Dairy markets slump: Cheese prices crash 21¢ this week as feed costs jump 3.4%. Can producers protect shrinking margins?

EXECUTIVE SUMMARY: The CME dairy markets showed mixed results on March 11, with butter gaining 1¢ but cheese prices declining sharply (-0.5¢ blocks, -2.5¢ barrels) amid rising feed costs (corn +3.4%, soybeans +2.3%). Weekly trends reveal alarming price drops across all commodities, including a 21¢ crash for cheese blocks. While USDA forecasts project price recoveries (2025 all-milk: $22.75/cwt), current CME prices remain far below these targets. Producers face dual pressure from falling milk prices and surging input costs, requiring urgent risk management strategies like feed hedging and milk price protection to safeguard margins.

KEY TAKEAWAYS:

• Alarming Weekly Slump: Cheese block prices plunged 21¢/lb over 7 days, with all dairy commodities declining 3-5% weekly.
• Feed Costs Surging: Corn (+3.4%), soybeans (+2.3%), and soybean meal (+3.3%) rose sharply, threatening already thin margins.
• Forecast vs. Reality Gap: Current CME butter ($2.31/lb) trades 32% below USDA’s 2025 forecast ($2.65/lb), signaling potential upside.
• Actionable Hedging: Lock December 2025 corn at $4.54/bu and use Class III milk options to balance risk/reward.
• Price Lag Advantage: USDA survey prices (used for milk checks) remain above CME spot levels, buying time to implement strategies.

The Chicago Mercantile Exchange (CME) dairy markets showed a mixed performance on March 11, 2025, with some products declining while others held steady. According to verified data from the Daily Dairy Report, butter gained a penny while cheese prices declined, with blocks down half a cent and barrels dropping 2.5 cents. Nonfat dry milk (NDM) fell 1.25 cents, while dry whey remained unchanged. This mixed performance comes against rising feed costs that could pressure dairy margins despite recent improvements in milk price forecasts.

Key Price Changes & Market Trends

The CME dairy spot market recorded varied price movements on March 11, with only butter showing strength, while cheese, NDM, and dry whey either declined or remained flat.

Butter managed a modest gain of one cent, continuing to find support despite being significantly below the USDA’s 2025 forecast of $2.645 per pound. Cheese prices retreated slightly, with blocks declining by half a cent and barrels dropping a more substantial 2.5 cents. This widened the block-barrel spread to -0.75 cents (barrel premium), potentially signaling some rebalancing in different cheese market segments. Nonfat Dry Milk declined by 1.25 cents amid uncertain export demand, while Dry Whey held steady after recent declines, reflecting cautious market sentiment in that segment.

Volume and Trading Activity

Trading activity data from March 11 provides essential insights into market participation and liquidity across dairy commodities.

Cheese blocks saw the most active trading, with seven transactions completed alongside substantial bidding interest (6 bids with no offers), suggesting underlying support despite the day’s modest price decline. NDM similarly recorded seven trades with balanced interest from both buyers and sellers. In contrast, butter activity was surprisingly light, with just a single transaction despite its price increase, potentially indicating cautious positioning. Cheese barrels generated minimal activity with just one trade completed, while dry whey saw no transactions amid limited interest (1 bid versus two offers).

Weekly Price Comparison

Examining price movements over the past week provides valuable context for understanding recent market trends.

The weekly comparison reveals a concerning downward trend across all dairy commodities. Cheese blocks have experienced a particularly sharp decline, dropping 21.7 cents from the previous week’s average. Cheese barrels and butter also show substantial weekly declines, while NDM and dry whey trend lower by approximately 3 cents. This broad-based weakness suggests persistent supply-demand imbalances that must be resolved for prices to stabilize and recover.

Feed Cost Pressure Intensifies

A critical factor affecting dairy farm profitability is the rising cost of key inputs, particularly feed components. Current CME futures data shows concerning upward trends in primary feed ingredients that could significantly pressure producer margins.

