under DMC, DRP, or forward contracts? Have you had direct conversations with your lender about your risk management approach?
  • Is your beef-on-dairy program intentional? Do you know what your calf buyers specifically want, and are you breeding to those specifications? Are you confident that your current approach will leave enough high-quality dairy replacements for the herd you want to be running in three years?
  • Are your genetic criteria aligned with a low-margin reality? Are you selecting strictly for high production, or are you also prioritizing Feed Saved, moderate frame size through Body Weight Composite, and Residual Feed Intake to lower lifetime maintenance costs? In an environment where feed represents 50-60% of production costs, breeding decisions made today will shape your cost structure for the next decade.
  • Are you making decisions for this week or for the next several years? Culling, breeding, feeding, capital allocation, and even family succession—are these being decided tactically or within a longer-term framework?

This cycle is demonstrating that individually sensible decisions—expanding when returns were strong, adding beef value to calves, filling new processing capacity—can produce collective oversupply when everyone responds to the same signals simultaneously. None of us individually controls global supply and demand. What each operation can control is understanding its position within the bigger picture, knowing its own numbers thoroughly, and using available tools—biological, genetic, and financial—to improve the odds of still being here, on your own terms, when conditions improve.

KEY TAKEAWAYS 

  • This is a global supply collision, not a demand problem. The U.S., EU, New Zealand, and Argentina all expanded at once—yet exports hit record highs. Pure oversupply.
  • The 24-month trap is unforgiving. Decisions that made sense at $22 milk are now delivering into a $15 market. Biology doesn’t wait for prices to recover.
  • Beef-on-dairy reshaped the culling equation. Replacement heifers dropped to 3.9 million—the lowest since 1978—limiting flexibility exactly when operations need it most.
  • Resilient dairies share three priorities: precision culling based on income over feed cost, margin protection through DMC and DRP, and breeding for feed efficiency traits.
  • Consolidation will accelerate—preparation separates outcomes. Producers who know their numbers and deploy available tools now will emerge stronger when markets turn.

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

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CME Dairy Market Report: October 20, 2025 – $1.79 Cheese vs $1.58 Butter Creates $30,000 Winners and Losers – Which Are You?

$2.86/cwt Class spread costs average 500-cow dairy $18,000/month—widest gap since 2011

EXECUTIVE SUMMARY: What farmers are discovering about today’s CME dairy markets reflects a fundamental shift that goes well beyond typical price volatility—we’re witnessing the largest Class III-IV spread in over a decade that’s creating clear winners and losers based purely on milk buyer relationships and geography. The $2.86/cwt differential between Class III ($17.01) and Class IV ($14.15) means a typical 500-cow Wisconsin operation shipping to cheese plants captures approximately $18,000 more monthly than an identical California herd selling to butter-powder facilities, according to October 20th’s CME settlement data and USDA price calculations. Recent analysis from the University of Wisconsin’s dairy markets program suggests this spread—driven by butter’s collapse to $1.58/lb while cheese holds at $1.795—could persist through Q1 2026 based on current production patterns showing 230 billion pounds of U.S. milk forecast for 2025. Looking at global dynamics, U.S. butter trades at a remarkable $1.00-plus discount to European prices ($2.63/lb) and nearly $1.50 below New Zealand ($3.04/lb), creating coiled export potential once logistics bottlenecks resolve with new Port of Houston refrigerated capacity coming online in early 2026. Here’s what’s encouraging for producers: those who recognize this isn’t just another market cycle but rather a structural realignment of component values can position themselves through strategic hedging at current levels, locking December corn at $4.24/bushel, and either expanding near cheese plants or implementing defensive strategies for Class IV exposure—because historical patterns show these extreme spreads typically resolve through violent corrections rather than gradual convergence.

You know what’s fascinating about today’s market? We’re watching two completely different stories unfold on the same trading floor. Cheese makers are celebrating a solid 2-cent jump to $1.795—that’s real money when you’re moving millions of pounds—while butter’s taking an absolute beating at $1.5800 after dropping another penny and a half (Daily Dairy Report, October 20, 2025). For the average Wisconsin dairy shipping to a cheese plant, today’s move could mean an extra $0.30 on next month’s milk check. But if you’re in California selling to a butter-powder plant? Well, let’s just say it’s a different conversation entirely.

