Cheese markets strengthen while butter retreats; strategic opportunities emerge as futures trade 3.2% below USDA forecasts. Is China’s recovery coming?
EXECUTIVE SUMMARY: The March 25, 2025, CME Dairy Market Report reveals divergent trends across dairy products, with cheddar cheese prices rising (+2.00¢ for blocks) while butter declined (-1.25¢) amid significant trading volume. Class III milk futures remain stable but remain 3.2% below USDA projections, creating challenges and opportunities for market participants. Global factors are creating a complex environment with EU production constraints, New Zealand growth, and anticipated recovery in Chinese imports following steep declines in 2024. The market structure suggests cautious optimism, with a 60% probability of Class III prices remaining between $18.35-18.65/cwt through April, while analysts recommend differentiated strategies for producers (strategic hedging), processors (arbitrage opportunities), and exporters (positioning for Chinese demand recovery). The April 10 WASDE report and upcoming Federal Order pricing changes are key inflection points.
KEY TAKEAWAYS
- Price Divergence: Cheese markets strengthened (blocks +2.00¢, barrels +0.50¢) while butter retreated (-1.25¢). Dry whey showed notable strength (+1.00¢), potentially signaling improved export opportunities.
- Strategic Gap: Current Class III futures ($18.53/cwt) trade 3.2% below USDA forecasts, creating hedging opportunities for producers who should consider 57% production coverage based on the variance-based adjustment.
- Global Inflection: Chinese dairy imports are projected to grow 2% year-on-year in 2025 after significant declines in 2024 (SMP imports -36.8%), potentially reversing a three-year downtrend and supporting U.S. export potential.
- Trading Signals: Butter’s high trading volume (27 trades) indicates active market repositioning, while the narrow block-barrel spread (0.5¢) suggests changing market dynamics compared to historical patterns.
- Feed Cost Relief: Corn futures settling at $4.6225/bushel (down 14% year-over-year) should support producer margins despite lower milk price forecasts, potentially providing $0.75-1.25/cwt in production cost relief.
Today, the Chicago Mercantile Exchange (CME) dairy markets showed mixed performance, with cheese prices gaining ground while butter retreated. Class III milk futures continued stabilizing, supported by more pungent cheese and whey markets. Trading activity was particularly pronounced in the butter market, which saw significant volume despite price declines. Current market positioning suggests traders adjust strategies amid changing global supply dynamics and ongoing divergence between spot prices and USDA forecasts.
Key Price Changes & Market Trends
Today’s CME cash market showed varied performance across major dairy products, with cheese strengthening while butter declined.
| Product | Closing Price | Change from Yesterday |
| Cheese (Blocks) | $1.6400/lb | +2.00¢ |
| Cheese (Barrels) | $1.6350/lb | +0.50¢ |
| Butter | $2.3175/lb | -1.25¢ |
| Nonfat Dry Milk | $1.1400/lb | -0.25¢ |
| Dry Whey | $0.5100/lb | +1.00¢ |
Cheddar blocks led the market advance with a 2-cent gain, potentially signaling improved demand heading into the spring. Today’s movement continues the recent strengthening trend in cheese prices, with the weekly average for blocks now at $1.6300/lb, up from $1.6095/lb last week. The block-barrel price spread widened slightly to 0.5 cents, suggesting some divergence in different cheese market segments. This narrowed spread contrasts with historical patterns where blocks typically command a more significant premium.
Butter prices continued to correct after recent gains, likely due to adequate cream supplies. The weekly butter average remains at $2.3238/lb, compared to $2.2980/lb last week, despite today’s decline. Dry whey posted a notable 1-cent increase, reflecting strengthening protein markets and improved export potential.
Volume and Trading Activity
Trading activity varied significantly across products today, with butter commanding the most attention:
| Product | Number of Trades | Bids | Offers |
| Butter | 27 | 4 | 3 |
| Cheese (Blocks) | 1 | 0 | 2 |
| Cheese (Barrels) | 2 | 0 | 1 |
| Nonfat Dry Milk | 1 | 3 | 1 |
| Dry Whey | 1 | 2 | 3 |
Butter’s 27 trades represented most of the market activity, suggesting significant price discovery and adjustment. This high volume (up from just one trade yesterday) indicates considerable market participation in active repositioning. The presence of both multiple bids and offers indicates an active price-finding mechanism.