With feed costs representing 60-70% of dairy production expenses, these increases demand serious attention from producers. The 3.4% weekly increase in corn prices and similar rises in soybean meal create substantial margin pressure that may offset potential gains from improved milk prices. For perspective, research indicates that a 10% rise in feed costs can effectively erode approximately $1.50/cwt in milk revenue, highlighting the importance of feed risk management in the current environment.

Global Context and International Markets

International dairy market conditions continue to influence the CME’s domestic pricing and trading patterns. Understanding global price relationships provides an essential context for forecasting market direction.

The U.S. maintains a competitive advantage in butter, with domestic prices $1.09 per pound lower than EU futures equivalents. This substantial differential may support potential export growth for U.S. butter suppliers, assuming quality specifications align with international buyer requirements. Conversely, the NDM/SMP market shows minimal price difference, with U.S. prices slightly higher than global references, creating potential headwinds for export growth in this category.

Updated USDA Forecasts and Implications

The USDA’s latest forecasts, updated on March 6, 2025, provide important context for interpreting current market movements and planning risk management strategies.

These forecasts have been revised based on production constraints, with the USDA noting a tighter supply of dairy heifers than expected. The continual downward revision of milk production estimates (now 1.1 billion pounds below December’s forecast) suggests persistent limitations on milk supply growth that could eventually provide price support. However, current CME prices remain substantially below USDA’s annual forecasts across all commodities, suggesting potential for price recovery if production constraints materialize.

Recent USDA Wholesale Product Prices

The USDA National Dairy Products Sales Report (NDPSR) provides valuable data on wholesale dairy product prices that directly feed into Federal Milk Marketing Order pricing formulas. These survey prices, rather than CME spot values, ultimately determine farm milk checks.

For the week ending February 8, 2025, NDPSR reported prices for:

• Butter: $2.5265 per pound (down 7.11 cents from January 11)
• Cheddar cheese 40-pound blocks: $1.9153 per pound (up 3.40 cents)
• Cheddar cheese 500-pound barrels: $1.8892 per pound (up 7.12 cents)
• Dry whey: $0.7281 per pound (up 1.98 cents)

The substantial gap between NDPSR survey prices and current CME spot market values illustrates the lagged effect of spot market movements on-farm milk prices. For example, while CME butter trades at $2.3100, the NDPSR survey price remains over 21 cents higher at $2.5265. Similarly, survey prices for cheese and whey significantly exceed current CME levels, providing temporary buffering for farm milk prices despite spot market weakness.

CME Spot Prices vs. USDA AMS Survey Price Relationship

Understanding the relationship between daily CME spot prices and the USDA AMS survey prices determining Federal Milk Marketing Order calculations is crucial for dairy farmers’ financial planning.

This relationship explains why changes in CME spot prices eventually, but not immediately, affect farm milk checks. The USDA surveys manufacturers weekly about their sales of cheese, butter, nonfat dry milk, and dry whey. Only manufacturers processing and marketing 1 million pounds of dairy products per year are required to report. These surveys become the basis for the announced milk prices in the Federal Milk Marketing Order system.

Dairy producers should note that Federal Milk Marketing Order price formulas will be updated effective June 1, 2025 (except for changes to the skim milk composition factors, which will be implemented December 1, 2025). These changes will alter how product prices translate into milk values, adding another layer of complexity to 2025’s price outlook.

Market Sentiment and Industry Perspectives

The overall market sentiment appears cautious, given the mixed performance on March 11 and the broader weekly price declines. Input from market participants highlights several factors influencing current conditions.

One Midwest cheese trader observed, “Despite today’s block market decline, the lack of offers and strong bidding suggest underlying support at current price levels.” This assessment aligns with the trading activity, showing six unfilled bids for blocks with no offers, potentially setting the stage for recovery in coming sessions.

A dairy economist noted, “The persistent gap between current CME prices and USDA forecasts reflects market uncertainty about production constraints versus potential demand weakness. Feed cost increases further complicate the outlook for producer margins.” This observation captures the tension between factors that might support prices (production constraints) versus those that could weaken them (rising input costs, uncertain demand).

