Dairy markets swing wildly as trade tensions boil over. The March Class III contract lurched more than a dollar in a single day, leaving farmers scrambling. With U.S. tariffs rising and China retaliating, the global dairy landscape faces an economic battle. Who will emerge victorious in this high-stakes game of dairy dominance?

Summary:

The global dairy market is facing challenges due to trade tensions and changes in production. In February 2025, there was significant activity, with EEX futures trading 2,100 tonnes of dairy products. Butter futures decreased while SMP futures went up. The Global Dairy Trade auction index increased by 3.7%. Regionally, Ireland and Poland saw strong milk production growth, while milk prices in China increased slightly after a long decline. In the U.S., trade issues impacted milk powder exports, but cheese exports to Mexico did well. With mixed results worldwide, dairy farmers must focus on being efficient and adaptable to navigate these changing market conditions.

Key Takeaways:

• Global milk supply forecasted to grow by 0.8% in 2025, with all significant exporting regions expecting gains for the first time since 2020.
• Trade tensions between the U.S. and Canada may disrupt established trade flows, influencing global dairy markets.
• EU milk production shows recovery, but an overall decline is expected due to environmental and regulatory challenges.
• U.S. dairy exports are mixed, with cheese exports booming despite a sharp decline in milk powder production.
• China’s dairy market stabilizes, with import growth projected and farmgate milk prices rising for the first time in over two years.
• Fluctuating prices and shifting production patterns reshape the global dairy landscape, presenting challenges and opportunities.
• Dairy farmers are encouraged to adopt risk management, explore value-added products, and leverage emerging markets for growth.
• Emphasis on efficiency and adaptability is crucial for dairy farmers to thrive in a dynamic and evolving market environment.

During a volatile week in the financial markets, dairy market prices fluctuated significantly due to escalating trade tensions. The March Class III contract swung more than a dollar in a single day, causing farmers and traders to react quickly to the rapid price changes. As the U.S. ratchets tariffs and China retaliates with precision strikes, the global dairy landscape finds itself caught in an escalating economic battle. Recent data from key exchanges and industry reports reveal a sector teetering between opportunity and crisis – but who will emerge victorious in this high-stakes game of global dairy dominance? As exports increase, production changes, and consumer preferences evolve, dairy farmers worldwide deal with a highly dynamic market. Will they adapt swiftly to seize new opportunities or falter under the pressures of volatility?

Market Dynamics 

Global milk production is forecasted to rise by 0.8% in 2025, driven by technological advancements, shifting consumer preferences, and improved farming practices across major exporting regions, marking the first simultaneous growth since 2020. This increase is influenced by higher prices paid to farmers for milk, lower costs for animal feed, and better weather conditions, indicating a possible positive change for the global dairy sector. This growth is driven by increased profitability for dairy farmers. Additionally, more affordable feed costs and favorable weather patterns support higher yields. 

Although there are positive expectations, the dairy market continues to be unstable for various reasons. A substantial increase in dairy processing capacity, particularly in the United States, is expected to reshape regional milk markets. China’s projected 2% year-on-year increase in dairy imports for 2025 could significantly impact global trade flows and prices. Additionally, ongoing trade disputes, especially between the United States and Canada, threaten to disrupt established trade patterns. 

Combining these factors results in a complicated and ever-changing global market landscape for dairy farmers and processors. Consumer demand fluctuations, driven by economic pressures and changing preferences, influence the market. While feed costs are currently favorable, they remain subject to fluctuations in the global commodity market. As the industry navigates these challenges and opportunities, adaptability and strategic planning will be crucial for success in the evolving global dairy landscape 2025. 

Country/Region	2024 Expected (Billion Pounds)	2025 Forecast (Billion Pounds)	Change
Argentina	23.6	24.7	1.1
Australia	19.2	19.4	0.2
European Union	320.9	320.3	-0.6
New Zealand	47.6	48.1	0.5
Major Exporter Total	411.3	412.5	1.2

Source: USDA, Economic Research Service calculations based on USDA, Foreign Agricultural Service. Dairy: World Markets and Trade Report, December 2024.

