Trade drama shakes dairy markets! Cheese prices hit 11-month lows, butter slides, and milk futures plummet. How can producers adapt to survive?

EXECUTIVE SUMMARY: This week’s dairy market turmoil highlights the impact of global trade tensions and overproduction. U.S. tariffs on non-USMCA-compliant imports from Canada and Mexico have raised costs, while China’s retaliatory tariffs on U.S. dairy products add further uncertainty. Cheese prices plunged to an 11-month low despite strong exports and reduced cheddar production. Butter values also fell due to a surplus of cream, while nonfat dry milk prices dropped amid weak exports to Southeast Asia. Milk futures reflect bearish sentiment, with Class III contracts falling sharply. Producers must navigate these challenges by reassessing cost structures, exploring alternative markets, and managing risk effectively.

KEY TAKEAWAYS

• Trade Policy Impact: U.S. tariffs on non-USMCA-compliant imports and China’s retaliatory tariffs disrupt global dairy markets.
• Cheese Market Decline: CME cheddar blocks fell 15.25¢ this week despite strong exports and reduced production.
• Butter Surplus: Excess cream dragged butter prices to $2.25/lb before recovering slightly to $2.31/lb.
• Powder Export Weakness: Nonfat dry milk prices hit a nine-month low as exports to Southeast Asia slowed.
• Milk Futures Drop: April Class III futures fell over $1 to $17.21/cwt, reflecting bearish market sentiment.

How are your profit margins holding up amid this week’s market chaos? With cheese prices plummeting, butter values sliding, and milk futures in freefall, dairy producers face a perfect storm of challenges that demand immediate attention.

The on-again, off-again tariff drama with Canada and Mexico has created market whiplash, costing real dairy farmers real money. Like watching a teenager’s tumultuous relationship unfold, market participants have witnessed U.S. trade policy switch status to “it’s complicated” – with potentially serious consequences for your bottom line in the months ahead.

USMCA Trade Drama: What Dairy Farmers Need to Know Now

The administration’s decision to exempt USMCA-compliant goods from the newly imposed 25% tariffs offered some relief. Still, this seemingly straightforward carve-out creates far more complex market realities than many producers realize.

What’s the real impact on your operation?

First, approximately 40% of previously duty-free imports from Canada and Mexico lack proper USMCA certification and now face a substantial 25% border tax. This creates immediate cost pressures that will inevitably flow through the supply chain.

Second, contradictory messaging about whether this exemption represents permanent policy or merely a temporary pause until April 2 leaves dairy businesses unable to plan effectively even for the near term.

Canada’s supply management system starkly contrasts the U.S. market’s volatility. Under their system, certain products like dairy and poultry are subject to tariff-rate quotas, ensuring domestic production meets most of the nation’s needs. While initial tariffs are modest (milk has a 7.5% tariff with exemptions for USMCA countries), once quota limits are reached, much steeper tariffs kick in – up to 241% for milk.

Despite these constraints, U.S. dairy exports to Canada have grown significantly, reaching $1.14 billion in 2024 – nearly doubling over the past decade.

The IDFA has urged both countries to negotiate a resolution: “A prolonged tariff war with our top trading partners will continue to create uncertainty and additional costs for American dairy farmers, processors, and our rural communities.”

Inside Canada’s Milk Quota System: Stability vs. Market Access

To understand how Canada’s supply management system functions in practice, examine this actual quota trading data from British Columbia throughout 2024:

Month	Quantity (kg of butterfat/day)	Average Price ($/kg)	Total Value ($000)
January	91.00	35,500	3,230.50
February	22.37	35,500	794.14
March	79.27	35,500	2,814.09
April	100.00	35,500	3,550.00
May	180.43	35,500	6,405.27
June	64.94	35,500	2,305.37
July	147.73	35,500	5,244.42
August	70.00	35,500	2,485.00
September	145.90	35,500	5,179.45
October	88.93	35,500	3,157.02
November	70.70	35,500	2,509.85
December	56.40	35,500	2,002.20

Source: Agriculture and Agri-Food Canada, Animal Industry Division

Notice the fixed quota value at exactly $35,500 per kilogram of butterfat daily throughout the year. This demonstrates the controlled nature of the Canadian dairy market, where production rights maintain consistent value regardless of market fluctuations – a stark contrast to the price volatility experienced by U.S. producers.