Yesterday’s CME session showed significantly different trading patterns. Blocks saw 12 trades with 8 bids to 2 offers—a 5:1 buy-side pressure ratio that likely contributed to today’s continued price strength. Today’s reduced trading volume suggests market participants may accept the new price levels established yesterday.
Cheese markets saw limited trades but sufficient interest to move prices higher. Nonfat dry milk had moderate bidding interest despite minimal trading and a slight price decline. Dry whey’s multiple offers at higher prices reflect sellers’ confidence in the market’s upward trajectory.
Global Context
International dairy markets continue influencing domestic prices, with specific production changes across major global regions creating a complex market environment. According to the latest USDA Foreign Agricultural Service report, European Union milk production is forecast to decline marginally to 149.4 million metric tons (MMT) in 2025, down 0.2% from an estimated 149.6 MMT in 2024. This production constraint is driven by tight dairy farmer margins, environmental regulations, and disease outbreaks among major producers.
In contrast, New Zealand’s milk production shows measurable growth, with December 2024 collections up 1.4% year-over-year and total seasonal production growth reaching 3.1%. This growth is primarily attributed to favorable weather conditions and improved regional farm profitability.
Chinese import demand dynamics are shifting significantly, with import volumes projected to grow by 2% year-on-year in 2025, potentially reversing a three-year decline. This forecast improvement follows steep drops across key product categories during 2024:
| Chinese Import Category | 2024 YoY Change |
| Skim Milk Powder (SMP) | -36.8% (178,000 MT) |
| Whole Milk Powder (WMP) | -12.6% |
| Liquid Milk and Cream | -15.6% |
| Infant Milk Formula | -14.8% |
Dry whey’s strength in today’s market likely reflects the anticipated recovery in Chinese import demand as traders position for improved export opportunities. Oceania butter prices have stabilized around $2.20-2.30/lb, closely aligning with U.S. butter values, suggesting the domestic market is finding equilibrium with international prices after recent volatility.
Forecasts and Analysis
The Class III milk futures market settled at .53/cwt for March contracts, up 4 cents from yesterday, supporting the outlook for stable to improving milk prices. However, this level remains significantly below the USDA’s latest price projection of $19.10/cwt – a 3.2% negative variance that creates strategic challenges for producers and processors.
CME Futures Settlement Prices
| Mon | Tue | Wed | Thur | Fri | ||||
| Class III (MAR) $/CWT | 18.49 | 18.53 | 0.00 | 0.00 | 0.00 | |||
| Class IV (MAR) $/CWT. | 18.17 | 18.17 | 0.00 | 0.00 | 0.00 | |||
| Cheese (MAR) $/LB. | 1.743 | 1.7460 | 0.00 | 0.00 | 0.00 | |||
| Blocks (MAR) $/LB. | 1.819 | 1.8190 | 0.00 | 0.00 | 0.00 | |||
| Dry Whey (MAR) $/LB. | 0.4838 | 0.4925 | 0.00 | 0.00 | 0.00 | |||
| NDM (MAR) $/LB. | 1.175 | 1.1700 | 0.00 | 0.00 | 0.00 | |||
| Butter (MAR) $/LB. | 2.4005 | 2.4045 | 0.00 | 0.00 | 0.00 | |||
| Corn (MAR) $/BU. | 4.64 | 4.6225 | 0.00 | 0.00 | 0.00 | |||
| Corn (DEC) $/BU. | 4.5125 | 4.4875 | 0.00 | 0.00 | 0.00 | |||
| Soybeans (MAY) $/BU. | 10.285 | 10.0225 | 0.00 | 0.00 | 0.00 | |||
| Soybeans (NOV) $/BU. | 10.06 | 10.0725 | 0.00 | 0.00 | 0.00 | |||
| Soybean Meal (MAY) $/TON | 297.30 | 295.30 | 0.00 | 0.00 | 0.00 | |||
| Soybean Meal (DEC) $/TON | 311.90 | 311.30 | 0.00 | 0.00 | 0.00 | |||
| Live Cattle (JUN) $/CWT. | 202.225 | 202.58 | 0.00 | 0.00 | 0.00 |
As shown in the chart above, Class III milk futures have demonstrated substantial volatility over the past month, trading between .30-18.65/cwt, while USDA’s forecast (red dashed line) projects a steady increase from approximately .50/cwt to .90/cwt over the next quarter. The historical price pattern shows at least three significant price spikes above $18.65/cwt in the past month, suggesting potential resistance levels for future rallies. Current futures positioning at $18.53/cwt places the market around the midpoint of recent trading ranges and at the starting point of USDA’s projected upward trajectory.
