As a marketer of milk, much of your success depends on where we are in the market cycle AND your natural reactions to it. The stronger the market (and your optimism for continued higher prices), the more likely you are to wait too long to set your price. Conversely, the weaker the market (and remnants of hope for better days ahead), the more likely you are to want to set your price too soon. With this in mind, let’s talk about where we are today:

 

• Margins are tightening as milk prices have fallen from $20+ levels to $17 or less.
• Demand has cooled and each dairy spot product is in a steady downtrend.
• We’re in the midst of trade wars with Mexico, Canada and China and seemingly daily, disruptive tariff headlines.

 

All in all, you wouldn’t be alone if you felt a touch of panic or even hopelessness. This leads to the question that is important as you make your upcoming marketing decisions: are we still well in the midst of a downward slide of prices and squeezed margins or are we approaching the bottom of the market? And depending on the answer, how are you going to react?

 

 

 

 

The Technicals Point to a Potential Bottom*

 

Both Class III and IV milk futures are approaching oversold territory after having been under heavy selling pressure for months. A reversal could be afoot. The 2nd month Class III contract peaked at $24.46 per cwt in September 2024 and sits today (3/26/2025) around only $17.00. That’s nearly a 31% decrease in roughly six months. Over in the Class IV market, the 2nd month contract is down 22% from the September 2024 high of $23.05 as the market trades at $18.00. Over the past 11 weeks, Class III and Class IV have finished in the red 8 times and 9 times, respectively. Technical indicators like the RSI and Stochastics are well oversold, all pointing to skepticism of the markets falling much further.

 

*All data as of March 26, 2025.

 

 

Fundamentally, the U.S. Dairy Market Is Relatively Cheap

 

U.S. prices keep dropping while the global markets keep rising. Take the cheese and butter markets for example. As of the most recent Global Dairy Trade auction on March 18, the GDT butter price was sitting at a 5-year high of $3.4755/lb. This is a whopping $1.18/lb higher than the U.S. market price of only $2.2950/lb on the day of that event. On top of that, U.S. cheese is now $0.68/lb cheaper than the GDT cheese price, demonstrating that the U.S. market is still extremely competitive globally in spite of the added tariffs. Not surprisingly, the competitively advantageous price differential drove the year-over-year 18% increase in U.S. cheese in 2024 and is the reason U.S. cheese inventories are down 5% from a year ago. It may just be a matter of time before U.S. market prices reflect this demand.

 

 

The Potential for Decreasing U.S. Supply and Resulting Upward Pressure on Price

 

Another fundamental that the market will be watching closely is U.S. total milk production. There are two primary factors that appear to be contributing to decreased milk supply in spite of an increase in the number of cows.

 

1. High feed quality is contributing to stronger components for cheese and butter production. This is driving down the proportion of milk per cow in the United States, while at the same time some milk plants in the Midwest are looking for additional milk.
2. Bird flu continues to be an issue in some states. Since November, California milk per cow has averaged 142.50 pounds per cow less than they did the prior year. As birds make their way back to the Midwest and Northeast this spring, bird flu could continue to be a factor. With cheese inventories down and butter inventories flat, the U.S. needs additional production to keep up with export demand.

 

 

Cattle Prices Remain Near All-Time Highs as Herds Struggle to Rebuild to Pre-COVID Sizes

 

Until herd sizes significantly increase to pre-COVID levels, we anticipate lower supplies of milk and upward pressure on milk prices. This will likely be a lengthy build, however. Namely, cattle futures are in their sixth consecutive year (yes, year!) of a bull market. In turn, the USDA reported in January that cattle inventory is down 1%. One mitigating factor is that dairy producers have seen an increased revenue stream from their cull cows. However, heifer prices are through the roof, approaching $4,000 in some cases. Dairy cows are in high demand, which should be a supportive factor to the milk market.

 

 

Are We Approaching a Low? Build a Flexible Strategy to Be Prepared

 

The biggest danger of approaching a market close to bottoming out is that hopelessness sets in – that feeling that you just have to make any sale as margins squeeze you into making tough business decisions. However, remember that no bear market lasts forever. With the market outlook much better than what meets the eye, producers should be preparing for a potential bounce in milk prices. Consider call options to protect current hedges already in place, pick retracement levels that may make sense to layer in some coverage at better levels, and try to be patient to let the stronger fundamentals develop. The one thing that has been certain about the dairy market ever since COVID is that volatility has been very high. The market can make big swings higher and lower, which does provide a lot of opportunity for those actively managing their risk. Use sound risk management, work with a professional, and be prepared.

 

Finally, you don’t have to do this alone. Turn to a firm like Total Farm Marketing who has helped farmers like you successfully manage price and risk through all of the dairy market’s swings up and down. Our advisors help farmers like you make informed marketing decisions every day.

 

 

 

This year, Total Farm Marketing is celebrating our 40th year helping farmers.

Give us a call at 800.334.9779 to discuss your situation and how we can help you achieve marketing success.

 

 

©March 2025. Total Farm Marketing. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices may have already factored in the seasonal aspects of supply and demand. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Total Farm Marketing and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies.