CME Dairy Market Report: April 10, 2025 – Cheese Blocks and Butter Prices Surged Despite Bearish USDA Outlook

Cheese and butter prices surge despite bearish USDA forecast and 84% China tariffs. What’s driving this contradictory market behavior?

EXECUTIVE SUMMARY: CME dairy markets on April 10 revealed a striking disconnect between spot market strength and bearish fundamentals, with cheddar blocks surging 3.25¢ to $1.7400/lb and butter gaining 2.00¢ to $2.3325/lb despite the USDA releasing a significantly lower milk price forecast in its April WASDE report. Implementing China’s 84% retaliatory tariff on U.S. dairy products effective today creates another significant headwind, particularly for whey exports. Trading activity varied widely across commodities, with butter exhibiting exceptional volume (24 trades) while dry whey recorded zero transactions. This contradictory market behavior—strong spot prices amid deteriorating fundamentals—suggests a complex interplay between immediate physical market dynamics and longer-term bearish projections. This creates significant uncertainty for dairy stakeholders and points to potential volatility ahead.

KEY TAKEAWAYS

• Conflicting Market Signals: A significant disconnect exists between strong spot market performance (particularly in cheese blocks and butter) and bearish fundamentals, including lower USDA price forecasts and new Chinese tariffs, creating potential volatility.
• China Tariff Impact: Implementing an 84% retaliatory tariff by China on U.S. dairy products represents a substantial blow to export potential, particularly for whey, which has traditionally been a significant U.S. export to the Chinese market.
• Divergent Price Forecasts: Current CME Class III futures ($17.22/cwt) are trading substantially below USDA’s Q2 projection ($18.50/cwt), indicating market skepticism about potential price strength despite today’s spot market rally.
• Margin Pressure Looming: The combination of lowered milk price forecasts (all-milk price reduced to $21.10/cwt) and rising near-term feed costs presents concerning margin implications for producers despite projections for lower average feed costs throughout 2025.
• Strategic Recommendations: Market participants should closely monitor upcoming export data for concrete evidence of tariff impacts, consider hedging opportunities during current market strength, and prepare for potential increased volatility as markets reconcile the divergence between spot prices and fundamental outlooks.

Cheese blocks and butter prices surged despite a bearish USDA outlook and newly implemented Chinese tariffs on U.S. dairy products. Market participants showed strong buying interest in several key dairy commodities, seemingly defying fundamental headwinds.

Key Price Changes & Market Trends

Commentary: Cheddar blocks demonstrated significant strength, gaining 3.25 cents and continuing an upward trajectory observed earlier in the week. This robust performance likely reflects persistent tightness in inventories coupled with renewed buyer interest possibly aimed at securing supplies ahead of anticipated spring demand increases. Butter prices advanced firmly by 2.00 cents, continuing a recovery from levels seen the prior week despite reports of ample domestic inventories. NDM gained a solid 1.00 cent, reversing some weakness observed earlier in the week, potentially reflecting buyers responding to improved export competitiveness. Dry whey edged up by 0.50 cents without any trades being executed, suggesting cautious sentiment amid new Chinese tariffs.

Volume and Trading Activity

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

Butter led the market with exceptionally high activity, recording 24 trades with relatively balanced bids (6) and offers (5) at close. This high volume underscores butter’s position as the most actively contested market today, aligning with its significant price movement. Cheese blocks saw moderate activity, with nine trades completed and balanced bids (4) and offers (5), providing reasonable volume support for the day’s price increase.

Cheese barrels experienced lower activity with only four trades executed, though slightly more bids (2) than offers (1) remaining at close suggests underlying support despite limited transactions. NDM recorded four trades with closely matched bids (5) and offers (4). Dry Whey saw no trades executed today, though four outstanding bids against only one offer at close indicate buying interest remained present despite no confirmed transactions.

Global Context

International market dynamics continue to exert significant influence on U.S. dairy markets. Most notably, China implemented an 84% retaliatory tariff on U.S. dairy products effective today, severely hindering U.S. competitiveness in the Chinese market, particularly for whey products. This action comes despite reports of declining Chinese domestic milk production.