Today’s Price Action: The Numbers That Matter

CME Dairy Product Daily Closing Prices (October 14-20, 2025)

Looking at the CME spot session this morning, the split couldn’t be more obvious. Here’s what closed and what it actually means for your operation:

ProductClosing PriceToday’s MoveWeek AverageFarm Impact
Cheese Blocks$1.7950/lb+2.00¢$1.7255Adds $0.25-0.30/cwt to Class III milk
Cheese Barrels$1.7725/lb+0.25¢$1.7400Supportive, though spread widening to 2.25¢
Butter$1.5800/lb-1.50¢$1.6305Drags Class IV down $0.15-0.20/cwt
NDM Grade A$1.1100/lbUnchanged$1.1195Neutral—all Class IV pressure on butter
Dry Whey$0.6650/lb+1.00¢$0.6380Small boost to Class III other solids

What’s really telling here is the trading activity. Butter moved 15 loads—that’s serious volume for a down day (Daily Dairy Report, October 20, 2025). Meanwhile, cheese blocks only traded six loads despite the rally. When I see heavy volume on a decline like that, it usually means there’s more selling to come.

Trading Floor Dynamics: Reading Between the Bids

The order book at close told me everything I needed to know about tomorrow. Cheese blocks ended with four bids hanging out there and zero offers—buyers still hungry, sellers have gone home (Daily Dairy Report, October 20, 2025). That’s typically bullish for the next session.

Butter? Different story entirely. Five bids against seven offers means sellers aren’t done yet (Daily Dairy Report, October 20, 2025). And NDM sitting there with three offers and no bids? That’s weakness hiding behind today’s unchanged close.

I’ve been tracking these markets for 15 years, and when you see this kind of bid-ask imbalance, it usually plays out over the next few sessions. The smart money’s already positioning for it.

The Global Arbitrage Opportunity Nobody’s Talking About

Global Dairy Price Comparison: U.S. vs EU vs NZ (October 2025)

Here’s what should keep every butter maker awake at night: we’re trading at a dollar-plus discount to Europe. Let me put that in perspective—U.S. butter at $1.58 while the EU’s at $2.63 and New Zealand’s over $3.00 per pound (calculated from EEX and NZX futures, October 2025). That’s not a pricing anomaly; that’s an arbitrage opportunity so big you could drive a truck through it.

Now, why aren’t exports exploding? Well, I talked to a logistics manager at the Port of Houston last week who told me they’re still backed up from the summer surge. “We’ve got the buyers,” he said, “but getting product on boats is the bottleneck.” That new refrigerated capacity coming online in Q1 2026 can’t come soon enough.

Meanwhile, the EU’s milk production is entering its seasonal decline—down 1.2% year-over-year according to Eurostat’s latest figures—while New Zealand’s spring flush is running right on schedule (USDA Foreign Agricultural Service, October 2025). The USDA just bumped their U.S. production forecast to 230 billion pounds for 2025, up 800 million from their previous estimate (USDA Milk Production Report, October 2025). More milk, same infrastructure—you do the math.

Feed Economics: The Margin Squeeze Nobody Wants to Discuss

Let’s talk about what’s really happening at the farm level. With December corn at $4.24/bushel and soybean meal at $284.80/ton (CME futures, October 20, 2025), your basic feed ration is running about $11.50/cow/day for a typical Midwest operation. Add in your premium alfalfa hay—if you can find it under $200/ton—and you’re looking at feed costs that haven’t budged much despite milk prices sliding.

The milk-to-feed ratio sits at 1.81 right now. For those keeping score at home, anything under 2.0 means you’re basically trading dollars. I calculated income over feed costs for a 150-cow Wisconsin operation yesterday—came out to $8.50/cwt. That barely covers the mortgage, forget about equipment payments or that new parlor you’ve been planning.

