U.S. Butter, Cheese Selling at a Discount, Due to Tariffs
Published: Friday, March 28, 2025
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. cheese prices have been falling, driven in part by the uncertainty of the tariff tit for tat, and yet they remain above year ago levels. Butter has also fallen but is well below a year ago. Both cheese and butter prices are below global levels.
StoneX broker Dave Kurzawski admitted in the March 24 Dairy Radio Now broadcast that the tariff talk has contributed to the weaker prices. However, he said, the main reason is weak demand. He said the trend reflects what we saw in 2024, where cheese demand was only up .4%, adding that he's not aware of us ever stringing two years back to back where cheese demand was flat or lower.
While he expects demand to pick up, right now we're about 70-75 cents per pound below the world market on Cheddar and probably a dollar below on butter. "These discounts may kick U.S. exports into overdrive, especially on cheese."
"For whatever reason, we tend to focus on cheese exports more than butter," he said, plus, butter made in the U.S. is not necessarily what the global market wants. That might change over time, he said, but "a dollar spread between U.S. and European butter, we can live with that, that's kinda normal, but 75 cents on cheese between the U.S. and Europe or the U.S. and Oceania, that is pretty unusual and I do think that will spark a lot of exports for cheese."
Another positive in the market is that cheese producers have not been over producing the past year or so and because of that inventory is not overwhelming. That may change with new capacity coming online, but right now, "We're tight on the fresh market." With prices where they are, "There's plenty of buyers that want that cheese," he concluded. "I think cheese is on sale."
As traders awaited last Friday afternoon's February Milk Production report, cash Cheddar block sunk to $1.5750 per pound last Tuesday, lowest since April 15, 2024, but it closed last Friday at $1.6025, down 9 cents on the week while still 21 cents above a year ago. The barrels closed at $1.55, 14 cents lower, lowest since April 11, 2024, 12.50 cents above a year ago, and 5.25 cents below the blocks. There were 23 loads of block traded on the week at the CME and 11 of barrel.
StoneX said, "Consumer spending was lower than expected in February, at plus .2%, and revised lower in January (from minus .9% to minus 1.2%). Sales at restaurants and bars had the greatest month-over-month decline in 13 months, painting a picture of uncertainty and fear as consumers avoid discretionary spending amidst swift declines in the financial markets. But supply data around finished Cheddar remains underwhelming and we've yet to build inventories, at least based on data we can see."
"So the cheese market toggles between weak demand and weak supply narratives, which has really been the case for the last year," says StoneX.
Dairy Market News reported, "Concerns are emerging regarding global trading hurdles keeping more cheese within U.S. borders. A number of cheesemakers have begun to add stocks to warehouses. Domestic demand is in line with seasonal expectations, particularly as cheese has become more affordable. Mid-week spot milk prices ranged from $2.50-under to 25 cents-over Class III."
Demand for Class III milk in the West is steady. Milk output is increasing in the region, following seasonal trends, and cheese output is busy. Retail cheese demand is strong but food service demand is lighter, according to DMN.
Cash butter fell to a $2.2950 per pound last Tuesday, but finished Friday at $2.3025, down 4 cents on the week, and 50.50 cents below a year ago, with 24 sales.
"Butter demand has begun to spring ahead of seasonal holiday needs for both Central retail and food service sectors," said DMN, but retail customers are more active than food service. Churning remains very active in the region and cream availability has shown no sign of near-term drawdowns. Plant managers say, if they ask for offers on 10 loads, suppliers offer them 15. Butter market tones are uncertain ahead of the spring holiday season. Stocks are plentiful and growing, while domestic demand is beginning to emerge from a seasonal lull, says DMN.
Cream is available in the West but demand is mixed as some contacts say they are purchasing loads, as multiples remain favorable for butter production, while others do not have the capacity to take more. Churning is active in the region and output is increasing seasonally. Some are building inventory for the second half.
Grade A nonfat dry milk closed last Friday at $1.1450 per pound, down a penny on the week, lowest CME price since May 9, 2024, but still 3.75 cents above a year ago, with 11 loads sold on the week.
Dry whey closed last Friday at 50 cents per pound, up a nickel on the week, and 10.50 cents above a year ago, on five CME sales reported for the week.
