The CME spot call closed mixed this week as the dairy complex absorbed a stronger dollar and the headlines from the US-China summit. Blocks dropped 6 cents to $1.57/lb and barrels fell 3 cents, both to $1.57. NFDM eased $0.02 to $2.2750 after holding around recent record territory. Butter was the only product to firm, adding 1.5 cents to $1.6450. Dry whey slipped 2 cents to $0.6750.
The summit was deemed successful, with both parties confirming the need to reopen the Strait of Hormuz, but the agricultural commodity purchases that traders had been watching for did not materialise in published detail. A stronger dollar weighed on most dairy products, with milk powders particularly exposed given their export profile.
Q1 fundamentals: three different demand stories
With Q1 2026 fundamentals now complete, the picture across the three main US dairy commodities looks very different by product.
Cheese is the weakest of the three on price. Q1 production reached 3,698 million lbs, up 3.1% year-on-year, with consumption up 2.0% to 3,367 million lbs. The release valve is exports, which jumped 44.6% to 308 million lbs. Export share of total cheese demand has now risen to 8.3%, nearly double the 4.1% of just three years ago, with Mexico and Southeast Asia doing most of the lifting. With CME blocks around $1.57-1.60/lb and US output still rising, that reliance on exports is unlikely to loosen.
NFDM and SMP are the more dramatic story. Production was up 6.5% in Q1 to 591 million lbs, the first real recovery from the multi-year squeeze. The shift is in demand: domestic consumption rose 178% year-on-year, an extra 132 million lbs that absorbed the supply increase several times over. Exports actually fell 7.4% as US producers prioritised domestic buyers over international destinations, with some export shipments postponed and others reportedly replaced by European SMP. Export share dropped to 61.7%, well below the long-run average around 70%.
Butter is the structural story. Production was up 7.1% to 695 million lbs, the fastest growth among the three. With prices having traded below $2/lb for most of the year, demand has responded on multiple fronts: domestic consumption rose 3.8%, and the US has shifted from a net importer to a net exporter, with Q1 net exports at +26 million lbs, a 33 million lb swing from the same period last year. Vegetable oil prices have stayed elevated, which has pulled more butterfat back into recipes.
What this means
Each of the three big US dairy markets is finding a different way to absorb the production growth that has been visible since late 2025. Cheese needs the world to keep buying. NFDM is now relying on a domestic demand surge that is bigger than the supply response. Butter has structurally repositioned itself as an export market for the first time in years.
The risks differ. For cheese, it’s a slowdown in Mexico or Southeast Asia demand. For NFDM, it’s whether the 178% domestic jump is sustainable or partly catch-up restocking. For butter, it’s whether vegetable oil prices stay high enough to keep butterfat in recipes.
