Dairy industry leaders were offered a deep dive into dairy dynamics, market maneuvers, milk metrics and the intricate interplay of supply and demand at the “Mid-Year Dairy Market Review,” presented by Mike McCully of McCully Consulting during the 2025 International Dairy, Deli & Bakery Association (IDDBA) conference.

With decades of experience decoding dairy data, McCully delivered a fast-paced, fact-filled presentation that painted a comprehensive picture of the current dairy landscape, dominated by delicate trade tensions, dynamic pricing shifts and determined optimism from U.S. dairy farmers.

Milk Momentum & Modest Growth

McCully kicked off with a look at U.S. milk production, noting that national output showed modest momentum in Q1 2025, a trend that has continued into the second quarter. In March alone, U.S. milk production rose 0.9% year-over-year, despite California’s 2.1% decline.

The rest of the country compensated with a collective 1.7% increase, thanks in part to a growing national dairy herd. The number of milk cows rose by 49,000 head in Q1, bringing the national count to its highest since May 2023. Feed costs are also trending lower this year.

“This overall increase in milk production is certainly market-friendly,” McCully said. “It’s not flooding the system, but it’s certainly feeding into strong cheese and butter production.”

In contrast, European milk output has slipped compared to last year, creating international supply gaps that are helping bolster U.S. export opportunities.

Cheesescape: Surging Supply Meets Solid Sales

One of the most discussed topics was cheese – both production and pricing. As a number of new processing plants come online, industry insiders feared a possible glut, jokingly dubbed “Cheese-ageddon.” But McCully assured attendees that this dairy doomsday has not materialized.

“Production’s up 1.7% in the first quarter, but cheese stocks are actually down 4.3%,” he noted, signaling solid domestic consumption and robust international demand. About 8% of all U.S. cheese production is exported.

Cheese prices have remained resilient, staying mostly within a $1.60 – $1.90 per pound range since last autumn. Futures suggest a lift back into the upper $1.80s by late 2025, powered by strong exports.

Cheese exports surged to a record 1.125 billion lbs. in 2024, with Mexico, South Korea and Japan accounting for a commanding 70% of outbound volume. Mexico takes the lion’s share, accounting for 46% of exports.

“This is a clear case of international sales insulating us from softer domestic sales,” said McCully. “We’re leaning on exports and so far they’re lifting us.”

Butter Bounces & Busts

Butter took a more bearish turn in early 2025. Prices plummeted to their lowest levels in three and a half years, hit hard by heavy cream supplies and surging production.

Butter output is up 6.2% while inventories have increased by 4%. Despite that, exports soared 125% in 2024, reaching 69 million lbs. – though that still accounts for just 3% of U.S. butter production. McCully is cautiously optimistic that total could expand to 5% in the near future.

Canada dominated U.S. butter buying, taking in 64% of exports. East Asia, Central America, South Korea and Mexico rounded out the top five butter partners.

Low U.S. prices – especially when contrasted with costlier international alternatives – are expected to keep butter shipments strong in the second half of 2025, even with potential tariff turbulence.

Whey Worries & Powder Pressures

While cheese and butter found their footing, whey is weighing down exporters, particularly due to high Chinese tariffs. “This remains the most significant strain on the export side,” McCully noted.

Similarly, skim milk powder (SMP) and nonfat dry milk (NFDM) exports slipped to 1.643 billion lbs. in 2024 – the lowest level since 2019. That said, the U.S. still exported 74% of what it produced in these categories, with Mexico (57%), Southeast Asia (31%) and South America (7%) absorbing the bulk.

“Export erosion in powders is something we’re watching closely,” McCully warned, “especially if tariffs rise or trade anxieties accumulate.”

Farmers Feel Fortified – For Now

Despite export anxieties, dairy farmers are feeling more optimistic in 2025, buoyed by stronger margins and lower feed costs. While milk futures prices have fallen somewhat, they haven’t fully offset the benefit of lower feed bills. As a result, cow culling has dropped sharply, with many farms choosing to hold onto their herds.

“The margin outlook remains positive,” said McCully. “It’s not perfect, but it’s trending in the right direction and overall looks promising.”

He emphasized that continued margin strength depends heavily on a stable milk price floor, robust demand and no major disease outbreaks. The new Federal Milk Marketing Orders, which went into effect June 1, the day of McCully’s presentation, may help stabilize pricing as well.

Tariffs, Trade & Trouble Ahead?

Trade remains both a tailwind and a ticking time bomb. “Tariffs are the wild card,” McCully cautioned, noting that dairy product prices adjusted rapidly to rumors of new trade restrictions earlier this year.

He also flagged several health threats that could radically reshape the market in the coming months, including H5N1 bird flu, bluetongue disease and foot-and-mouth disease.

“A serious outbreak would be a true black swan event,” he warned. “We’d be looking at quarantines, halted exports and possibly the loss of entire herds.”

For now, those threats remain theoretical, but McCully urged caution and continued surveillance.

Looking Ahead: What’s Next for Dairy?

As summer approaches, McCully expects milk production to continue expanding, but only modestly. He forecasted cheese prices to stay within their current range. He predicts butter prices will begin a gradual rebound in the second half of the year, nearing the $2.60s.

The organic milk market, which McCully touched on briefly, is showing very strong demand – which means supplies are tight. “Farmers are making good money on the organic side of it,” he said. “We’re near the levels of 10 years ago, around $40 a hundredweight or so.”

Export performance will be perpetually pivotal, particularly in the face of prospective tariff possibilities.

“Every gallon, every pound and every export matters more than ever,” McCully concluded. “From farmers to foodservice, we’re all navigating a very nuanced market.”

Final Thoughts: Navigating a Nuanced Landscape

The 2025 dairy landscape is marked by measured growth, mild volatility and a mounting reliance on global markets. With tariffs looming, new processing capacity coming online and farmers cautiously optimistic, the sector stands at a significant crossroads.

McCully’s overall assessment offered both reassurance and a reality check, blending bullish data with balanced perspective.

As the dairy industry forges forward, it will need to juggle production precision, pricing pressures and political pitfalls. The takeaway? It’s not about dairy drama but dairy discipline.