China’s Strategic Dairy Tariffs: Smart Trade Policy in Action

While North American trade tensions grabbed headlines, China quietly announced its targeted approach to dairy tariffs, revealing sophisticated market awareness.

Their 10% retaliatory tariff on U.S. dairy imports specifically exempts dry whey and lactose – ingredients critical to their massive hog industry. This strategic carve-out protects their essential interests while delivering politically meaningful responses to U.S. trade actions.

The Long-Term Risk: Every trade disruption allows competitors to establish new supply relationships that may persist long after tariffs are resolved. European suppliers stand ready to fill any gaps created by unstable U.S. trade policy.

Question for Producers: How are you diversifying your market exposure to protect against trade policy volatility? Share your strategies in the comments below.

Cheese Market Collapse: When Good News Gets Ignored

This week’s cheese market performance demonstrates how market psychology can completely overwhelm positive fundamentals. CME spot Cheddar blocks plunged to an 11-month low at $1.6050 on Tuesday before recovering slightly to close at $1.6225, still down a significant 15.25¢ for the week. Barrels mirrored this weakness, falling 15¢ to $1.63.

The Disconnect Between Data and Market Reality

The market’s reaction seems utterly detached from underlying supply-demand fundamentals:

• January’s cheese production showed only a modest 0.8% year-over-year increase
• Cheddar output fell 1.4% to its lowest January level since 2020
• Cheese exports surged 22% above January 2024 volumes

This combination of controlled production and exceptional export growth would typically support prices in a rational market – yet values plummeted anyway.

What This Means For Your Operation

This disconnect reveals how thoroughly sentiment now dominates fundamentals in the dairy markets. The market’s laser focus on upcoming cheese plant expansions, potential consumer demand weakness, and trade anxiety have created a bear market psychology that’s difficult to overcome.

For producers, traditional approaches to reading market signals may need serious recalibration. Are you adjusting your risk management strategies for this new market reality?

Butter’s Surprising Challenge: Too Much of a Good Thing

The current butterfat market offers a perfect example of how success in one area can create challenges elsewhere. Higher component levels have created a cream surplus that’s dragged multiples to their lowest points since the pandemic disruption of 2020.

This abundance forces us to confront a counterintuitive reality: sometimes, producing more high-value components reduces overall returns.

Manufacturing Response to Cream Surplus

Class II manufacturers have seized this opportunity, dramatically increasing production across multiple categories:

• Hard ice cream is up 20% year-over-year
• Full-fat cottage cheese up 18%
• Yogurt up 5.3%
• Sour cream up 4.3%

Yet even this substantial manufacturing response couldn’t absorb all available cream, allowing butter production to inch up 0.5% despite already ample supplies.

Production Trends Behind the Butterfat Surplus

To understand the current supply situation, consider these key production metrics from the most recent USDA data:

Metric	Value	Year-over-Year Change
Total Milk Production	17.875 billion lb	-1.0%
Daily Milk Production	596 million lb	-6 million lb
Number of Dairy Cows	9.365 million	+20,000 head
Milk Per Cow	1,909 lb	-23 lb

Source: USDA Milk Production report, December 19, 2024

These statistics reveal an interesting paradox: despite having more cows in the national herd, per-cow productivity and total milk production declined compared to the previous year. However, component percentages continue to rise, with milk fat tests reaching 4.15% in September 2024, up from 4.08% in the last year.

The current market dynamics forced CME spot butter to retreat to $2.25 on Tuesday, its lowest price since 2021, before recovering slightly to close at $2.31, down 3.5¢ for the week.

Strategic Question: With component values under pressure, should your breeding and feeding programs still prioritize fat production or is a rebalancing needed? What other product streams might offer better returns for your high-component milk?

Powder Markets Signal Export Warning Signs

The nonfat dry milk market continues its downward slide, with CME spot prices falling 4.5¢ to $1.155, the lowest level in nine months. This decline persists despite manufacturers making strategic production adjustments – combined NDM and SMP output totaled just 189 million pounds in January, down 3.2% year-over-year and the lowest January volume since 2016.

Geographic Shift in Export Patterns

The market is experiencing a significant redistribution of export flows:

• Manufacturers strongly favoring NDM (primarily sold domestically and to Mexico) over SMP
• SMP production plummeted 37.6% year-over-year
• Total powder exports fell below 100 million pounds in January for the first time in over five years
• Exports to Southeast Asia reached eight-year lows in December and January
• Shipments to Mexico exceeded January 2024 levels

Products that previously served markets like the Philippines and Vietnam have instead moved into storage, pushing U.S. milk powder inventories to nearly 300 million pounds – the highest level since May 2023.

