Class III milk futures came to life at the beginning of the month following underlying cheese prices higher, but more importantly, a seemingly change of attitude. Class III milk futures had been under pressure since the beginning of the year and accelerated to the downside with the announcement of widespread tariffs at the beginning of February. The price increases in cheese became short-lived, with the traders uncertain over international demand. Not only was international demand a concern, but slower domestic demand also weighed on the market.
The commercial disappearance of all dairy products for 2024 was about half a percent below the previous year, and the beginning of 2025 did not look any better. The potential for continued slower domestic and international demand left prices on the daily spot market floundering. Class III futures moved later contracts to a discount to the cash prices rather than a premium, generally maintained through September or October.
The increase in cheese prices at the end of April broke out of the short-term pattern, exceeding what traders had anticipated during the spring flush. It seemed the attitude of traders began to change. Class III milk futures not only followed the higher cheese prices but also removed the discount that was held to put a premium back into the market. This magnified the increase more than the underlying cash prices would have suggested.
Class IV futures did not follow a similar pattern as the butter price remained in a sideways range. This moved some Class III contracts above Class IV, which has been unusual over the past 2 years. The Grade A nonfat dry milk price has been trending higher, but it has not been enough to ignite aggressive buying interest in Class IV futures.
We have not yet seen any significant impact on tariffs from international buyers, as some of the tariffs did not go into effect as had been feared. It will take time to see what the impact might be on overall international demand. The biggest concern will be exports of lactose and whey, as China is the largest importer of those commodities. Whey exports for the first three months of the year are 1.5% higher than in the same period last year, totaling 129,282 metric tons, with China importing 64,359 metric tons of that amount. Lactose exports for the first quarter totaled 101,017 metric tons, with China importing 28,527 metric tons. However, there has been a 90-day pause on tariffs between the U.S. and China, with tariffs dropping back to 10% over the next three months.
Hopefully, something can be worked out permanently. China has been looking elsewhere for not only whey and lactose, but other agricultural products as well, and they may continue to do that to some extent. This business may be difficult to regain completely as China builds relationships with other countries to supply its needs. Whey is an important part of the milk pricing system, and lower prices due to reduced demand would impact milk prices.
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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