Milk powder inventories were tight at the end of May, and while that partially helps explain why CME spot nonfat dry milk (NDM) powder prices have soared this year, additional increases in milk production could soon shift the supply-and-demand picture for U.S. milk powders.
“Increases in milk production could result in more skim and nonfat dry milk powder output and, eventually, lower prices,” said Sarina Sharp, analyst with the Daily Dairy Report. “While cheese plants have been taking a greater share of the milk supply in USDA’s Central region, dryers have been running hard in the West.”
More Milk, More Powder, Lower Price Pressure Ahead
Milk powder production in the first quarter of this year was significantly lower than it was in the first three months of each year between 2017 and 2023, according to USDA data. However, first-quarter nonfat dry milk (NDM) and skim milk powder production in the first quarter of the year was close to 2024 volumes and 6.5% greater than first-quarter 2025 output.
“U.S. dairy producers are adding cows and boosting milk production at the fastest pace in a generation,” Sharp said. “Once all the new cheese, butter, yogurt, and value-added milk plants are full, the industry will once again depend on dryers to absorb the milk overflow. When that occurs, milk powder prices will drop low enough to, once again, attract international buyers.”
Despite the robust growth in U.S. milk production, the nation’s milk supply has yet to catch up to the massive increase in new dairy processing capacity that has occurred over the past several years. And the significance of that was made clear over the recent holiday weekend.
“Typically, holidays such as Memorial Day produce a short-term surplus of spot milk. Many dairy processors close for the holiday, leaving even more discounted milk available for balancing plants, especially milk powder dryers,” Sharp said.
While that held somewhat true over Memorial Day weekend in the Central region, where some loads of spot milk sold for $5/cwt. below the Class III price, some dairy processors in the region paid premiums of up to $2/cwt. for spot milk.
“Paying a premium for spot milk is an unusual occurrence during spring flush and in a holiday week,” Sharp said. “In 2023 and 2025, for example, not a single load of spot milk traded at a premium in the Central region in April, May, or June. And In 2024, premiums were paid in only two weeks during those same months.” In each of the last three weeks of May, processors bought spot milk at a premium as production schedules kept spot volumes from becoming excessive, according to Dairy Market News.
Summer Tightness vs. Structural Milk Growth
Looking ahead, Sharp said that seasonal factors will likely lift spot milk premiums as blistering summer temperatures restrain milk yields and tighten supplies. However, continued growth in the U.S. dairy herd will boost milk production relative to year-ago volumes. Later this summer and fall, NDM production will likely top 2025 volumes. U.S. milk powder exports, meanwhile, are expected to falter as importers look to less expensive sources, which is already weighing on deferred prices, according to Sharp.
“Milk powder inventories typically fade in summer and fall, but this year may be different,” she said. “Futures predict a steep drop in NDM from $2.04 per pound in July to $1.54 by the end of the year.”
