Dairy prices surge 20% while feed costs drop—discover how this rare market alignment creates a golden opportunity for your herd’s profitability.
EXECUTIVE SUMMARY: The FAO Food Price Index for March 2025 reveals a remarkable opportunity for dairy producers as prices stand nearly 20% higher than last year while feed costs decline by 2.6%. This divergence creates an exceptional profit environment where butter prices have surged 3.9% despite cheese experiencing its first decline in nine months. With RaboResearch forecasting continued milk supply growth of 0.8% in 2025 and gains expected across all major exporting regions for the first time since 2020, producers can capitalize on this favorable market through strategic breeding decisions focused on butterfat (which has 50% heritability) and implementing precision feeding strategies that optimize component production rather than simply volume. The article provides actionable guidance for dairy farmers to maximize returns during this unique market window where input costs are falling while component values remain strong.
KEY TAKEAWAYS
- Dairy prices are 19.9% higher than March 2024 while feed costs are declining, creating a rare profit opportunity window
- Butter prices rose 3.9% while cheese declined 1.8%, signaling the importance of breeding for butterfat components
- Genetic selection is crucial as butterfat has high heritability (50%), making it responsive to breeding strategies
- Feed efficiency improvements directly impact profitability—each 1% increase in NDF digestibility yields 0.51 lb/day more milk
- All major dairy exporting regions are expected to see production gains in 2025 for the first time since 2020
The FAO Food Price Index (FFPI) held steady in March 2025, averaging 127.1 points and remaining virtually unchanged from February, as declining cereal and sugar prices counterbalanced rises in vegetable oils and meat. Despite the month-to-month stability, the index registered 6.9% higher than March 2024 levels, though still sitting 20.7% below its historic peak in March 2022.
FAO Food Price Index Key Metrics (March 2025)
| Category | Index Value | Monthly Change | Annual Change (vs. March 2024) |
| Overall FFPI | 127.1 | 0% | +6.9% |
| Cereals | 109.7 | -2.6% | -1.1% |
| Vegetable Oils | 161.8 | +3.7% | +23.9% |
| Meat | 118.0 | +0.9% | +2.7% |
| Dairy | 148.7 | 0% | +19.9% |
| Sugar | 116.9 | -1.6% | -12.3% |
Dairy Markets Show Remarkable Strength: What It Means for Your Operation
The FAO Dairy Price Index remained unchanged from February at 148.7 points but stands nearly 20% higher than its March 2024 level – signaling continued strength in global dairy markets. This sustained price elevation creates significant opportunities for producers focused on component optimization and strategic breeding decisions.
International cheese prices fell 1.8%, marking the first decline in nine months, as steady European supply met weakening demand, particularly in Oceania. However, stronger performance in other dairy categories fully offset this decline.
Butter prices surged 3.9% on strong retail sales and lower seasonal output in Oceania, marking the third consecutive monthly rise. This butter strength aligns with broader market trends showing premium values for milkfat components, suggesting producers should consider genetic selection strategies prioritizing butterfat yield.
“When butterfat premiums rise, we adjust rations to optimize milk components,” says Dr. Mike Hutjens, University of Illinois feed specialist. This approach reflects the ongoing shift in component values that began several years ago.
Component Values Shift: Butterfat Takes the Lead
The strength in butter prices continues to be a long trend in dairy markets. According to Hoard’s Dairyman, butterfat has increasingly overtaken protein as the price leader in milk checks. This shift reflects changing consumer preferences as medical, nutrition, and public perceptions of saturated fats in foods like butter have evolved.
“For many years, protein was the consistent component leader in milk checks as it fetched the highest pay price. However, prices and demand for butterfat began to improve as medical, nutrition and public perception changed on saturated fats in foods such as butter, cheese, eggs, and meat,” notes Hoard’s Dairyman.
Feed Cost Relief Amplifies Dairy Profit Opportunities
The 2.6% decline in the FAO Cereal Price Index creates a favorable environment for dairy producers, as feed costs typically represent over 50% of total milk production expenses. This feed cost relief is optimal, potentially enhancing margins for producers who strategically manage their feed programs.
