CME DAIRY MARKET REPORT: MARCH 20, 2025: Class III Futures Surge Above USDA Forecast; Cheese Blocks Rally Amid Strong Dry Whey Bidding

Class III futures surge past USDA forecast while cheese blocks rally; market anticipates tomorrow’s pivotal Cold Storage report amid strong whey demand.

EXECUTIVE SUMMARY: The March 20, 2025 CME dairy market showed selective strength, with cheese blocks rising 1.50 cents to $1.6200/lb and dry whey continuing its four-day rally to $0.4800/lb amid exceptional buying interest (7:1 bid-to-offer ratio). Class III milk futures surpassed USDA’s forecast to reach $18.53/cwt despite overall cheese prices remaining significantly below USDA’s longer-term projections. Global dairy production shows divergent trends, with New Zealand output improving while EU production declines, creating mixed export opportunities for U.S. producers. Market participants are strategically positioning ahead of tomorrow’s Cold Storage report and the more significant Federal Order changes scheduled for June 1st that will fundamentally restructure milk pricing formulas.

KEY TAKEAWAYS

• Technical Signals: Cheese blocks have established support at $1.5750/lb with resistance at $1.6450/lb; current prices remain well below USDA’s Q2 projection of $1.8200/lb, suggesting potential for significant appreciation.
• Market Dynamics: Trading volumes remain 18% below five-year seasonal averages for mid-March, indicating heightened caution as processors and producers await clearer signals on upcoming Federal Order changes.
• Segment-Specific Strategies: Large producers should implement staggered hedging (40-50% of production), mid-sized operations should consider forward contracting (30-40%), while smaller farms should focus on operational efficiency and niche market opportunities.
• Critical Timeline: Tomorrow’s Cold Storage report will provide essential inventory insights, while the June 1st Federal Order changes represent the most significant upcoming market factor with “very high” potential impact on pricing.
• Global Context: RaboResearch projects 0.8% milk production growth across major exporting regions in 2025, but with significant regional differences – EU declining 0.2% versus New Zealand increasing 1.2% – creating varied international price pressures.

Today’s Chicago Mercantile Exchange (CME) dairy markets showed mixed performance with a positive bias, as cheese blocks gained 1.50 cents to reach $1.6200/lb and dry whey continued its four-day upward streak to $0.4800/lb. Class III milk futures strengthened to .53/cwt, exceeding USDA’s .50/cwt forecast. This marks a significant 8-cent recovery from Monday’s $18.45/cwt settlement. Current market dynamics reflect ongoing tension between seasonal supply expectations, international competition, and domestic demand patterns as the industry approaches Q2 2025. Trading activity remained selective but strategic, with buyers showing particular interest in cheese blocks and dry whey.

KEY PRICE CHANGES & MARKET TRENDS

CME Dairy Price Chart – March 2025 Historical cheese and butter prices showing recent trends and key support/resistance levels

Cheddar blocks advanced 1.50 cents to $1.6200/lb, continuing to recover after Tuesday’s sharp 7.00¢ decline. While today’s increase is encouraging, block prices remain significantly below last week’s average of $1.6950/lb, representing a 4.4% week-over-week decline. The block-barrel spread widened to 5.50¢ after nearly disappearing earlier in the week, suggesting diverging market fundamentals between these two cheese segments.

From a technical analysis perspective, cheese blocks have established near-term support at $1.5750/lb, which was tested and held during Tuesday’s session. The current $1.6200/lb price sits just below Monday’s resistance point of $1.6450/lb. If blocks break through this resistance level, the next target would be the previous week’s average of $1.6950/lb.

Dry whey continued its positive momentum for the fourth consecutive day, gaining another cent to $0.4800/lb. This represents a 6.7% improvement from Monday’s $0.4500/lb price, indicating substantial renewed interest in the whey market despite the product’s overall weekly average trailing last week’s performance. Today’s close at $0.4800/lb represents a significant technical level that could encounter resistance if tested again tomorrow.

Nonfat dry milk decreased slightly by 0.50¢, continuing a gradual downward trend as global powder markets face pressure from improved seasonal production in New Zealand. NDM has established solid support at $1.1500/lb, which has been tested several times this month without breaking lower.

Butter held steady for the second consecutive day at $2.2950/lb with no trades, bids, or offers recorded, extending its $0.0375/lb decline from Monday’s $2.3025/lb price level. From a technical perspective, butter is trading in a narrow range between support at $2.2900/lb and resistance at $2.3025/lb, with a decisive break in either direction likely to dictate the next significant move.

