Thanks to strong demand for dairy products – including powder, cheese, and butter, milk futures – prices are well supported, in spite of record milk production.
What’s happened
Front month Class III milk futures have been trading back and forth between $17 and $18.50 for months. The market remains well supported thanks to strong demand. However, the reality of ample milk production is limiting any big rallies for now.
The most recent USDA milk production report said that milk production for the month of March was up 2.3% year over year. Higher year over year production has been a theme in the dairy industry for nearly one year.
Looking at the chart below, you can see how in 2025 (orange line), milk production was a record from March through December. Milk production this year is surpassing that of early 2025.
What is the main driver of this record milk production? Primarily, record cow numbers. According to the USDA, March cow numbers increased to 9.621 million, setting a new record, and rising from 9.613 million in February. That is a 187,000 increase, year over year, on cow numbers.
From a marketing perspective
Thank goodness for strong domestic demand for U.S. dairy products!
Powder prices have rallied over $1 per pound since late October. Recently, prices traded near all-time highs approaching the $2.25 price point. Take note, with prices now near all-time highs, they may be due for a correction at some point. This rally in powder has been supportive for Class IV milk futures.
The rally in powder prices is said to be tied to global supply constraints as well as high energy costs, which are required to turn liquid milk into powder. Equally important to demand is the protein craze hitting U.S. consumers.
The recent cold storage report is helping to support milk prices, too. Thanks to strong demand the data shows both cheese and butter stocks are lower year over year.
According to the report, monthly U.S. cheese in cold storage at the end of March totaled 1.401 billion pounds. This was up 1% from February, but down 2% from March 2025. Monthly U.S. butter in cold storage at the end of March totaled 288.834 million pounds. This was up 13% from February, but down 11% from March 2025.
Cheese inventories currently sit at 5-year lows despite very strong production across the United States. Butter inventory remains remarkably low given the strength of production. Butter supplies are slowly growing but are now sitting at four-year lows.
Prepare yourself
With the balance between strong demand and record production, Class III milk futures may continue to bounce between technical support levels and technical resistance levels on daily charts. Short term market direction may be dictated by spot cheese, butter and powder prices. Traders will continue to monitor domestic demand heading into summer months along with the next milk production report, scheduled for May 22.
Reach Naomi at naomi@totalfarmmarketing.com or find her on X at @naomiblohm.
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