This inventory buildup creates a classic market dilemma: should manufacturers continue producing at current levels, hoping for eventual market improvement, or should they reduce output to avoid further inventory accumulation?

Bullvine’s analysis suggests that processors shifting between product forms will have distinct advantages in this environment. What’s your perspective on the powder market outlook?

Milk Futures Flash Warning Signs for Farm Profitability

This week, the bearish sentiment in physical product markets translated directly into substantial losses for milk futures. April Class III futures plummeted more than a dollar to settle at $17.21 per hundredweight, with most contracts suffering double-digit losses and values predominantly settling in the $17-$18 range.

Class IV futures showed similar weakness, though less pronounced, with contracts generally losing around 30¢. While most Class IV contracts maintained positions above $18, the June contract settled at $17.93, slipping below this psychological support level.

What This Means for Your Bottom Line

These deteriorating values present a challenging economic outlook for dairy producers, notably when coinciding with the spring flush. These futures prices seriously threaten dairy farm viability, especially for operations with high debt loads or significant fixed costs.

The Bullvine has consistently advocated for proactive margin management. Those who locked in protection earlier this year now see that strategy’s value. A serious evaluation of production costs and marketing strategies is essential for those exposed to these declining values.

Action Step: Take time this week to calculate your actual cost of production and compare it to current future values. What changes would be necessary if these price levels persist through summer?

Feed Markets: Rare Stability in a Volatile Week

In a week dominated by volatility, feed markets displayed remarkable stability in closing values:

• May corn futures finished unchanged at $4.69 per bushel
• May soybeans concluded at $10.25 per bushel, exactly where they started
• Soybean meal managed modest gains, advancing $4.50 to $304.50 per ton

This price stability provides breathing room for dairy operations facing declining milk values. However, the temporary surge in soybean meal demand resulting from the brief tariff on canola imports demonstrates how quickly feed markets can respond to trade policy shifts.

Risk Management Reminder: While current feed values offer favorable opportunities to lock in forward coverage, the ongoing evolution of trade policy could rapidly alter ingredient availability and pricing. Innovative producers will secure protection for at least a portion of their feed needs while maintaining flexibility to adjust as conditions evolve.

Market Outlook: Navigating Trade Complexities in 2025

The current dairy market presents extraordinary challenges, combining abundant domestic supplies with increasingly unpredictable international market access. Rather than simply bemoaning trade barriers, forward-thinking producers are learning to navigate them strategically.

Weekly CME Dairy Price Dashboard – March 7, 2025

Product	Closing Price	Weekly Change
Cheddar Blocks	$1.6225/lb	-15.25¢
Cheddar Barrels	$1.63/lb	-15.00¢
Butter	$2.31/lb	-3.5¢
Nonfat Dry Milk	$1.155/lb	-4.5¢
Dry Whey	$0.49/lb	-2.0¢
Class III April	$17.21/cwt	-$1.00+
Class IV June	$17.93/cwt	n/a

Source: CME Group, March 7, 2025

Understanding the reality behind the headlines is crucial. While social media may circulate claims of uniformly high Canadian tariffs on all U.S. products, the fact is that most U.S.-Canada trade occurs duty-free under USMCA. For dairy precisely, the challenges lie in over-quota tariffs and how the quotas are administered.

The Bullvine’s Perspective

As we’ve consistently demonstrated through our commitment to transparency and market education, periods of market disruption often create opportunities for meaningful change in the dairy industry. The operations that approach current challenges with creativity and resilience, rather than simply maintaining past practices, will position themselves for long-term success.

Rather than hoping for market improvement, forward-thinking operations are:

• Evaluating their cost structures and identifying efficiency opportunities
• Exploring alternative marketing channels beyond traditional commodity sales
• Considering how to differentiate their production in an increasingly competitive landscape
• Building stronger relationships with processors to enhance market intelligence
• Implementing genetic strategies that balance component production with overall efficiency

The question isn’t whether the market will change—it’s whether your operation is positioned to adapt when it does. Are you prepared to understand the headlines and the regulatory details that will determine which dairy businesses will thrive in this new environment?

LEARN MORE

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