Dairy markets experienced unprecedented turbulence this week as trade tensions rattled the industry. The March Class III futures contract swung dramatically, moving more than $1 daily amid U.S. trade disputes with China and temporary détente with Mexico and Canada. Record cheese exports and shifting production patterns signal more volatility ahead.
Summary:
The dairy markets experienced unprecedented volatility this week amid escalating trade tensions. The March Class III futures contract demonstrated extreme instability, swinging more than $1 daily, while a 30-day trade détente with Mexico and Canada provided temporary relief. However, a new 10% U.S. tariff on Chinese imports sparked retaliation, though China notably spared dairy products. Market impacts were immediate, with CME spot prices declining across commodities – nonfat dry milk fell 1.5¢ to $1.33 per pound, Cheddar blocks dropped 1.75¢ to $1.86, and barrels decreased 3¢ to $1.78. Despite these challenges, U.S. cheese exports hit record levels in December, up 21% year-over-year, though milk powder exports slumped 23% to their lowest December level since 2016. The industry faces continued uncertainty as Mexico threatens higher tariffs on U.S. cheese if trade tensions resurface next month.
Key Takeaways:
- March Class III futures experienced extreme volatility, swinging more than $1 in a single day on Monday, from 39¢ down to 71¢ up.
- The U.S., Mexico, and Canada agreed to a 30-day trade détente, while the U.S. imposed a 10% tariff on Chinese imports. China retaliated but notably excluded whey and soybeans from tariffs.
- CME spot prices declined across major dairy products: NDM fell 1.5¢ to $1.33/lb, Cheddar blocks dropped 1.75¢ to $1.86, and barrels decreased 3¢ to $1.78.
- U.S. milk powder exports fell 23% year-over-year in December 2024, reaching the lowest December level since 2016.
- December milk powder production was down 15% from the previous year, with 2024 total production dropping 13% to the lowest level since 2013.
- Cheese production patterns shifted significantly in 2024: Gouda jumped 30.2%, Mozzarella rose 3.6%, while Cheddar fell 6.1%.
- U.S. cheese exports hit record levels in December at 97 million pounds, up 21% from December 2023, with exports using 8% of total production in 2024.
- Mexico dominated cheese exports, with shipments 30% higher than 2023, accounting for 38% of total U.S. cheese exports.
- U.S. dairy heifer numbers have reached their lowest point since 1978, suggesting potential future supply constraints.
- The Zisk app forecasts improved profitability for dairy farms in 2025, particularly for larger herds in the Southeast and Northeast regions.
A cheesemaker inspecting cheese wheels during the aging process, showcasing the careful monitoring required in cheese production amid current market volatility
Wild price swings hit dairy markets this week as trade tensions flared up. The March Class III milk futures contract moved up and down by more than $1 in a single day on Monday, showing just how uncertain things are right now.
Trade Situation
The U.S. made a 30-day deal with Mexico and Canada to pause new tariffs while they worked on border issues. Things with China are different – the U.S. put a 10% tax on Chinese goods, and China hit back with taxes on some U.S. products. For now, China isn’t taxing whey or soybeans, but that could change.
Market Prices Today
| CME Spot Price Changes | Price | Change |
|---|---|---|
| Nonfat Dry Milk | $1.33/lb | -1.5¢ |
| Cheddar Blocks | $1.86/lb | -1.75¢ |
| Cheddar Barrels | $1.78/lb | -3¢ |
Uncertainty has pushed dairy prices lower across the board. Nonfat dry milk dropped 1.5¢ to $1.33 per pound, marking its lowest point since August. Cheddar blocks fell 1.75¢ to $1.86, while Cheddar barrels went down 3¢ to $1.78.
Production Changes
| Cheese Production Changes 2024 | % Change |
|---|---|
| Gouda | +30.2% |
| Mozzarella | +3.6% |
| Cheddar | -6.1% |
Cheesemakers are shifting their production strategies significantly. Gouda production has surged by 30.2%, and Mozzarella output increased by 3.6%, setting new records. Meanwhile, cedar production has fallen by 6.1%. These changes reflect a move toward products that are popular with foreign buyers or ready for immediate consumption.
| December Dairy Export Metrics | Change vs 2023 |
|---|---|
| Total Cheese Exports | +21% |
| Milk Powder Exports | -23% |
| Cheese to Mexico | +30% |
| Share of Production Exported | 8% |
Total cheese exports hit a record in December at 97 million pounds. However, milk powder isn’t performing as well, with production falling 15% in December and exports dropping 23% to the lowest December numbers since 2016.
What This Means for Farmers
The outlook contains both positive and negative elements for dairy farmers. Larger farms in the Southeast and Northeast might see better profits in 2025. Cheese exports remain strong, especially to Mexico. However, due to trade uncertainty, farmers face significant challenges with unpredictable milk prices. There’s also concern that Mexico might tax U.S. cheese if trade talks go badly.
Smart Moves for Farmers
To handle these challenges, farmers should consider looking for different places to sell their milk and focus on producing high-quality components like fat and protein. Using futures contracts to protect against price drops and keeping up with market news and changes are essential strategies. Feed costs need careful watching, too.
The dairy market is tough right now, but farmers who stay informed and plan will be in the best position to handle whatever comes next.
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