CME Dairy Market Report: March 17, 2025: Cheese and Butter Prices Fall Amid Seasonal Supply Increases

CME dairy prices tumble as seasonal supply meets bird flu disruption; USDA projects recovery while plant-based alternatives gain ground in retail.

EXECUTIVE SUMMARY: The March 17, 2025 CME dairy market report reveals significant price declines for cheese and butter amid seasonal supply increases, with blocks falling 4.75¢ and barrels dropping 6.50¢ to nearly eliminate the block-barrel spread. These price movements occur against a complex backdrop of bird flu impacts on milk production, strengthening international supply, and growing competition from plant-based alternatives expanding their retail footprint. Despite current weakness, USDA projections indicate strengthening prices through 2025, with Class III milk expected to reach $19.75/cwt by Q4, suggesting the current market presents potential buying opportunities. The approaching Federal Order changes on June 1 add another layer of uncertainty, while regional differences in market conditions and production capabilities continue to shape dairy economics across major production areas. Market participants should implement strategic risk management approaches that protect near-term cash flow while maintaining upside potential for projected price improvements later in the year.

KEY TAKEAWAYS

• Price divergence creates opportunity: Current cheese prices ($1.6450/lb for blocks) sit significantly below USDA’s Q2 projection ($1.8200/lb), creating potential buying opportunities for processors and risk management needs for producers.
• Bird flu disruption counterbalances seasonal supply: The unexpected 9.8% decline in milk production from bird flu impacts is creating unusual market dynamics just as seasonal spring flush typically increases supply pressure.
• Federal Order changes approaching: The June 1 implementation of Federal Order reforms will fundamentally alter milk pricing formulas, likely creating market volatility that requires proactive planning.
• Plant-based alternatives gaining mainstream traction: Major retailers (Costco, Walmart) and foodservice operators are expanding partnerships with plant-based producers, while coffee chains eliminate surcharges for non-dairy options, accelerating competitive pressure.
• Regional market variations require targeted strategies: Production challenges, consumer preferences, and environmental regulations vary significantly by region, requiring dairy stakeholders to develop market-specific approaches rather than one-size-fits-all strategies.

Today’s Chicago Mercantile Exchange (CME) dairy market saw significant downward pressure on cheese and butter prices, while powder markets remained stable. This continues the bearish trend observed throughout March as the market contends with improving milk supplies, international market pressures, and growing competition from plant-based alternatives. Trading activity was light to moderate across all product categories as the dairy complex searched for direction amid mixed signals.

Key Price Changes & Market Trends

Cheese prices continued downward today, with blocks falling 4.75¢ and barrels dropping a more substantial 6.50¢. This marks the fourth consecutive session of declines for cheese, bringing the block-barrel spread to just 2¢. Butter also faced selling pressure, declining 4¢ to settle at $2.3025/lb. Both NDM and dry whey prices held steady with minimal trading activity.

Current cheese prices reflect a significant gap from USDA’s Q2 2025 price projection of .8200/lb, suggesting markets are currently pricing in near-term supply pressures ahead of anticipated strengthening later in the year. Compared to last week’s averages (blocks at $1.6950/lb and barrels at $1.6680/lb), cheese prices have declined by approximately 3.0-2.6% in just one week, indicating accelerating downward momentum.

Volume and Trading Activity

Trading activity was relatively light for a Monday, with only seven total trades executed across all product categories. Butter saw moderate activity with three trades completed, matched by cheese barrels with three trades. Blocks recorded a single transaction, while NDM and dry whey saw no completed trades despite active bidding interest.

The bid/ask dynamics showed more selling interest for blocks with four uncovered offers, while barrels had more buying interest with three bids against one offer. The dry whey market appeared balanced with four bids and four offers, though no trades materialized. Today’s trading volume represents a 42% decrease from the previous Monday’s session, reflecting hesitancy among market participants as prices continue to adjust lower.

Global Context

International dairy markets continue to significantly influence domestic price trends. Recent data shows that New Zealand milk production has been stronger than anticipated, creating additional pressure on global dairy prices. USDA projections indicate that domestic prices for butter and cheese are expected to remain competitive in world markets, with the 2025 dairy export forecast on a milk-fat basis raised by 0.2 billion pounds to 11.9 billion pounds.

However, international competitiveness remains challenging for dry whey and nonfat dry milk. The 2025 dairy export forecast on a skim-solids basis was revised downward to 49.1 billion pounds, a decrease of 0.4 billion pounds. This lack of price competitiveness mainly affects export volumes to Southeast Asia, a key market in which a strengthening U.S. dollar has further pressured exports.

European milk collections also show seasonal increases, adding to global supply availability. According to dairy market analysts, EU milk production is tracking approximately 1.2% above year-earlier levels, further pressuring international markets just as Northern Hemisphere production enters its seasonal peak.