Regarding the feed cost situation, a risk management consultant emphasized, “With corn up 3.4% and soybean meal up 3.3% in just one week, dairy producers should strongly consider locking in a portion of their 2025 feed needs, particularly through December 2025 corn futures at $4.5425 per bushel before potentially further increases.”

Strategic Recommendations for Producers

The current market environment presents both challenges and potential opportunities for dairy producers trying to manage price risk and protect margins. Based on verified market data, several specific strategies warrant consideration:

1. Feed Cost Management: With feed components showing significant weekly increases, hedging a portion of feed needs through December 2025 corn futures ($4.5425/bu) and December 2025 soybean meal futures ($318.30/ton) could protect against further cost escalation.
2. Selective Milk Price Protection: Consider implementing floors on Class III milk for Q2-Q3 2025 using options strategies that maintain upside potential while protecting against further declines. With March Class III futures at $18.38, significantly below the USDA’s $19.10 forecast, this may represent value.
3. Component Optimization: Cheese prices are projected to strengthen (USDA forecast: $1.880/lb) and are currently trading well below that level. Producers with high-component milk should evaluate processor alignment to maximize exposure to markets where component values are optimized.
4. Staggered Risk Management: Rather than simultaneously implementing protection on all production, consider a staggered approach that protects portions of expected production at different price points, balancing downside protection with upside potential.
5. Cost Structure Assessment: Review production costs in light of rising feed prices to identify operations where efficiency improvements could offset margin compression. According to dairy economists, each 0.1-pound improvement in feed efficiency can offset approximately $0.25/cwt in higher feed costs.

Conclusion: Navigating Price Volatility and Cost Pressure

In summary, Tuesday’s CME dairy trading session delivered mixed results, with butter showing modest strength while cheese and NDM declined. These mixed movements stand against a backdrop of more concerning weekly price trends that show substantial weakness across all major dairy commodities. Simultaneously, feed costs have increased significantly, with corn, soybeans, and soybean meal all posting 2-3% gains in the past week.

The USDA’s recent upward revision of the all-milk price forecast to $22.75 per cwt offers some optimism. Still, current CME prices remain substantially below USDA’s projected annual averages for all major dairy commodities. This divergence could indicate the potential for price recovery if production constraints materialize as expected, but rising feed costs threaten to erode any potential margin improvements from higher milk prices.

For dairy producers, understanding the relationship between CME spot prices, USDA survey prices, and eventual milk checks is essential for financial planning. While current CME weakness will eventually pressure farm milk prices, the lagged effect of the price reporting system provides some temporary buffering. This time window offers an opportunity to implement strategic risk management before the full impact of recent market moves affects cash flow.

With price volatility and cost pressure intensifying, dairy producers should focus on targeted risk management strategies that protect margins while maintaining flexibility. The most urgent priority may be hedging feed costs to lock in current levels before potential further increases, followed by selective implementation of milk price protection strategies that balance downside risk with upside potential.

Learn more:

• Trade War Drama Sends Cheese Prices Plunging to 11-Month Lows
  Analyzes how U.S.-Canada trade tensions are destabilizing markets, with cheese prices dropping 15¢ this week and milk futures collapsing.
• Feed Costs Impact on Dairy: Why Margins Are Shrinking
  Explores the critical link between volatile feed prices and profitability, including strategies to offset rising corn/soybean meal costs.
• Global Dairy Market 2025: Production Shifts Reshape Trade
  Details regional production changes (U.S. -1%, EU +2%) and consumer trends driving organic/sustainable dairy demand worldwide.

Join the Revolution!

Join over 30,000 successful dairy professionals who rely on Bullvine Daily for their competitive edge. Delivered directly to your inbox each week, our exclusive industry insights help you make smarter decisions while saving precious hours every week. Never miss critical updates on milk production trends, breakthrough technologies, and profit-boosting strategies that top producers are already implementing. Subscribe now to transform your dairy operation’s efficiency and profitability—your future success is just one click away.