Regional Production Trends 

European Union

In 2025, the European Union’s dairy industry shows varied trends among its member countries. While some countries show promising growth, EU milk production is forecast to decline marginally. 

Ireland stands out with a remarkable 30.1% year-over-year increase in December collections, showcasing the country’s strong recovery and efficient dairy farming practices. This surge is attributed to favorable weather conditions, improved feed quality, and strategic investments in dairy infrastructure. Poland and Spain also posted gains, with solid milk production up by 3.4% and 0.7% respectively in December. Poland’s growth is driven by ongoing consolidation in the dairy sector and investments in modern farming technologies. Spain’s modest increase reflects a gradual recovery from past obstacles, including economic downturns and supply chain disruptions, showcasing the industry’s resilience and adaptive strategies. 

Despite these positive indicators, the EU as a whole faces headwinds. It is predicted that milk output will slightly decrease to 149.4 million metric tons (MMT) in 2025, a drop from 149.6 MMT in 2024. This decline is attributed to several factors: 

• Declining cow numbers: Stricter environmental regulations and farm consolidation are reducing overall herd sizes across the EU.
• Tight farmer margins: Rising input costs, particularly for feed and energy, are squeezing profitability for many dairy farmers.
• Environmental regulations: The EU’s Green Deal and Farm to Fork strategy impose stricter sustainability requirements, forcing some farmers to reduce production or exit the industry.
• Disease outbreaks: Concerns about diseases like bluetongue in some regions are impacting production and trade.

The European dairy industry is also experiencing a shift in product focus. Cheese manufacturing is set to be a primary focus due to high local and international demand. This focus on cheese may come at the expense of butter, non-fat dry milk, and whole milk powder production. 

Looking ahead, the EU dairy sector must balance environmental sustainability with economic viability. Innovations in feed efficiency, animal welfare, and sustainable farming practices will be crucial for maintaining the EU’s position in the global dairy market.

United States 

In 2025, the U.S. dairy industry grapples with diverse challenges, including labor shortages and environmental regulations, alongside promising prospects such as export market growth and technological advancements. While milk production shows signs of growth, there are significant variations across product categories and regions. 

Cheese production experienced a dip of 0.7% year-over-year in December, totaling 1.2 billion pounds. This decrease is primarily attributed to shifts in consumer demand and increased competition from plant-based alternatives. However, the export market tells a different story, with cheese shipments surging by 21% compared to December 2023. This export boom is driven by strong demand from key markets like Mexico and South Korea and favorable exchange rates. 

Regional variations in milk production are becoming more pronounced. Texas and Idaho are leading the charge, with production increases of 7.5% and 3.5%, respectively. These states benefit from: 

• Large-scale, efficient dairy operations
• Favorable climate conditions for year-round production
• Strategic investments in processing capacity

Other major dairy states also see increased milk production, albeit at more modest rates. Factors contributing to this growth include: 

• Improved cow genetics, leading to higher per-cow yields
• Adopt advanced technologies like robotic milking systems
• Optimized feed management practices

However, challenges remain for the U.S. dairy sector: 

• Labor shortages continue to impact farm operations and processing facilities
• Environmental regulations, particularly regarding methane emissions, are becoming more stringent
• Volatility in feed costs affects profitability

The USDA forecasts overall U.S. milk production to reach 227.2 billion pounds in 2025, slightly lower than previous estimates due to decreased milk per cow yields and adjustments in dairy cow inventories, signaling potential challenges for the industry. 

Adaptability and innovation will be key as the U.S. dairy industry navigates these complex dynamics. Farmers and processors are likely to focus on: 

• Diversifying product offerings to meet changing consumer preferences
• Investing in sustainability initiatives to meet regulatory requirements and consumer expectations
• Explore new export markets to capitalize on strong global demand

Oceania 

The Oceania region, particularly New Zealand, plays a crucial role in the global dairy market. The strong participation in the latest Global Dairy Trade (GDT) event, with 182 bidders competing for 23,854 tonnes of product, underscores the region’s importance in setting global dairy price trends. 

