Though global dairy product prices are retreating from near-record highs that were notched earlier this year, consumers will continue to pay a premium in the near term, according to the latest projections from the US Department of Agriculture.

In its Oct. 11 World Agricultural Supply and Demand Estimates (WASDE) report, the USDA projected the 2025 US cheddar cheese price at $1.88 per lb, down 6¢, or 3.1%, from the previous month’s forecast, and down 1¢, or 0.1%, from 2024. The 2025 US butter price, meanwhile, was projected at $2.79 per lb, down 21¢, or 7%, from the September forecast, and down 14¢, or 4.8%, from 2024. Overall, the US all-milk price was projected at $22.75 per cwt in 2025, down 70¢, or 3%, from the previous month’s forecast, and down 5¢, or 0.1%, from 2024.

So far this year, US dairy prices are well above where they were in 2023, when cheddar cheese averaged just $1.76 per lb and butter was just $2.62 per lb. That represents price increases of 7% for cheese and 12% for butter in 2024.

“We’re in one of the lowest milk-producing months of the year on a seasonal basis, and that is opposite some of the peak demand period of the year,” said Lucas Fuess, a senior dairy analyst with RaboResearch Food & Agribusiness. “A lot of co-ops and processors right now are looking ahead to Thanksgiving, to Christmas and all the year-end holidays — even the Super Bowl in February — (there’s) lots of consumer demand for dairy in the upcoming months.”

The imbalance of lower dairy supplies and higher demand is being felt even more profoundly on a global scale. In the European Union, butter prices already have increased 83% compared with a year ago, reaching a record $8,706 per tonne, the EU Commission reported on Sept. 30. EU cheese was up 10% year over year, while in Asia butter prices were up 36% and cheese prices were up 12%, according to the EU report.

Oddly enough, the overall decline in global dairy supplies that is helping keep prices higher is partly a seesaw effect from “an 18-month period of really low milk prices in 2023 into 2024,” Fuess explained.

“When that happens, profitability on farm shrinks, margins become challenging, and farmers usually make some tough choices to cut costs, maybe cut cow numbers, and shift strategy at the farm level because of those low milk prices that we saw,” Fuess said. “As a result, we saw lower milk production for more than a year now, and we’re finally starting to see some of the impacts.”

The spread of diseases affecting dairy cows also has played a role, though to what extent is an open question, Fuess said. Cattle in Western Europe recently have been affected by outbreaks of bluetongue and Epizootic Hemorrhagic Disease, while dairy herds in California and several other states have been hit with avian influenza throughout 2024.

“Ultimately, I think, prices and margins are driving the milk production weakness, but it’s probably safe to say that bird flu has had a slight impact as well,” Fuess said.

Supported by supply issues, in the United States in September cheese prices notched a five-year high on the CME Group, with cheddar barrels at one point trading near $2.60 per lb, up more than $1 from the same time a year ago.

“I think it was kind of a perfect storm there of shortage of fresh product that was available to the market (and) timing on milk production declines,” Fuess said.

The higher prices for cheese and butter come at a time when Americans increasingly are eating, rather than drinking, their dairy. In 1975, Americans consumed about 247 lbs of fluid milk per person per year, according to USDA figures. By 2022, that had plummeted to 130 lbs per year, a 47% decrease. Compare that with Americans’ cheese consumption. In 1975, Americans ate about 19 lbs of cheese per person annually. By 2024, US cheese consumption has more than doubled.

“Consumers continue to eat more and more cheese year after year,” Fuess said. “The US per capita consumption continues to increase — we’re at more than 40 lbs per person per year now. We’re also seeing pretty firm export demand. We’ll probably have a record cheese export this year. As we eat more domestically, as the world eats more globally, as our exports increase, that continues to drive cheese consumption from every demand angle that you look at.”

Even as China, the world’s largest dairy importer, works to increase domestic supply and become less dependent on major exporters like New Zealand and Australia, the adoption of Westernized dietary staples like pizza and bubble tea is pumping up dairy demand globally, especially in Asia.

“If you look at the per capita consumption in Asia, it’s still exceptionally low, so they have a long way to go to think about matching or even halving the cheese consumption that we have here in the (United States),” Fuess said. “Western diet popularity, things like milk tea in Asia — wherever you look there’s more and more innovation and Westernization of diets.”

That should keep the price of cheese and butter on the high side entering 2025, with manufacturers and consumers sharing the costs. Eventually, however, the seesaw will tip back the other direction, with higher values for butterfat ingredients incentivizing dairy farms to raise production, in turn easing prices in the second half of 2025 into 2026.

In its latest global dairy report, RaboResearch projected a recovery of supplies in 2025 as the world’s top dairy producers — the United States, the European Union, Brazil, Argentina, Uruguay, Australia and New Zealand — show at least marginal production gains as they adapt to current market conditions. Lower feed costs and higher milk prices should increase output in South America. Australia’s recent milk production growth is expected to carry momentum into the new year. And New Zealand should remain a strong producer, with 34% of its dairy exports still flowing into China while the rest become available to help fulfill global demand.

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