Butter prices surged 3.00¢/lb today on tightening inventories and strong global demand, while cheddar blocks fell 2.25¢/lb amid Mexico’s proposed 25% retaliatory tariffs. USDA’s revised milk production forecast (-0.3B lbs) and New Zealand’s export competition signal transformative shifts, with Class III futures dropping to $19.15/cwt on cheese market pressures

Summary:

The CME dairy market on February 19, 2025, painted a mixed picture, with butter prices surging 3.00¢ to $2.4400/lb on strong export demand and tight inventories, while cheese markets retreated. Cheddar blocks fell 2.25¢ to $1.8975/lb, and barrels dropped 0.75¢ to $1.8075/lb, reflecting weak trading activity and uncertainty surrounding potential Mexican tariffs. Nonfat Dry Milk and Dry Whey both declined 1.00¢ to $1.2700/lb and $0.5450/lb respectively, due to subdued global demand. The USDA revised its 2025 milk production forecast downward to 227.9 billion pounds, with an all-milk price projection of $23.05/cwt. Class III futures for March settled at $19.15/cwt, down 2.4% week-over-week, mirroring cheese market weakness. Feed costs showed some relief with corn futures dropping to $4.8675/bu, though soybean meal edged up to $294.80/ton. Market sentiment remains cautiously optimistic for butter but bearish for cheese, with traders closely monitoring export developments and feed cost volatility.

Key Takeaways:

• Butter prices jumped 3.00¢ to $2.4400/lb, driven by strong export demand and tight inventories.
• Cheese markets declined: blocks fell 2.25¢ to $1.8975/lb, barrels dropped 0.75¢ to $1.8075/lb.
• Potential 20-25% Mexican tariffs on U.S. cheese exports are creating market uncertainty.
• USDA lowered its 2025 milk production forecast to 227.9 billion pounds.
• All-milk price projection for 2025 stands at $23.05/cwt, up 2.7% year-over-year.
• Class III futures (March) settled at $19.15/cwt, down 2.4% week-over-week.
• Feed costs showed mixed signals: corn futures dropped to $4.8675/bu, while soybean meal rose to $294.80/ton.
• Global competition intensifies with EU-Japan and New Zealand-Vietnam trade deals threatening U.S. exports.
• Traders recommend hedging 50% of Q2 corn needs below $4.90/bu.
• Market sentiment: cautiously optimistic for butter, bearish for cheese due to trade risks.

“Butter Prices Jump 3.00¢ on Export Surge; Cheese Markets Stumble Amid Mexican Tariff Uncertainty”

Key Price Changes & Market Trends 

Commentary:
Butter led gains with a 3.00¢/lb surge fueled by tightening domestic inventories and robust foodservice demand, despite a 7% YoY increase in U.S. butter stocks7. Cheese markets declined sharply, with blocks dropping 2.25¢/lb and barrels 0.75¢/lb, reflecting stalled export momentum as Mexico threatens 20-25% tariffs on $950M in annual U.S. cheese exports. Nonfat Dry Milk (NDM) and Dry Whey fell 1.00¢/lb each amid weak global demand, particularly in Southeast Asia where New Zealand’s whey prices undercut U.S. offers.

Volume and Trading Activity 

• Butter: 18 trades executed with active bids/offers at $2.4400/lb, signaling commercial hedging ahead of Q1 inventory reports.
• Cheese: Zero trades for blocks/barrels—the first inactive session since November 2024—as buyers await clarity on Mexico’s retaliatory measures.
• NDM: 2 trades at $1.2700/lb, aligning with USDA’s revised 2025 skim-solids export forecast of 49.1B lbs(-0.4B lbs).

Global Context 

• CAFTA-DR Impact: U.S. dairy exports to Central America hit $441M in 2025 (up 1,117% since 2006), but Nicaragua’s $42k/shipment port fees and El Salvador’s 72-day approval delays hinder growth.
• EU Competition: EU-Japan trade deals threaten $1.3B in U.S. cheese exports by 2030, while New Zealand secured 45% tariff cuts in Vietnam.
• Canada’s Grade A Standards: U.S. exporters face hurdles meeting Canada’s “substantially equivalent” certification for fluid milk, risking $450M in annual sales.

Forecasts and Analysis 

• USDA Revisions: The 2025 milk production forecast has been lowered to 227.9B lbs (-0.3 B lbs), and all milk prices are projected at $23.05/cwt (+2.7% YoY).
• Class III/IV Futures:
  • Class III (MAR) fell to $19.15/cwt (-2.4 % WoW) on cheese weakness.
  • Class IV (MAR) held at $19.15/cwt, supported by Butter’s rally7.
• Feed Costs: Corn (MAR) dropped to $4.8675/bu (-3.0% WoW), but soybean meal edged to $294.80/ton, pressuring margins.

Market Sentiment 

• Trader Insight: “Butter’s rally is sustainable through Q2, but cheese needs tariff relief to rebound,” noted a CME floor broker.
• Analyst View: Corey Geiger (CoBank) emphasized, “Mexico buys 25% of U.S. dairy exports—losing this market would crater farmgate prices”.
• Overall: Cautious optimism for butter, bearish cheese sentiment on trade risks.

Closing Summary & Recommendations 

Summary: Butter’s rally (+3.00¢) contrasted with cheese’s tariff-driven slump, while feed cost volatility persists.

Action Items:

1. Export Diversification: Leverage CAFTA-DR’s $527M export potential by targeting Guatemala’s bakery sector (NDM) and Honduras’ artisanal cheese demand.
2. Risk Management: Hedge 50% of Q2 corn needs below $4.90/bu using DEC futures at $4.7575/bu.
3. Compliance Prep: Audit facilities for Canada’s Grade A equivalence to avoid $1.2B in retaliatory tariffs.

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