New Zealand‘s dairy sector is anticipating significant seasonal peaks in production for 2025.  

• Favorable weather conditions: La Niña weather patterns are expected to bring adequate rainfall, supporting pasture growth.
• Herd management improvements: Farmers focus on breeding programs and animal health to increase per-cow productivity.
• Technological advancements: Precision farming techniques enhance overall farm efficiency.

However, the industry also faces challenges: 

• Environmental regulations: New Zealand’s government is implementing stricter environmental policies, which may impact production practices.
• Land use competition: Increasing pressure from alternative land uses, such as forestry and horticulture, could limit dairy expansion.
• Labor shortages: Like many countries, New Zealand is grappling with agricultural labor shortages.

Australia, the other major player in Oceania’s dairy sector, is expected to see modest growth in milk production. The country is recovering from previous droughts and focusing on rebuilding its dairy herd. 

Both countries will likely benefit from strong global demand, particularly from Asian markets. However, they must navigate changing consumer preferences, especially the growing demand for plant-based alternatives. 

China 

China, the world’s largest dairy importer, shows signs of market stabilization, with potential significant impacts on global dairy trade. Farmgate milk prices in January increased for the first time in 27 months, signaling a possible turning point in the country’s dairy sector. 

However, at 3.12 Yuan/Kg, prices remain 14.5% below year-ago levels, indicating ongoing challenges for domestic producers. This price pressure has led to: 

• Consolidation in the dairy farming sector, with smaller farms exiting the market
• Increased focus on efficiency and productivity among more extensive operations
• Government initiatives to support the domestic dairy industry

In 2025, China’s milk production will fall by 1.5% year-on-year. This decline is attributed to: 

• Herd reductions due to sustained low prices
• Stricter environmental regulations impacting farm operations
• Shift towards more extensive, more efficient dairy operations

Despite the projected decrease in domestic production, China’s dairy market remains dynamic: 

• Consumer demand for dairy products continues to grow, particularly in urban areas
• The government is promoting increased dairy consumption for nutritional benefits
• E-commerce and innovative dairy products are expanding market reach

China’s dairy imports are projected to grow by 2% year-on-year in 2025, ending a three-year decline. This increase could significantly impact global dairy trade flows and prices. 

Key factors to watch in China’s dairy sector include: 

• Government policies supporting domestic production vs. import reliance
• Changing consumer preferences, especially among younger demographics
• Developments in China’s trade relationships with major dairy exporting countries

As China’s dairy landscape evolves, it will play a pivotal role in shaping global dairy markets, influencing everything from commodity prices to product innovation. 

Trade Tensions and Market Volatility 

The dairy industry is central to a complex web of international trade disputes, with recent developments creating significant market uncertainty. The U.S., Mexico, and Canada have agreed to a 30-day détente, temporarily easing tensions in North American trade relations. This short-term truce is aimed at addressing shared concerns over drug trafficking across borders, highlighting the interconnected nature of trade and broader geopolitical issues. 

However, escalating trade conflicts with China overshadow the respite in North American tensions. The U.S. has implemented a sweeping 10% tariff increase on Chinese imports, which has prompted swift retaliation from Beijing. China’s response, characterized by targeted sanctions, demonstrates a strategic approach to economic warfare, potentially impacting specific sectors of the U.S. economy while minimizing domestic economic disruption. 

The ripple effects of these trade tensions are already evident in the dairy market. U.S. milk powder exporters, traditionally reliant on robust international demand, are adopting a cautious stance. The USDA’s Dairy Market News reports that Mexican demand for U.S. milk powder has become “subdued,” a concerning development given Mexico’s status as a key market for U.S. dairy exports. In 2024, Mexico imported approximately 576,000 metric tons of U.S. dairy products, making it the largest export destination for American dairy. 