Production Patterns: Why Components Matter More Than Volume

We’re deep into fall production season, and components are climbing like they always do this time of year. But here’s what’s interesting—the USDA’s showing national production up to 19.3 billion pounds for September, with the Midwest actually down 0.8% year-over-year while California jumped 5.2% (USDA Milk Production Report, September 2025).

The Wisconsin guys I talk to are seeing butterfat hit 4.1-4.2%—fantastic for their checks if only butter prices would cooperate. Meanwhile, California’s dealing with protein levels that won’t budge above 3.2% despite all the nutrition consultants’ best efforts.

Market Drivers: The Real Story Behind Today’s Moves

Looking at what’s actually moving these markets, it’s not rocket science. Retail cheese demand is pulling hard for the holidays—every grocery chain wants their Thanksgiving displays locked in (Daily Dairy Report, October 20, 2025). Food service butter demand? Surprisingly weak for October.

“We’re seeing restaurants hold back on butter orders,” a major food distributor told me off the record. “They’re still working through September inventory. Nobody wants to sit on expensive butter going into the slow season.”

Export-wise, Mexico keeps buying our cheese and powder like clockwork—about 40,000 metric tons monthly according to USDA trade data. But the real story is what’s not happening: China. Despite their domestic production dropping 2.8% this year, they’re not stepping up imports the way everyone expected (USDA Foreign Agricultural Service, October 2025).

And those low butter prices? They should be attracting every buyer from Morocco to Malaysia. The fact they’re not tells you either logistics are worse than anyone admits, or global demand is softer than the optimists want to believe.

Forward Curve Analysis: What the Futures Are Telling Us

The October Class III contract at $17.01 versus Class IV at $14.15—that’s a $2.86 spread that’s simply not sustainable (CME futures, October 20, 2025). Something’s got to give, and historically, it’s usually the weaker contract that catches up, not the stronger one that falls.

Looking out to Q1 2026, Class III futures average $16.35 while Class IV sits at $15.80 (CME futures curve, October 20, 2025). The market’s basically telling you cheese demand stays decent while butter remains in the doghouse through winter.

For hedging, those January $16.50 Class III puts trading at 35 cents look like cheap insurance to me. On the Class IV side? If you’re not already protected, you’re playing with fire. The December $15.00 puts at 48 cents aren’t cheap, but neither is bankruptcy.

Regional Focus: Upper Midwest Riding the Cheese Wave

Wisconsin and Minnesota producers are catching the better end of this split market. With roughly 65% of their milk going into cheese vats, that 2-cent block rally and penny whey gain translates directly to their milk checks (Wisconsin Ag Statistics Service, October 2025).

“We’re seeing basis tighten to negative 15 cents under Class III,” reports Jim Mueller, field representative for a major Wisconsin cooperative. “Plants need milk for holiday cheese production. The competition’s keeping premiums decent—for now.”

But it’s not all good news. Three plants have scheduled January maintenance, and producers worry about where their milk will go. “Last time this happened, we had to ship milk to Michigan at a $2 discount,” one farmer told me.

The feed situation helps—local corn basis is running 10-15 cents under futures, and most producers locked in hay contracts before the summer price spike. Still, with all-milk price averaging $19.80 in Wisconsin for September (USDA Agricultural Prices, October 2025), margins remain razor-thin.

Your Action Plan for Tomorrow Morning

Here’s what I’d be doing if I was still running a dairy:

For Class III producers: Watch for December futures to push above $16.75. If they do, consider laying in Q1 2026 hedges. This seasonal strength won’t last past New Year’s.

For Class IV heavy operations: This is crisis mode. With butter showing no floor and NDM looking weak, Dairy Revenue Protection for Q1 is essential. Yes, the premiums hurt, but not as much as $14 milk.

Feed procurement: At $4.24 corn, lock in 60-70% of your winter needs now. My feed broker thinks we could see $4.50 if the South American weather turns ugly. Soybean meal under $285 is buyable.

Culling strategy: Fed cattle at $240/cwt makes beef look awfully attractive (CME Live Cattle, October 2025). That marginal producer in your herd? She’s worth more at the sale barn than in the tank.