Research from the University of Wisconsin has demonstrated the significant impact of feed digestibility on production efficiency. “A 14% unit difference in Starch Digestibility would translate into a 10% unit difference in TDN,” according to work from Shaver at UW. Michigan State researchers found that for every one percentage-unit increase in NDF digestibility, there is a 0.51 lb/d increase in milk yield.
Strategic Breeding Decisions Critical in the Current Market
Dairy prices show remarkable strength compared to other agricultural commodities, so breeding decisions are critical. The current market environment particularly rewards producers who align their breeding programs with component-focused production strategies.
Since butterfat content is highly heritable (about 50%), genetic selection is crucial for improving performance and obtaining higher milk prices. Lactanet states, “The goal is to breed profitable cows that efficiently yield high volumes of butterfat and protein throughout their productive lives.”
Experts recommend improving overall selection indexes while paying special attention to fat content and yield. The Genetic Herd Inventory report can help assess a herd’s genetic potential for butterfat production, with percentile rankings providing context for how a herd compares to the industry average.
Vegetable Oils and Meat Markets Also Show Strength
The FAO Vegetable Oil Price Index rose significantly, increasing by 3.7% from February to average 161.8 points, positioning it 23.9% higher than its year-earlier level. Higher quotations across palm, soy, rapeseed, and sunflower oils drove this upward momentum.
The FAO Meat Price Index increased by 0.9% in March to 118.0 points, positioning it 2.7% above March 2024. This rise was predominantly attributed to higher pig meat prices in Europe, which strengthened following renewed demand in the European Union.
Historical Perspective Shows Stabilization After Volatility
While the current FFPI shows a 6.9% increase from March 2024, it remains significantly below (20.7%) the peak reached in March 2022 following Russia’s invasion of Ukraine.
Historical FFPI Comparison
| Year | Average Index | Notable Events |
| 2022 | 159.7 | Peak post-Russia-Ukraine invasion |
| 2024 | 126.5 | Pre-March 2025 baseline |
| 2025 | 127.1 | Current stabilization phase |
What This Means for Your Dairy Operation
The continued strength in dairy prices, particularly the nearly 20% year-over-year increase, combined with declining feed costs, creates exceptional profit opportunities for dairy producers in 2025. To maximize returns in this favorable environment, consider these strategic approaches:
Monitor Feed Grain Prices Against Milkfat Premiums
With cereal prices declining while butter values surge, the spread between input costs and component-based revenue streams is widening. This creates opportunities to optimize feeding programs that maximize valuable components rather than simply volume.
Consult Breeding Specialists to Align Genetics with Market Demands
The current market particularly rewards butterfat production. With butterfat’s high heritability (about 50%), genetic selection can significantly impact your herd’s ability to capitalize on current market conditions.
Implement Precision Feeding Strategies
Research shows that fiber and starch digestibility improvements can significantly impact production efficiency. Michigan State researchers found that for every percentage-unit increase in NDF digestibility, cows produced 0.51 lb/d more milk.
The March 2025 FAO Food Price Index reflects a complex global food market with divergent trends across commodity groups. Combining strong dairy prices and declining feed costs for dairy producers creates a uniquely favorable profit environment that rewards strategic management decisions focused on component optimization, efficient feed utilization, and aligned breeding strategies.
Learn more:
- USDA’s 2025 Dairy Outlook: Market Shifts and Strategic Opportunities for Producers – Explores how tight milk supplies and evolving prices create strategic opportunities for dairy producers in 2025.
- Maximizing Milk Solids Output Through Strategic Nutrition and Genetics – Provides practical strategies for optimizing butterfat and protein production through balanced nutrition and breeding decisions.
- Global Dairy Market Report for January 10th 2025: Volatility Persists Amid Trade Tensions and Production Shifts – Examines how global milk production is forecast to rise by 0.8% in 2025, with projected 5% increases in average milk prices.