This hesitancy extends beyond international buyers, with domestic purchasers also showing reluctance. Market analysts note a “chilling effect” on U.S. buyers, who are wary of committing to purchases in such an unpredictable environment. This cautious approach is encapsulated in the industry phrase of avoiding “catching the proverbial falling knife,” reflecting fears of buying into a declining market. 

These trade conflicts affect more than just milk powder; they extend to other dairy products. The dairy commodity spectrum, including cheese, butter, and whey products, faces potential disruption. For instance, U.S. cheese exports to Mexico, which saw a 36% year-over-year increase in August 2024, could be at risk if current trade uncertainties persist or escalate. 

Looking ahead, the industry faces several critical junctures that could further shape market dynamics: 

1. The conclusion of the 30-day North American détente could lead to a more stable trading environment or a return to heightened tensions.
2. Potential expansion of Chinese tariffs to include key dairy products like whey, which have so far been spared but remain vulnerable.
3. The upcoming 2026 review of the U.S.-Mexico-Canada Agreement (USMCA) could reshape the North American dairy trade for years.

In this volatile climate, dairy producers and exporters must remain agile, ready to adapt to rapidly changing market conditions. Diversification of export markets, exploration of value-added product lines, and close monitoring of international trade policies will be crucial strategies for navigating these turbulent waters. 

Production Shifts and Export Trends 

The U.S. dairy industry is experiencing significant shifts in production patterns and export trends, with notable divergences between milk powder and cheese sectors. 

Milk Powder Production Decline 

U.S. milk powder output has substantially declined, with December production 15% lower than the prior year. This trend extends beyond a month, as 2024 milk powder production slumped 13% to reach the lowest annual total since 2013. Several factors contribute to this decline: 

1. Shifting consumer preferences: Domestic consumers increasingly opt for alternative dairy products, reducing demand for traditional milk powder.
2. Processing capacity reallocation: Many processors have shifted their focus to higher-value products like cheese and specialty ingredients, reducing capacity dedicated to milk powder production.
3. Feed cost fluctuations: Rising feed costs have impacted milk production, with some farmers reducing herd sizes or shifting to alternative feed strategies.
4. Environmental regulations: Stricter environmental policies in some states have reduced dairy herd sizes, impacting milk availability for powder production.

Booming Cheese Exports 

U.S. cheese exports are experiencing unprecedented growth compared to the milk powder sector. The U.S. exported 97 million pounds of cheese in December, marking a 21% increase compared to December 2023. This export surge has led to a record-breaking utilization of domestic production, with exports accounting for 8% of U.S. cheese production in 2024. Key drivers of this cheese export boom include: 

1. Competitive pricing: U.S. cheese prices have become more competitive globally, attracting international buyers.
2. Product diversification: American cheesemakers have expanded their product range, catering to diverse international tastes and preferences.
3. Quality improvements: Investments in cheese-making technology and processes have enhanced the quality and consistency of U.S. cheese, making it more appealing to foreign markets.
4. Trade agreements: Favorable trade agreements, particularly with Mexico and South Korea, have facilitated increased cheese exports.
5. Marketing efforts: Aggressive marketing campaigns by U.S. dairy organizations have successfully promoted American cheese in key international markets.

Market Implications 

These contrasting trends in milk powder production and cheese exports have significant implications for the U.S. dairy industry: 

1. Processor strategy shifts: More processors may pivot towards cheese production, given the strong export demand and higher profit margins than milk powder.
2. Farm-level impacts: Dairy farmers may need to adjust their production strategies to meet the changing demand, potentially focusing on milk composition that favors cheese production.
3. Global market positioning: The U.S. is strengthening as a significant cheese exporter while potentially ceding ground in the global milk powder market.
4. Supply chain adaptations: U.S. dairy exports’ logistics and supply chain are likely to evolve, with increased focus on cheese transportation and storage.

As these trends unfold, the U.S. dairy industry must remain agile, adapting to changing global demand patterns and market opportunities. The contrasting fortunes of milk powder and cheese sectors underscore the importance of diversification and market responsiveness in the dynamic global dairy trade landscape.