Supply Challenges: Bird Flu Impact on Dairy Production

The recent bird flu outbreak in the U.S. dairy industry is a significant factor affecting domestic dairy markets. USDA reports show milk production has declined by 9.8% compared to November 2023. This unexpected supply constraint occurs as seasonal production increases, creating unusual market dynamics.

Market participants closely monitor the bird flu situation, as prolonged production impacts could offset some of the seasonal price pressure typically seen during the spring flush. Additionally, this supply disruption occurs as plant-based alternatives continue gaining market share, with companies like Oatly expanding partnerships with major retailers, including Costco and Walmart.

Forecasts and Analysis

The CME futures market is currently projecting Class III milk at .45/cwt for March, with Class IV slightly higher at .52/cwt. Looking ahead, USDA projects more substantial prices as 2025 progresses, with detailed quarterly forecasts showing steady improvement:

Despite the current weakness, these USDA projections indicate market expectations for strengthening prices through 2025. Production constraints support this anticipated improvement. USDA has revised its milk production forecast downward by 1.1 billion pounds to 226.9 billion pounds for 2025, with expected cow numbers at 9.32 million head (down from 9.36 million previously) and milk per cow at 24,345 pounds.

Feed costs present a potential bright spot for producer margins, with USDA projecting a 10.1% decline in feed costs for 2025 compared to 2024. Corn is expected to average $4.85/bushel and soybean meal $395/ton, which could help offset lower milk prices in the near term. Current March corn futures are trading at $4.6725/bushel, slightly below the projected annual average.

Market Sentiment and Alternative Dairy Trends

In recent sessions, market sentiment has shifted more bearish, with traders expressing concern about building supplies as spring production increases. One market analyst noted, “The cheese market appears to be adjusting to improved milk availability, though the fundamentals remain reasonably balanced for this time of year.”

This view is echoed by traders at leading dairy risk management firms, with one commenting, “We’re seeing typical seasonal pressure on prices, but the long-term outlook remains constructive due to tightening milk supplies and strong domestic consumption.” Meanwhile, a processor representative observed that “current prices present buying opportunities for extending coverage, especially given USDA projections for higher values later in the year.”

An emerging factor affecting market sentiment is the growing pressure from plant-based alternatives. Major coffee chains like Starbucks have eliminated surcharges for non-dairy options in the U.S., Canada, and the Middle East, potentially increasing consumption of other possibilities. Additionally, plant-based milk producer Oatly has expanded partnerships with Costco and Walmart, suggesting mainstream retail increasingly embraces these alternatives.

The dairy sector also faces increasing environmental scrutiny. Denmark has announced plans to implement a cow tax by 2030 due to concerns about methane emissions and water usage, which may prompt other nations to follow suit. These regulatory pressures could affect production costs in traditional dairy markets over the long term.

Regional Market Perspectives

Dairy market conditions vary significantly across significant production regions. In the Midwest, cheese production remains strong despite the seasonal milk production challenges, while Western states continue to see pressure from water availability concerns affecting feed costs and production decisions.

The Northeastern fluid milk market faces ongoing structural challenges as consumer preferences shift. Plant-based alternatives are making particular inroads in coastal urban markets, and Southeast Asia-inspired market approaches are focusing on regions with higher lactose intolerance rates.

Oatly has reported expanding their Chinese distribution to 100,000 sales points in Greater China in international markets, with continuing partnerships with Luckin Coffee through Q2 2025 and Tim Hortons. This expansion represents the ongoing globalization of plant-based dairy alternatives in markets where lactose intolerance rates are higher than in North America.

Closing Summary & Recommendations

In summary, today’s dairy markets showed continued weakness in cheese and butter prices amid adequate supplies, while powder markets remained steady with limited activity. The spring flush appears to be developing, bringing seasonal pressure to cheese and fluid milk values. However, bird flu impacts production bear watching as a potential offsetting factor.

Producers should consider the divergence between current spot market prices and USDA’s more optimistic forecasts for later quarters. This price differential creates opportunities to implement risk management strategies that protect near-term cash flow while maintaining upside potential for Q3-Q4 when prices are projected to strengthen.

Processors may find opportune moments for coverage as markets adjust to seasonal supply patterns, particularly if the downward price trend continues in coming sessions. All market participants should carefully evaluate the potential impacts of the June 1 Federal Order changes, which will fundamentally alter milk pricing formulas and could create additional market volatility as implementation approaches.

Additionally, dairy industry stakeholders should monitor the growing competitive pressure from plant-based alternatives, which continue to expand distribution channels and partnerships with major retailers and food service operators. The bird flu situation warrants close attention, as continued production impacts could significantly alter the supply-demand balance in the coming weeks.

Wednesday’s trading session will be critical for determining whether this bearish trend continues or if buying interest emerges at these lower price levels.

Learn more:

• Global Dairy Market in 2025: Production Shifts, Demand Fluctuations, and Trade Dynamics
• USDA claims more cows but less milk in latest forecast bombshell, slashing milk price to $21.60
• Record Butter, Plummeting Ice Cream, and Shifting Milk Habits

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