VOLUME AND TRADING ACTIVITY

Today’s CME spot market showed selective activity, with seven trades executed across all dairy products, representing a moderate decline from yesterday’s volume. This continues the pattern of hesitancy seen throughout March, with overall weekly trading volumes down 42% compared to early March levels.

Compared to historical seasonal patterns, current trading volumes are approximately 18% below the 5-year average for mid-March, when markets typically see increased activity ahead of the spring flush. This reduced volume suggests market participants may be more cautious this year, awaiting more precise signals on milk production trends and upcoming Federal Order changes.

Cheddar blocks had the most active trading session, with four trades completed, alongside balanced interest shown via four bids and two offers. This pattern suggests genuine price discovery rather than one-sided selling or buying pressure, potentially indicating a price stabilization point following recent declines.

Dry whey demonstrated extreme buying interest, with seven bids against just one offer despite executing only a single trade. This 7:1 bid-to-offer ratio signals potential continued strength in the whey market in coming sessions as buyers appear eager to secure the product.

NDM saw limited activity, with two trades executed amid four bids and two offers. This reflects continued market equilibrium despite the slight price decrease. The balanced bid-ask dynamics suggest the market continues searching for direction amid mixed international signals.

Butter and barrels saw no trades today, with barrels attracting two bids but no offers. The complete absence of butter activity for the second consecutive day suggests market participants are taking a wait-and-see approach following earlier price adjustments this week.

GLOBAL CONTEXT

Global Milk Production Trends 2025

International dairy markets continue to influence domestic prices significantly through complex trade dynamics. New Zealand milk production has shown stronger-than-anticipated seasonal improvement, putting downward pressure on global butter and milk powder values. According to research, milk supply from major exporting regions is projected to grow by 0.8% in 2025, with gains expected in all major exporting areas for the first time since 2020.

Source: RaboResearch Dairy Quarterly Q1 2025

European Union milk production presents a contrasting picture. Output is forecast to decrease by 0.2% to 149.4 million metric tons in 2025 due to shrinking cow herds, environmental regulations, and disease pressures. However, EU cheese production is expected to increase by 0.6% to 10.8 million metric tons, driven by solid domestic demand and export opportunities. This prioritization of milk for cheese production may support global cheese markets while limiting butter and powder production.

U.S. export competitiveness faces mixed prospects in this environment. USDA has revised its 2025 dairy export forecast on a skim-solids basis downward to 49.1 billion pounds, a decrease of 0.4 billion pounds, primarily affecting export volumes to Southeast Asia. However, the export forecast on a milk-fat basis was raised by 0.2 billion pounds to 11.9 billion pounds, suggesting more favorable conditions for butterfat exports.

Source: USDA Foreign Agricultural Service

Mexican demand for U.S. dry whey remains particularly strong, likely contributing to today’s price increase and robust bidding activity. This strength has emerged as competition from European suppliers has decreased amid geopolitical tensions affecting shipping lanes.

FORECASTS AND ANALYSIS

Class III Milk Futures vs USDA Forecast

Class III Milk Futures Chart Class III Milk Futures: Historical (Mon-Thu) vs USDA Forecast

The Class III milk futures have demonstrated remarkable momentum this week, climbing steadily from .45/cwt on Monday to today’s .53/cwt settlement. This represents an 8-cent gain over four days, pushing prices above the USDA’s Q2 2025 forecast of $18.50/cwt.

Despite current strength in Class III futures, cheese prices remain well below USDA’s longer-term projections for 2025. The following table illustrates USDA’s quarterly price projections against current market levels:

Data Source: USDA Dairy Market News

Segment-Specific Market Impacts and Recommendations

For Large-Scale Producers (1,000+ cows):

Current cheese prices ($1.6200/lb) sit significantly below USDA’s Q2 projection ($1.8200/lb), creating a strategic planning challenge. Large producers should consider implementing a layered hedging strategy that protects near-term cash flow while maintaining upside potential if USDA projections materialize. With operations of this scale, consider protecting 40-50% of production at current Class III levels while preserving flexibility for potential price appreciation in Q3-Q4.

For Mid-Size Producers (100-999 cows):

Mid-size operations face particular vulnerability to near-term price volatility. The current Class III futures strength provides a potential opportunity to lock in protection against downside risk through appropriate forward contracting. The moderate feed cost outlook (corn trading at $4.6525/bu versus a projected annual average of $4.85/bu) provides some margin relief that can be leveraged in risk management decisions.

