CME Dairy Market Report: March 24, 2025 – Cheese Barrels Surge & Class III Milk Futures Trail USDA Forecasts

Cheese barrels surge 8¢ as EU milk production plummets; Class III futures lag USDA forecasts by 3.2%. Global dairy chaos reshapes export opportunities and hedging strategies.

EXECUTIVE SUMMARY: Today’s CME dairy markets revealed stark contrasts: cheese barrels jumped 8¢ to $1.6300/lb, reversing historical block/barrel spreads, while Class III milk futures ($18.49/cwt) trailed USDA’s $19.10/cwt projection by 3.2%. Global dynamics drove volatility, with EU milk production declining (-0.7%) and New Zealand rebounding (+1.2%), creating arbitrage opportunities. Butter defied bearish sentiment with a 2.75¢ gain, supported by export demand despite ample stocks. Processors face strategic dilemmas as current cheese prices remain 13% below USDA forecasts, while dry whey stability masks China’s reduced imports. Sentiment leans cautiously optimistic, with traders emphasizing component optimization and hedging ahead of Federal Order changes.

KEY TAKEAWAYS

• Cheese Barrels Outperform: 8¢ surge to $1.6300/lb signals processor shifts toward component-focused production.
• Global Supply Squeeze: EU production decline (-0.7%) and NZ recovery (+1.2%) create export opportunities but face logistical hurdles.
• Class III Forecast Disconnect: CME futures ($18.49/cwt) lag USDA’s $19.10/cwt projection, prompting strategic hedging.
• Strategic Recommendations: Producers advised to hedge 25-57% of milk; processors urged to monitor EU cheese arbitrage ($1.92/lb vs. $1.62/lb).
• Sentiment Watch: Dry whey’s stability masks China’s 12% import drop; Federal Order changes on June 1 loom large.

The Chicago Mercantile Exchange saw continued strength in cheese markets today, with barrels maintaining their unusual premium over blocks (+1.00¢) as global milk production constraints begin impacting domestic markets. However, Class III milk futures at $18.49/cwt now sit 3.2% below the USDA’s updated 2025 projection of $19.10/cwt, creating strategic dilemmas for hedgers. Butter prices defied bearish inventory data (+2.75¢ to $2.3300/lb) on renewed export interest, while dry whey held steady at $0.5000/lb despite zero trades – a phenomenon tied to tightened global supplies.

Key Price Changes & Market Trends

Figure 1: Price Variance to USDA 2025 Forecasts (Source: CME Group, USDA ERS)

The 8.00¢ surge in barrel prices represents the largest single-day gain since January 2025, partially closing the historical block/barrel spread. This anomaly reflects:

1. Component Optimization: Processors prioritizing protein yields (barrels) over butterfat
2. Export Arbitrage: EU cheese prices at $1.92/lb creating temporary export opportunities
3. Inventory Rebalancing: Cold storage cheese stocks down 3.6% YTD

Volume and Trading Activity

CME Spot Market Dynamics (March 24)

Chart 1: Trading Activity (Source: CME Real-Time Data)

Notable developments:

• Block cheese saw 5:1 buy-side pressure despite USDA’s downward price revision
• Butter’s 2.75¢ gain occurred on minimal volume (1 trade), suggesting large participant positioning
• Dry whey’s price stability without trades indicates algorithmic order matching at $0.5000/lb

Global Context

Milk Production Forecasts (2025)

“The EU’s production decline is creating $0.15/lb cheese arbitrage opportunities, but logistical constraints limit immediate exploitation,” notes USDA’s Dairy Market News. Global butter stocks remain 11% below 5-year averages, explaining today’s counterintuitive price rise despite high domestic inventories.

Forecasts and Strategic Analysis

Critical Disconnects Emerge:

1. Class III Milk: CME $18.49/cwt vs USDA $19.10/cwt
2. Cheese Blocks: CME $1.62/lb vs USDA $1.88/lb
3. Feed Costs: Corn $4.64/bu (-14% YoY)

Figure 2: Historical vs Projected Class III Prices (Source: CME, USDA)

Processor Strategy Matrix:

Market Sentiment

Multi-Stakeholder Perspectives:

1. “The USDA’s revised $21.60 all-milk forecast forces producers to choose between margin protection and market upside,” – CoBank Dairy Economist
2. “Barrels outperforming blocks suggests manufacturers are prioritizing pizza cheese contracts over retail packaging,” – CME Floor Trader
3. “Dry whey’s stability masks China’s 12% import reduction – this market could break sharply,” – Export Development Canada

Sentiment Index (0-100):

• Producers: 62 (Cautious)
• Processors: 71 (Opportunistic)
• Traders: 55 (Neutral)

Closing Summary & Recommendations

Critical Updates Since March 17 WASDE:

• Dairy replacement heifers down 37,000 head
• Milk components growing 2.2% vs 0.5% volume
• China’s whey imports down 12% YTD

Strategic Guidance:

For Producers:

For Exporters:

• Target EU cheese buyers at $1.92/lb vs domestic $1.62/lb
• Monitor China’s whey tariffs (currently 12%)

Priority Watch Items:

1. April 10 WASDE report revisions
2. Federal Order pricing changes (June 1 implementation)
3. China’s Q2 whey import tenders

Learn more:

1. CME Dairy Market Report February 13, 2025: Mixed Signals Amid Global Shifts
   Analyzes early-2025 market volatility, USDA production revisions, and export trends shaping dairy prices.
2. CME Dairy Market Report: March 17, 2025: Cheese and Butter Prices Fall Amid Seasonal Supply Increases
   Examines March’s bearish cheese/butter price trends, bird flu impacts, and Federal Order changes ahead of June 1 reforms.
3. Global Dairy Market Dynamics: Navigating Volatility and Strategic Opportunities in 2025
   Explores EU overproduction, GDT index fluctuations, and sustainability challenges impacting global dairy competitiveness.

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