Market Reports

U.S. milk and dairy product output is growing quickly. But formidable exports are keeping a firm floor under the dairy markets. Even after sizable spring rallies, American cheese and butter are the cheapest in the world. Exports of those products are strong and likely to remain so. Daily average U.S. cheese exports surged to an all-time high in April, up 6.7% from already-lofty volumes in April 2024.

Even after the runup, U.S. cheese in the cheapest in the world, and exports are booming. The trade is searching for the price at which international buyers start to look elsewhere or simply make do with less. But prices may already be high enough to deter domestic demand. U.S. cheese consumption held steady in 2024, and it was down 0.8% year over year in the first quarter. With Cheddar north of $1.90, retailers will keep the cheese case stocked, but they probably won’t feature any promotions.

For several years the heifer shortage restrained growth in U.S. milk output. But the invisible hand has proved its might once again. Given enough time and economic incentive, industries can turn scarcity into abundance. Dairy producers have managed this feat by culling significantly fewer cows than they did in the past, reducing their need for replacement heifers.

The cheese markets soared. CME spot Cheddar blocks leapt 11.25ȼ to $1.93 per pound, their highest price since January. Barrels followed hot on their tail, climbing 11ȼ to $1.88. The widely anticipated increase in U.S. cheese output is underway, but the ramp up has been slower than expected. Cheese buyers who were waiting for heavy supplies and lower prices to lock in their summer needs are now scrambling to get their hands on some product.

The bulls feasted this week on news of booming U.S. dairy exports and signs that American dairy remains attractive to foreign buyers. Tuesday’s Global Dairy Trade (GDT) auction served as an appetizer. Buyers bid up nearly all products. Compared to the late-April auction, whole milk powder prices climbed 6.2% while Cheddar jumped 12%.

Despite the challenges, the national dairy herd and milk production continue to grow. In addition to rising year over year output, the spring flush is also driving ample milk availability in most parts of the country. Bottling demand is stable to softer and freeing up plenty of milk for processing. Spot milk for manufacturing could be obtained for about $5 under Class III prices in the Central region this week – significantly lower than the $1.50 discount available at the same time last year.

Every week, U.S. dairy producers send about 10,000 fewer milk cows to beef packers than they used to. That’s slowly adding up to more cows in the barn. Even so, dairy cow head counts are not as high as previously thought. After its quarterly survey, USDA trimmed its estimates of January and February milk cow inventories.

For producers who have been considering retirement for years, slim margins and high cow values offer a lucrative exit ramp. The auction docket is growing, which could allow producers to buy replacements and boost cull rates. Eventually, that could shrink the dairy herd. But for now, slaughter volumes remain low and milk output is on the rise.

Spring has sprung and the resurgence of allergies isn’t the only sign of the season. Milk volumes are also expanding in most regions as the spring flush moves across the country. Seasonal increases are compounding milk volumes that are growing year over year both in liquid terms and in component values.

An intensifying trade war is likely to further complicate the outlook for U.S. dairy exports, which had already come under pressure. During February, U.S. exporters sent 463 million pounds of product abroad, 4.3% less than in the same month last year after adjusting for the leap day. The bulk of the decline came from milk powder with shipments of nonfat dry milk (NDM) and skim milk powder falling to the lowest volume seen for the month since 2016.