It’s worth noting that USDA has consistently revised forecasts downward mid-year in four of the past five years. Their February report already reduced the all-milk price forecast by $0.45/cwt to $22.60/cwt, and their March 17th World Agricultural Supply and Demand Estimate (WASDE) report further cut the 2025 all-milk price forecast by a whole dollar to $21.60/cwt. This pattern suggests a cautious interpretation of current projections is warranted.
Price probability analysis based on recent trading patterns indicates:
- 60% probability: Class III remains between $18.35-18.65/cwt through April
- 25% probability: Class III breaks above $18.70/cwt on improving demand
- 15% probability: Class III falls below $18.30/cwt on supply pressure
Feed markets showed mixed results today, with corn futures easing slightly while protein markets maintained relative stability. The March corn contract settled at $4.6225/bushel, down from $4.64 yesterday, potentially providing marginal relief on input costs for dairy operations. This represents a 14% year-over-year decline in corn prices, which should help support producer margins despite lower milk price forecasts.
Market Sentiment
Market participants expressed cautious optimism about cheese market fundamentals. “The block market feels increasingly supported by steady retail demand and improved food service activity,” one dairy trader active in today’s CME session noted. “We’re seeing buyers step in more confidently after the recent price corrections.”
Butter market sentiment remains more tempered, with one analyst commenting, “The cream market has loosened somewhat, and we’re seeing that reflected in butter’s price adjustment today. However, the fundamentals remain generally supportive heading into the lower production months.”
Overall market sentiment leans cautiously bullish for cheese and whey markets, while butter traders appear more circumspect about near-term price direction. The sentiment index developed by market analysts shows:
- Producers: 62 (Cautious)
- Processors: 71 (Opportunistic)
- Traders: 55 (Neutral)
This sentiment distribution reflects the divergent views on market direction, with processors seeing buying opportunities while producers remain concerned about price sustainability and traders take a balanced view.
Closing Summary & Recommendations
In summary, today’s dairy markets demonstrated divergent trends, with cheese and whey prices strengthening while butter retreated. Despite today’s decline, the impressive trading volume in butter (27 trades) suggests active market participation and price discovery. Class III milk futures continue to show stability with a slight upward bias, supported by cheese market performance, but remain 3.2% below USDA projections – a gap that creates challenges and opportunities.
Based on current market conditions and verified forecasts, we recommend the following strategies for different market participants:
For Producers:
- Implement strategic hedging based on the gap between current prices and USDA forecasts. With Class III futures trading 3.2% below USDA projections, consider hedging 57% of production (calculated as 25% base + 32% variance-based adjustment).
- Focus on component optimization given the strength in cheese and whey markets, which support protein and fat premiums.
- Monitor feed efficiency opportunities. Improvements can potentially reduce production costs by $0.75-1.25/cwt, helping offset any price weakness.
For Processors:
- Explore arbitrage opportunities EU cheese trading presents at approximately $1.92/lb versus domestic prices at $1.62/lb.
- Consider forward coverage on whey ingredients ahead of potential Chinese demand recovery.
- Evaluate inventory positions against USDA’s consistent pattern of downward forecast revisions.
For Exporters:
- Monitor China’s projected 2% year-on-year growth in dairy imports for 2025, with particular focus on renewed strength in whey products.
- Track EU production constraints (projected -0.2%) for potential supply gaps that could create export opportunities.
The outlook remains cautiously optimistic for dairy markets heading into Q2 2025. Key inflection points to watch include the April 10 WASDE report revisions, upcoming Federal Order pricing changes (June 1 implementation), and China’s Q2 whey import tenders. The current market positioning suggests gradual price improvement supported by seasonal demand patterns and controlled milk production growth. However, the consistent pattern of USDA’s downward revisions warrants careful risk management planning.
Read more:
- USDA Slashes 2025 Milk Price Forecast By $1: What Dairy Farmers Need to Know
- Global Dairy Trade Auction Hits 30-Month High: Key Takeaways for Farmers
- Global Dairy Market in 2025: Production Shifts, Demand Fluctuations, and Trade Dynamics
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