Cheese Holds Steady as Butter and NDM Decline; Trading Activity Subdued

Dairy markets end the week with mixed signals: cheese holds steady while butter and NDM decline. Low trading volume hints at potential volatility ahead. Global factors shape the landscape, including rising EU exports and Chinese demand. What’s next for dairy prices? Find out in our comprehensive market report.

Summary:

In the dairy market, cheese prices are stable, while butter and nonfat dry milk (NDM) prices have declined due to low trading activity. Cheddar blocks didn’t change from $1.9200/lb, but butter decreased by 2.25 cents. The subdued trading suggests possible price fluctuations soon. Global factors are significant, with more EU butter exports adding competition and rising Chinese demand supporting cheese prices. The USDA forecasts a slight rise in Q2 2025 Class III milk prices to $18.75/cwt. Despite mixed signals, market optimism persists, and stakeholders should watch global production trends and prepare for possible shifts.

Key Takeaways:

• Cheese prices remained relatively stable, with blocks unchanged and barrels slightly declining.
• Butter and nonfat dry milk (NDM) experienced notable price drops, indicating potential selling pressure.
• Low trading volume across dairy markets could increase volatility the following week.
• Rising EU butter exports and increased Chinese demand for cheese and whey are shaping global market dynamics.
• USDA forecasts suggest a moderate upward trend in Class III milk prices, driven by steady cheese demand.
• Mixed market sentiment highlights the importance of a diversified approach for stakeholders in navigating different product trends.
• Dairy stakeholders are advised to monitor global production trends and consider strategic actions to optimize market opportunities.

Dairy commodity markets have seen notable price movements, with cheese holding steady as other products experience declines. Here’s a breakdown of the key price changes and trends impacting the market: 

Key Price Changes & Market Trends 

Cheddar block prices remained unchanged at $1.9200/lb, while barrels slightly decreased by 1.25 cents. Butterexperienced the most significant daily decline, dropping 2.25 cents to close at $2.3775/lb. Nonfat dry milk (NDM)also fell by 2 cents, settling at $1.2800/lb, while dry whey decreased by half a cent to $0.5550/lb. Despite today’s declines, weekly averages for cheese remain higher than last week, indicating overall strength in the cheese market. 

Volume and Trading Activity 

Trading activity was relatively quiet across most products, reflecting end-of-week positioning: 

• Cheddar blocks: 1 trade, one bid, two offers
• Cheddar barrels: 3 trades, zero bids, four offers
• Butter: 0 trades, zero bids, four offers
• NDM Grade A: 0 trades, one bid, six offers
• Dry whey: 2 trades, seven bids, 1 offer

Cheddar barrels showed the most activity among cheese products, while dry whey saw the highest number of bids, suggesting some buying interest despite the price decline. The lack of trades in butter and NDM and multiple offers indicate potential selling pressure in these markets. 

Analysis of Low Trading Activity: The subdued trading volume today may be attributed to several factors:

1. End-of-week positioning: Traders often reduce activity on Fridays to limit exposure over the weekend.
2. Uncertainty in global markets: Recent fluctuations in international dairy prices may be causing buyers and sellers to hesitate.
3. Anticipation of upcoming reports: Market participants might wait for next week’s USDA Milk Production report before making significant moves.

This low activity could increase volatility early next week as pent-up demand or supply is released into the market.

Weekly CME Cash Dairy Product Prices ($/lb.)

Global Context 

International dairy markets are exerting significant influence on U.S. prices: 

1. Oceania Production: For the 2024/2025 season, New Zealand’s milk production increased by 1.5% yearly, putting downward pressure on global butter and whole milk powder prices.
2. European Union Exports: EU butter exports have risen 8% in the last quarter, intensifying competition in key Asian markets and potentially limiting U.S. export opportunities.
3. Chinese Demand: Recent data shows a 5% increase in Chinese dairy imports, primarily cheese and whey. This may explain the relative strength of U.S. cheese prices despite the weakness of other dairy commodities.
4. South American Production: Drought conditions in parts of Brazil and Argentina have reduced milk output, potentially creating opportunities for U.S. exports to fill supply gaps in the region.