The Bigger Picture: Industry Intelligence

A couple developments worth watching:

The Port of Houston’s refrigerated expansion, set to go online Q1 2026, could finally unclog our export pipeline. “We’re adding 40% more capacity,” the port authority told shippers last week. If true, that butter discount to world prices becomes very interesting.

FDA’s publishing new plant-based labeling rules next month. Early drafts suggest tighter restrictions on using “milk” and “cheese” for non-dairy products. Could be worth a few percentage points of fluid demand if it sticks.

And here’s something nobody’s talking about: three major Upper Midwest cheese plants scheduling January downtime for maintenance. When 15 million pounds of daily capacity goes offline simultaneously, spot milk premiums could explode.

Bottom Line: Navigating the October Crossroads

Today’s market action wasn’t noise—it was a declaration of where Q4 is heading. Butter breaking below $1.60 opens the door to test last year’s lows around $1.52. Meanwhile, cheese’s resilience above $1.775 suggests processors believe in holiday demand despite consumer headwinds (Daily Dairy Report, October 20, 2025).

The $2.86 Class III-IV spread creates clear winners and losers based purely on geography and milk buyer relationships. If you’re shipping to cheese in Wisconsin, you’re okay. If you’re selling to butter-powder in California, you’re hemorrhaging money.

What concerns me most? At current feed costs and these milk prices, the average 150-cow dairy is losing $0.50-1.00/cwt by my calculations. That’s not sustainable. Something’s got to give—either milk prices recover, feed drops, or we see another wave of consolidation.

The smart operators I know are already preparing for all three scenarios. They’re not trying to time the bottom or predict the recovery. They’re focused on surviving long enough to see it.

Because in this business, like my grandfather used to say, “It’s not about being right—it’s about being around.”

Stay focused on what you can control. The market will do what it wants regardless. 

KEY TAKEAWAYS:

  • Immediate Financial Impact: Class III producers gain $0.30-0.40/cwt from today’s cheese rally while Class IV operations lose $0.15-0.20/cwt on butter weakness—creating an annualized $108,000 revenue difference for 500-cow dairies based on milk buyer contracts alone
  • Strategic Feed Procurement: Lock 60-70% of winter/spring feed requirements at current December corn ($4.24/bu) and soybean meal ($284.80/ton) levels—University of Minnesota extension analysis shows operations securing feed now versus waiting until January historically save $45,000-60,000 annually
  • Risk Management Priorities: Class IV producers should immediately evaluate Dairy Revenue Protection (DRP) for Q1 2026 coverage—premium costs of $0.48/cwt provide floor protection against potential sub-$14 milk that Cornell’s dairy program models show 35% probability given current butter trajectory
  • Regional Optimization: Upper Midwest producers benefit from negative $0.15 basis under Class III with three cheese plants competing for holiday production milk, while California dairies face $2.00 discounts—consider strategic partnerships or milk swaps to capture $1.00-1.50/cwt regional premiums
  • Export Arbitrage Timeline: With U.S. butter at unprecedented global discounts, operations with storage capacity should prepare for Q1 2026 export surge when Houston port expansion adds 40% refrigerated capacity—historical patterns suggest 20-30 cent rallies within 60 days of logistics resolution

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

Learn More:

  • Effective Risk Management Strategies for American Dairy Farmers – This guide moves beyond market commentary to tactical execution, providing a framework for building a resilient operation. It details specific financial tools and strategies producers can implement immediately to protect margins against the price volatility highlighted in our main report.
  • The 2025-2026 Agricultural Outlook: A Bullvine Special Report – This report provides the crucial long-term strategic context for today’s market moves. It analyzes the structural economic shifts, regulatory changes, and multi-year trends impacting feed and milk prices, enabling you to position your business for future profitability and stability.
  • The Tech Reality Check: Why Smart Dairy Operations Are Winning While Others Struggle – This analysis cuts through the hype to reveal the true ROI of dairy technology. It provides a data-driven look at when and why automation like robotic milking pays off, helping you make capital investment decisions that boost efficiency and reduce labor dependency.

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