Butter prices rise, SMP weakens, and shrinking herds tighten supply. Discover how global dairy trends are reshaping strategies for 2025 success.
Executive Summary
The global dairy market is navigating a period of divergence, with butter prices showing resilience while skim milk powder (SMP) faces downward pressure. USDA has revised its 2025 milk production forecast downward for the third consecutive month, signaling tightening supplies as European dairy herds decline. U.S. dairy production is consolidating, with significant operations dominating milk sales, creating opportunities for component optimization over volume growth. Global trade data reveals strong butter demand but weaker protein markets, while health challenges like Highly Pathogenic Avian Influenza (HPAI) add complexity to the outlook. Producers must focus on aligning their production systems with high-demand products and leveraging strategic risk management to thrive amid these shifting dynamics.
Key Takeaways
- Butter Strength vs. SMP Weakness: Butter prices rose 0.8% on EEX futures while SMP fell 2.2%, reflecting diverging market trends for milk components.
- Shrinking Herds Tighten Supply: USDA forecasts a 1.1 billion-pound reduction in 2025 U.S. milk production; European herds also face steep declines.
- Industry Consolidation: Large farms (1,000+ cows) now account for 66% of U.S. milk sales, emphasizing the shift toward concentrated production systems.
- Global Trade Trends: Butter demand remains strong globally, with prices up 2.7% at GDT, while WMP and SMP face headwinds from international competition.
- Strategic Focus Needed: Producers should prioritize component optimization (e.g., milkfat for butter/cheese) and monitor key metrics like Chinese import demand and herd sizes.
The global dairy landscape reveals crucial divergences that demand producer attention: butter markets show resilience. At the same time, SMP faces weakness, European dairy herds continue their concerning decline, and USDA has revised its 2025 milk production forecast downward for the third consecutive month. These signals point to a tightening supply situation that may support prices, yet component optimization – not just volume – will determine which producers capture the highest returns.
Market Heats: Butter Rises While SMP Declines
The European Energy Exchange (EEX) reported substantial trading volume last week, with 5,090 tonnes changing hands. This activity was nearly evenly split between butter (2,705 tonnes) and skim milk powder (2,385 tonnes), with Tuesday emerging as the most active trading day.
Butter futures demonstrated modest strength on the EEX, with the March to October 2025 strip averaging €7,367, marking a 0.8% increase week-over-week. The total open interest for EEX butter futures increased by 94 lots to 2,981 lots, suggesting growing engagement from market participants despite price uncertainty.
In contrast, skim milk powder futures on the EEX declined 2.2% to €2,547, mirroring the weaker outlook for nonfat dry milk identified in USDA’s latest forecasts. This divergent performance between butter and SMP reflects a fundamental shift in component valuation that producers must navigate strategically in 2025.
The Shrinking Herd: Production Constraints Point to Price Support
The USDA has consistently revised its milk production forecasts downward over recent months, creating a tightening supply situation that may provide price support. The most recent forecast shows 2025 milk production at 226.9 billion pounds, representing a cumulative reduction of 1.1 billion pounds since December 2024.
The structural transformation of U.S. dairy production continues to accelerate, with significant implications for market dynamics. According to the 2022 Census of Agriculture, U.S. farms selling milk declined by 39% between 2017 and 2022 – the most substantial decline between adjacent Census periods dating back to 1982.
Table 1: U.S. Dairy Industry Structure and Consolidation (2017-2022)
| Metric | 2017 | 2022 | Change |
| Farms selling milk | 40,336 | 24,470 | -39% |
| Milk cow inventory | 9.5 million | 9.3 million | -2.4% |
| Farms with 2,500+ cows | 714 | 834 | +16.8% |
| Share of milk sales from farms with 1,000+ cows | 57% | 66% | +9 percentage points |
| Total milk sales value | $36.7 billion | $52.8 billion | +44% |
Meanwhile, European dairy cow inventory data for December 2024 revealed consistent declines across major producing countries. Germany’s dairy cow population stood at 3.59 million head, down 123,000 head (-3.3%) compared to the previous year, while France and the Netherlands showed similar troubling trends.