For Small Family Operations (<100 cows):

The current environment requires an operational efficiency focus for smaller producers with limited risk management tools. With USDA projecting a 10.1% decline in feed costs for 2025 compared to 2024, smaller operations should prioritize feed purchasing strategies and consider diversification into niche markets where feasible, especially given the projected strength in cheese markets through year-end.

MARKET SENTIMENT

Market sentiment appears cautiously optimistic, particularly regarding Class III milk and dry whey futures. The steady increase in Class III futures throughout the week and strong buying interest in dry whey suggest traders anticipate strengthening in these markets.

A prominent dairy trader noted, “The current weakness creates buying opportunities, particularly with USDA projections indicating more substantial prices later in 2025. We’re seeing typical mid-March price discovery as markets prepare for spring flush conditions, but the strengthening in blocks today suggests we may be finding a temporary floor”.

Another market analyst commented, “While we’re seeing hesitancy in overall trading volumes, the bid-ask dynamics for dry whey suggest genuine buying interest that could translate to continued price strength as we head into Q2. The limited selling interest at current levels is telling”.

Industry participants closely monitor upcoming Federal Order changes scheduled for June 1st, which will fundamentally alter milk pricing formulas. One processor representative observed, “These changes add another layer of uncertainty as market participants attempt to position themselves ahead of the new pricing regime. We already see strategic inventory management decisions influenced by the pending formula changes”.

A Northeast cooperative manager stated regarding the upcoming seasonal transition, “As we approach the spring flush, we’re seeing more cautious buying behavior than in prior years. Processors seem to be managing inventories more conservatively given the Federal Order changes on the horizon, which could create some interesting dynamics as we move into peak production season.”

Regional variations in market conditions continue to shape dairy economics across major production areas. According to a Midwest producer, “Proximity to processing facilities has become increasingly crucial for negotiating premiums in our market. Those without established relationships are facing significant price pressure despite the overall market showing some recovery”.

UPCOMING MARKET-MOVING REPORTS AND EVENTS

Tomorrow’s Cold Storage report will be particularly critical for cheese and butter markets. Last month’s report showed American cheese stocks at 845.6 million pounds, up 2.3% from the prior year, while butter inventories were reported at 262.8 million pounds, down 4.1% year-over-year. Any significant deviations from these trends could trigger substantial price movements, particularly in cheese markets where current prices remain well below USDA’s Q2 projections.

CLOSING SUMMARY & RECOMMENDATIONS

In summary, today’s CME dairy markets showed selective strength, with cheese blocks rising 1.50 cents to $1.6200/lb and dry whey continuing its positive momentum to reach $0.4800/lb. Class III milk futures extended their upward trend to settle at .53/cwt, surpassing the USDA forecast of .50/cwt. Trading activity was targeted with genuine price discovery, evident in cheese blocks amid balanced bidding and offering patterns.

For Producers:

• Large operations: Implement a staggered hedging approach that protects 40-50% of production at current levels while preserving upside potential for projected price improvements in Q3-Q4.
• Mid-sized operations: Consider forward contracting 30-40% of expected production through Q2, particularly given the strength of Class III futures relative to spot cheese prices.
• Small farms: Focus on operational efficiency and explore direct-to-consumer or specialty cheese opportunities, given the projected price strengthening in cheese markets later in 2025.

For Processors:

• Block cheese prices ($1.6200/lb) remain substantially below USDA’s Q2 projection ($1.8200/lb), potentially creating strategic buying opportunities.
• The widening block-barrel spread (now 5.50¢) suggests diverging market dynamics that may require separate procurement strategies for different cheese categories.
• Consider building strategic inventory positions in products showing particular value relative to USDA’s longer-term projections while monitoring tomorrow’s Cold Storage report for broader inventory trends.

For All Market Participants:

• Prepare for potential market volatility as the Federal Order changes approach on June 1st, which will fundamentally alter milk pricing formulas.
• Monitor RaboResearch’s projected global milk supply growth of 0.8% to indicate how international markets may pressure or support domestic prices.
• Track the continued divergence between EU milk production (-0.2% projected for 2025) and EU cheese production (+0.6% projected) for insights into potential European export competition.
• Position ahead of tomorrow’s Cold Storage report, which could create significant price movement, particularly if cheese or butter stocks deviate substantially from expectations.

This report will be updated as new market data becomes available. The following significant market indicator will be tomorrow’s monthly Cold Storage report, providing critical insights into cheese and butter inventory positions.

Learn more:

• Global Dairy Market Analysis: Butter Strength, SMP Weakness Signal Strategic Opportunities
• Insights from USDA’s 10-Year Dairy Forecast
• Mixed Dairy Markets as Blocks Rise, Barrels Weaken

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