Class III milk futures are sliding, aligning with USDA’s Q2 forecast of $18.50/cwt. A stronger U.S. dollar and rising feed costs are squeezing margins, while global competition adds pressure. Check out the latest trends, analysis, and actionable insights to stay ahead in today’s dairy market!

Summary

Dairy markets on February 25, 2025, reflected mixed trends, with butter and nonfat dry milk (NDM) prices falling sharply due to ample inventories and weaker export demand, while cheese prices remained steady. Class III milk futures continued their decline, closing at $18.73/cwt, aligning with the USDA’s Q2 forecast of $18.50/cwt. The attached chart highlights the steady downward trend in Class III futures throughout February, driven by elevated feed costs and global competition. A stronger U.S. dollar further pressured U.S. exports, particularly in key markets like Southeast Asia. Producers are advised to monitor feed costs closely and consider hedging strategies as market conditions evolve heading into spring.

Key Takeaways

• Steady Decline in Historical Prices: Class III milk futures have shown a consistent downward trend throughout February 2025, dropping from approximately $19.45/cwt at the start of the month to $18.73/cwt by February 25.
• Alignment with USDA Forecast: The USDA’s Q2 2025 forecast of $18.50/cwt (represented by the red dashed line) is closely aligned with the current trajectory of Class III milk futures, suggesting market participants are pricing in expected softness.
• Market Sentiment Reflects Pressure: The decline in futures prices indicates bearish sentiment, likely driven by elevated feed costs, weaker export demand, and increased global competition.
• Price Stabilization Expected: The flat red line for the USDA forecast suggests that prices may stabilize near $18.50/cwt in Q2 unless unexpected market disruptions occur.
• Actionable Insight for Farmers: Producers should prepare for tighter margins in the coming months and consider hedging strategies to mitigate risks associated with lower milk prices.

Dairy markets experienced mixed movements today. Butter and nonfat dry milk (NDM) prices declined sharply, while cheese prices remained relatively stable. Class III milk futures continued their downward trend, aligning with the USDA’s Q2 forecast of $18.50/cwt. Feed costs and global production trends are emerging as critical factors influencing market dynamics.

Key Price Changes & Market Trends

The following table summarizes the closing prices and changes from yesterday for key dairy products traded on the Chicago Mercantile Exchange (CME):

Commentary:

Cheddar blocks held steady at $1.8800/lb, reflecting balanced supply and demand in the Midwest region. Barrels saw a slight decline of 0.75¢ to close at $1.7925/lb, likely due to weaker spot market interest. Butter prices dropped significantly by 2.50¢ to $2.3450/lb as ample inventories weighed on the market despite stable retail demand. Nonfat dry milk (NDM) also fell by 2.50¢ to $1.2000/lb, driven by reduced export interest from Southeast Asia amid competitive global supplies. Dry whey remained unchanged at $0.5350/lb, supported by steady domestic demand.

Volume and Trading Activity

Today’s trading activity across key dairy products was as follows:

Commentary:

Butter saw no trades today but maintained a wide bid/ask spread with six offers at higher price levels, indicating potential resistance to further declines in the near term. Cheddar blocks and barrels also witnessed limited trading activity, with only minimal offers in the market, signaling cautious sentiment among traders. Nonfat dry milk stood out with ten trades executed and nine active bids, though prices still fell due to weaker export demand.

Global Context

International factors continued to shape U.S. dairy markets today:

• Export Demand: U.S. dairy exports faced headwinds as Southeast Asian buyers turned to lower-priced supplies from New Zealand and the European Union (EU). This trend contributed to the decline in NDM prices.
• Global Production Trends: New Zealand reported a year-over-year increase of approximately 2% in milk production in January, which added pressure on global butter and powder markets.
• Currency Influence: A stronger U.S. dollar further dampened export competitiveness for American dairy products, particularly in key markets like China and Mexico.

Comparatively, European butter prices remained slightly lower than U.S. levels, encouraging importers to source from EU suppliers rather than U.S.-based producers.

Feed Costs Analysis

Feed costs remain a significant concern for dairy farmers as they directly impact production margins:

• Corn futures for March settled at $4.805/bushel today, reflecting a slight decrease from earlier this month.
• Soybean meal futures for May closed at $302.90/ton, maintaining elevated levels that continue to pressure feed budgets.

Higher feed costs are expected to weigh on profitability unless milk prices recover or input costs ease in the coming months.

Forecasts and Analysis

The USDA projects Class III milk prices to average $18.50/cwt in Q2 2025, reflecting a continued softening trend due to higher feed costs and global competition in dairy exports.

The following chart illustrates historical Class III milk futures over the past month alongside USDA’s Q2 forecast:

Class III Milk Futures: Historical Prices vs USDA Forecast Q2 2025

Analysis:

Class III milk futures have declined steadily over the past month, dropping from $19.50/cwt in late January to $18.73/cwt today (February 25). This downward trajectory aligns closely with USDA’s forecast of $18.50/cwt for Q2, suggesting that market participants are pricing in expectations of continued pressure on milk prices due to elevated feed costs and subdued international demand.

Market Sentiment

Market participants expressed mixed sentiment today:

• A Midwest-based trader commented: “The cheese market feels well-balanced right now, but we’re keeping an eye on spring milk production trends that could tip the scales.”
• Another analyst noted, “Butter inventories are weighing heavily on prices despite decent retail movement. Export demand will be key moving forward.”

Overall, sentiment remains cautiously optimistic for cheese markets but bearish for butter and NDM due to inventory pressures and weak exports.

Regional Insights

Regional weather conditions are expected to play a critical role in shaping milk production trends this spring:

• The Midwest has experienced colder-than-average temperatures this month, which could delay early-season pasture growth.
• California’s ongoing drought continues to challenge water availability for feed crops, potentially limiting milk output in the nation’s largest dairy-producing state.

Farmers in these regions should monitor weather forecasts closely as they plan for spring production cycles.

Closing Summary & Recommendations

In summary, today’s dairy markets reflected a mix of stability and weakness across key products:

• Cheese prices held relatively firm despite limited trading activity.
• Butter and NDM faced downward pressure due to ample supplies and weaker export demand.
• Feed costs remain elevated, adding pressure on margins for producers.

Recommendations:

1. Producers should consider hedging strategies for Class III milk futures as prices approach USDA’s Q2 forecast of $18.50/cwt.
2. Exporters may need to explore alternative markets or pricing adjustments to remain competitive amid strong global production.
3. Farmers should monitor feed costs closely and explore cost-saving measures where possible.
4. Regional producers should prepare for potential weather-related disruptions affecting spring forage availability.

This concludes today’s CME Dairy Market Report for February 25, 2025—stay tuned for further updates as we track evolving market conditions!

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