Beyond Volume: Component Optimization Is the New Profit Driver
The latest USDA forecasts reveal a critical divergence across dairy product categories, creating challenges and opportunities for strategically positioned producers. The February forecast raised cheese prices to $1.8800 per pound, citing “tight inventories from 2024 that are expected to carry into 2025,” while estimates for butter, nonfat dry milk, and dry whey faced downward pressure.
What many producers may miss: USDA forecasts suggest “growth in milk components will likely balance out the lower-than-average growth per cow,” indicating a shift toward quality over quantity in production metrics. Farms that align their milk component profiles with cheese manufacturing requirements may capture premium returns despite broader market adjustments.
According to data released on March 6, 2025, the all-milk price forecast has been revised upward to $22.75 per cwt, up $0.25 from the previous month’s estimate. While this price level represents solid returns, it demands efficiency and strategic positioning from producers.
Global Signals: How International Markets Are Reshaping Your Operation
The Singapore Exchange futures offer additional perspectives on global dairy commodity trends. SGX whole milk powder futures traded down 0.7% over the March-October 2025 curve, with the average price settling at ,779. In contrast, SGX butter futures showed significant strength, rising 4.0% to $6,939.
The Global Dairy Trade auction (Event 375) recorded a modest decline of 0.5%, with the average winning price reaching $4,209. While WMP declined 2.2% to $4,061, butter strengthened by 2.7% to $7,577, reinforcing the narrative of stronger milkfat values relative to protein components.
Regional milk production data revealed divergent trends, with Spanish collections declining 0.9% year over year while Irish production surged 9.4%. Chinese farmgate milk prices have stabilized at 3.12 Yuan/Kg after declining 13.8% year over year, creating uncertainty about import demand from this crucial market.
Beyond the Markets: Health Challenges Adding New Complexity
An often-overlooked factor impacting 2025 dairy markets is the continued presence of Highly Pathogenic Avian Influenza (HPAI) in US dairy herds. First confirmed in March 2024, HPAI had spread to 925 cases across 16 states by January 14, 2025, according to APHIS.
The first human case associated with exposure to infected dairy cattle was reported on April 1, 2024, highlighting the public health dimension of this challenge. As this situation continues to evolve, producers must remain informed about biosecurity protocols and market implications.
Strategic Positioning: How Smart Producers Are Responding
The current dairy market landscape presents a complex picture requiring strategic responses from industry stakeholders. The moderately positive performance of butter futures indicates sustained demand for milkfat products despite broader market uncertainties.
The divergent performance between butter and skim milk powder markets suggests ongoing structural imbalances in component valorization. While milkfat continues to command a premium, protein markets face more challenging conditions. This divergence creates strategic opportunities for dairy processors and producers who can optimize their systems accordingly.
For individual dairy producers, success in 2025 will likely come from combining tactical excellence in production management with strategic positioning aligned with emerging market signals. USDA analysis shows feed prices will remain favorable in 2025, potentially supporting margins if milk prices remain current.
Bottom Line: Your Action Plan for Q2 2025
The global dairy market is resilient amid evolving supply and demand dynamics. The USDA’s upward revision of the all-milk price forecast to $22.75 per cwt offers cautious optimism. Still, the persistent decline in European dairy herds and emerging health challenges like HPAI add complexity to the outlook.
The operations that will thrive in this environment will be those that:
- Focus on component optimization rather than simply maximizing volume
- Maintain financial flexibility to adapt to market shifts
- Align their production systems with the products showing the most substantial demand
As we move into 2025, producers should monitor several key metrics: the evolution of European dairy herds, US replacement heifer numbers, Chinese import demand, and the continuing divergence between butter and SMP prices. These indicators will provide early signals about potential market shifts that could create challenges and opportunities in the months ahead.
Learn more
- Global Dairy Market in 2025: Production Shifts, Demand Fluctuations, and Trade Dynamics
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