Forecasts and Analysis 

The USDA’s latest projections for Q2 2025 suggest a slight improvement in Class III milk prices, with an average of $18.75/cwt expected. The relative stability in cheese prices, a key component of the Class III formula, supports this forecast. 

Class III Milk Price Forecast
[Figure 1: Historical and Projected Class III Milk Prices (Q1 2024 - Q2 2025)]

    $19.50 |                                        *
    $19.00 |                              *        / \
    $18.50 |                    *        / \      /   \
    $18.00 |          *        / \      /   \    /     *
    $17.50 |         / \      /   \    /     *--*
    $17.00 |    *---*   \    /     *--*
    $16.50 |   /         *--*
    $16.00 |--*
           +-----+-----+-----+-----+-----+-----+ 
           Q1'24 Q2'24 Q3'24 Q4'24 Q1'25 Q2'25
               Historical    Projected

The chart above illustrates the USDA’s projected Class III milk prices compared to historical data. The forecast suggests a moderate upward trend, likely driven by expectations of steady cheese demand and potentially tighter milk supplies as we move into the summer months. 

Scenario Analysis: 

1. Bullish Case: If Chinese demand continues to grow and South American production remains constrained, Class III prices could exceed $19.00/cwt.
2. Bearish Case: A surge in EU or New Zealand production could pressure global prices, potentially pushing Class III below $18.00/cwt.
3. Base Case: The current $18.75/cwt projection assumes stable domestic demand and moderate export growth.

Market Sentiment 

Market sentiment remains cautiously optimistic, with mixed signals across different dairy products. The stability in cheese prices, particularly blocks, is a positive sign for producers. However, the declines in butter and NDM warrant close monitoring as we approach the spring flush. We’re seeing increased hedging activity in cheese futures, suggesting market participants anticipate potential volatility in the coming months.

Overall, the market appears to be in a transitional phase, with cheese maintaining its strength while other products face some headwinds. The divergence between cheese and other dairy product prices suggests a complex market environment in which different factors influence various segments of the dairy industry. 

Closing Summary & Recommendations 

In summary, today’s dairy markets showed resilience in cheese prices, particularly blocks, while butter, NDM, and dry whey faced downward pressure. The mixed performance across products highlights the importance of a diversified approach for dairy stakeholders. 

Recommendations: 

1. Producers:
   • Focus on optimizing cheese production given its relative market strength.
   • Consider locking in prices for a portion of future production using futures or forward contracts.
   • Monitor feed costs closely, as any increases could squeeze margins despite stable milk prices.
2. Exporters:
   • Explore opportunities in the Asian cheese market, particularly China, where import demand is growing.
   • Be cautious with butter exports due to increased competition from the EU.
   • Investigate potential new markets in South America where drought has affected domestic production.
3. Traders:
   • Watch for potential arbitrage opportunities between cheese and other dairy products given the current price divergence.
   • Keep an eye on upcoming USDA reports for any shifts in production forecasts that could impact this trend.
   • Consider the impact of low trading volume on potential price volatility early next week.
4. All Stakeholders:
   • Closely monitor global production trends, especially in New Zealand and the EU, as they influence U.S. market dynamics.
   • Pay attention to upcoming spring flush data, which could significantly impact price directions across all dairy products.
   • Stay informed about developments in Chinese demand and South American production, as these could create unexpected market movements.

Learn more:

• Markets are not Bullish or Bearish, but Indecisive: Cheese Stocks Shrink Amid Soaring Milk Demand.
• Cheese and Butter Prices Plummet After Holiday Weekend: Market Struggles to Recover.
• Is the Summer Heat Finally Over? Dairy Farmers See Milk Production Stabilize but Challenges Remain!

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