Price Movements and Future Outlook 

Year	All-Milk Price Forecast (USD/cwt)
2025	23.05
2026	19.00
2027	19.10
2028	19.30
2029	19.50
2030	19.70

Source: USDA, Economic Research Service

The dairy market is experiencing significant price fluctuations across various products, reflecting the complex interplay of supply, demand, and global trade dynamics. 

CME Spot Market Trends: 

The CME spot nonfat dry milk (NDM) fell 1.5¢ to $1.33 per pound, reaching its lowest point since August. This decline suggests an oversupply in the milk powder market, potentially due to weakened export demand or increased domestic production. The drop in NDM prices could impact Class IV milk prices, as NDM is a key component. 

Similarly, CME spot Cheddar blocks also decreased, falling 1.75¢ to $1.86 per pound. This downward movement in cheese prices may indicate softening demand or increased production, which could pressure Class III milk prices. 

Global Dairy Trade (GDT) Auction Results: 

Unlike the CME spot market, the GDT auction demonstrated strength in powder markets. Whole milk powder (WMP) values jumped 4.1%, while skim milk powder (SMP) prices leapt 4.7%. These significant increases suggest robust international demand, particularly from key importing regions like Southeast Asia and China. The divergence between domestic U.S. prices and international auction results highlights the global nature of dairy trade and the potential for arbitrage opportunities. 

Future Price Outlook: 

The average milk price is forecast to rise by 5% in 2025 compared to 2024, driven by favorable trends in recent Global Dairy Trade auctions. This projection indicates a generally optimistic outlook for global dairy markets, supported by expectations of continued strong demand and potentially tightening supplies in major exporting regions. 

However, the U.S. market presents a contrasting picture, with projections of a decrease of 30 cents per hundredweight in all milk prices. This discrepancy between global trends and U.S. forecasts could be attributed to several factors: 

• Domestic Supply and Demand Balance: The U.S. might increase milk production or face lower domestic demand than global markets.
• Export Competitiveness: A stronger U.S. dollar or increased competition from other exporting nations could impact the U.S.’s position in global markets.
• Policy Changes: Potential shifts in U.S. dairy policy or trade agreements could influence domestic pricing.
• Regional Variations: The U.S. forecast may be more heavily influenced by specific regional production trends or processing capacities.

Implications for Dairy Farmers: 

These price movements and forecasts present a complex picture for dairy farmers. While global markets show signs of strength, U.S. producers may face challenges if domestic prices remain suppressed. Farmers must closely watch local and international market trends, adjust their production strategies, and explore new market opportunities to maximize their returns in this changing environment.

The Bottom Line

As the global dairy market navigates through unprecedented volatility in early 2025, dairy farmers worldwide find themselves at a critical juncture. The rising milk supply, shifting trade dynamics, and evolving consumer preferences create challenges and opportunities. While farmgate prices generally improve in many regions, trade tensions and potential tariffs loom large, particularly for U.S. producers eyeing the Mexican market. Success in this dynamic environment will hinge on adaptability and strategic foresight. Dairy farmers must focus on efficiency, embrace risk management strategies, and explore diversification opportunities. Whether investing in value-added products, adopting new technologies to address labor shortages, or implementing sustainable practices to meet evolving regulations, the path forward requires innovation and resilience. In 2025, the global dairy industry is positioned for growth but faces the risk of rapid changes due to geopolitical factors. Farmers who stay informed, remain flexible in their approaches, and capitalize on emerging market trends will be best positioned to thrive in this complex and ever-changing dairy ecosystem. 

How is your operation adapting to these market trends? Share your experiences and strategies in the comments below. 

Learn more:

• Global Dairy Trade: Key Insights Every Dairy Farmer Should Know
• The Dairy Dilemma: Oversupply or Under-demand? Unpacking the Issue
• Is 2024 Shaping Up to Be a Disappointing Year for Dairy Exports and Milk Yields?

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