The European Union is projected to see a slight decline in milk production (-0.2%) in 2025, driven by regulatory pressures, shrinking herds, and disease concerns, potentially tightening global supplies. EU processors are expected to prioritize cheese production, potentially impacting butter and powder availability. Meanwhile, New Zealand’s 2025 milk production is forecast to be around 21.3 MMT, slightly below the five-year average, influenced by weather and input costs.

Southeast Asia remains a vital growth region for dairy imports, though U.S. NDM/SMP exports have faced challenges recently due to uncompetitive pricing. While U.S. prices have moderated, potentially stimulating renewed interest, competition may intensify if New Zealand diverts products from China to this region. Mexico continues to be a cornerstone market for U.S. dairy, especially NDM/SMP, with domestic production challenges, including drought, potentially sustaining demand for U.S. imports.

Forecasts and Analysis

Today, the USDA released its April World Agricultural Supply and Demand Estimates (WASDE) report, presenting a more bearish picture than previous forecasts. The report raised milk production forecasts, attributing this to more extensive expected cow inventories and slightly higher output per cow. Consequently, annual average price forecasts for 2025 were lowered across the board for butter, cheese, NDM, and dry whey compared to the March forecast.

The all-milk price forecast for 2025 was lowered significantly to $21.10 per cwt. This marks a substantial downward revision from the $21.60 projected in March and $22.60 in February, highlighting rapidly evolving expectations toward a weaker price environment.

Feed cost analysis presents a mixed picture. While nearby feed futures showed strength this week, with May Corn settling at $4.8250/bushel and May Soybean Meal at $297.60/ton, the broader outlook suggests lower average feed costs throughout 2025 compared to 2024. The combination of rising near-term feed futures and sharply lower milk price forecasts suggest potential margin pressure for producers in the immediate term.

Market Sentiment

Market sentiment today appeared fragmented and somewhat contradictory. The firm price action in spot cheese and butter, supported by moderate to high volume, suggests resilience and perhaps a degree of short-term optimism among physical market participants. This aligns with earlier observations of buyers returning to the market after price dips or seeking to secure inventory ahead of seasonal demand.

However, this apparent spot market confidence contrasts sharply with the more cautious, if not bearish, longer-term outlook implied by the significantly lowered USDA price forecasts in today’s WASDE report. Furthermore, China’s imposition of steep retaliatory tariffs introduces a significant negative externality, particularly for export-sensitive commodities like whey.

Overall sentiment can best be described as mixed and divergent. Participants focused on the immediate physical market demonstrated confidence today, pushing prices higher. Yet, this occurred against deteriorating official forecasts and escalating trade tensions.

Closing Summary & Recommendations

In summary, the CME dairy markets on April 10 exhibited notable strength in cheese blocks and butter, with butter seeing particularly high trading volume. This positive price action occurred despite the release of a bearish USDA WASDE report forecasting lower average dairy prices for 2025 and China’s simultaneous implementation of substantial retaliatory tariffs on U.S. dairy products.

Given these conflicting signals and the potential for increased volatility, stakeholders should consider several key strategies. First, closely monitor price action and trading volumes in coming sessions to gauge whether today’s spot strength persists or if markets begin to price in WASDE implications and trade tariffs. Second, producers should actively review risk management strategies given the lower official price forecasts, as current market rallies may present hedging opportunities. Finally, close attention should be paid to upcoming export data releases, providing crucial evidence regarding the impact of U.S. price competitiveness and newly imposed trade barriers, particularly for whey exports to China.

Learn more:

• USDA Slashes 2025 Milk Price to $21.60, Raising Red Flags for Producers – Explores the March WASDE report’s dramatic price reduction and questionable forecasting methodology, with specific mention of the April 10th report (today’s report) being a critical indicator.
• Dairy Prices Defy Global Trends: What 20% Higher Markets Mean for Your Herd – Provides context on the broader dairy price environment, showing dairy prices 19.9% higher than last year despite today’s futures trading significantly below USDA projections.
• Unlock profits with Class III milk futures – Offers strategic guidance on using Class III milk futures as a risk management tool, particularly relevant given the substantial gap between current futures prices and USDA projections shown in the chart.

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