The Agriculture Department announced the April federal order Class I base milk price at $19.57 per hundredweight, down $1.45 from March, but 39 cents above April 2024, and the lowest Class I since May 2024. It equates to $1.68 per gallon, up from $1.65 a year ago. The four-month Class I average sits at $20.56, up from $18.61 at this time a year ago, and compares to $20.26 in 2023.
The USDA's latest Livestock Slaughter report showed an estimated 217,000 head of dairy cows were slaughtered under federal inspection in February, down 30,800 from January, and 35,700 head, or 14.1%, below February 2024.
The week ending March 8 saw 55,400 dairy cows sent to slaughter, down 700 from the previous week, and 4,000, or 6.7%, below that week a year ago. Year to date, 539,100 head had been culled, down 37,000, or 6.4%, from a year ago.
The Agriculture Department's monthly Livestock, Dairy and Poultry Outlook, issued March 17, mirrored milk price and production projections in the March 11 World Agricultural Supply and Demand Estimates report.
The outlook stated, "As of January 2025, the U.S. dairy herd reached 9.365 million head, marking a year-over-year increase from January 2024, and the fourth consecutive month of year-over-year increase. This expansion reflects the lagged response to improved profitability in 2024, as the milk-to-feed ratio rose from 1.73 in January 2024 to 2.35 in January 2025. The higher ratio suggests better margins for producers, leading to lower culling rates and herd retention. Low replacement numbers indicate that future expansion may be moderate."
"Slaughter of dairy cows has declined substantially since the fourth week of 2025 to levels below 2024 and 2023. Given the relative limited number of replacement dairy heifers available in the herd and steadily increasing number of cows in milk production, the lower slaughter rate suggests that dairy farmers are holding cows longer in production instead of culling," the outlook stated.
"Milk solids continue their upward trend; both the milk-fat test and nonfat solids test increased substantially year over year. Higher concentrations of fat, protein and other solids (lactose and minerals) in milk lead to more efficient dairy processing by reducing the amount of raw milk required."
The forecast for the average number of cows in the U.S. herd was raised from the previous forecast by 5,000 head in the first quarter. The herd is projected to average 9.38 million head in 2025. The forecast for milk per cow was reduced 80 pounds to 24,120 pounds. These reductions reflect, in part, retention of the older cow in the production cycle as well as stronger-than-average growth in milk fat.
There have been 16 new confirmed cases of on-farm bird flu reported in the U.S. in the past 30 days. States included Arizona, Nevada, California and Idaho, but the number of cases is low overall.
Agriculture Secretary Brooke Rollins hosted an update last Thursday, providing the first progress report on USDA's five-pronged strategy to combat the highly pathogenic avian influenza as well as lower egg prices. Less than a month after the plan's rollout, USDA reported significant advancements across all five areas, including research on bird flu vaccines as well as increasing imports of eggs.
Rollins announced on National Agriculture Day that the USDA was issuing up to $10 billion directly to agricultural producers through the Emergency Commodity Assistance Program (ECAP) for the 2024 crop year.
Meanwhile, Politico reported that the USDA halted funding for food banks in at least six states. The March 20 Daily Dairy Report said "the cut wasn't USDA's first in 2025. Earlier this month, a $1 billion pledge to school lunch programs and food banks was also eliminated."
Down on the farm, "Dairy margins were mixed over the first half of March as nearby milk futures continued to sell off while deferred contracts moved higher and the feed markets were largely flat," said the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
"The looming threat of a trade war due to tariff escalation is causing particular concern for the export market," the MW warned. "Exports accounted for 16.4% of total U.S. milk production last year, with Mexico, Canada and China representing more than 50% of all dairy exports by both volume and value."
"Mexico is the leading export market for U.S. dairy products, taking 52.4% of our NDM exports and 37.7% of total cheese exports last year. Mexico is also the second largest market for U.S. butter and milkfat behind Canada, and China is our largest whey customer taking 42% of total shipments last year and over 50% in January 2025," the MW stated.
"During the 2018-19 trade war that started under Trump's first term, dairy exports to Mexico declined 17.6% between 2018 and 2020. Mexico is expected to launch retaliatory tariffs against U.S. products including agriculture beginning next month if the 25% threatened tariffs take hold, and Canada has already begun reciprocal tariffs of 25% on $30 billion worth of U.S. products with dairy prominently."
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