American dairy markets ended 2025 on a declining note, with every major product category losing ground throughout the year as abundant milk supplies reshaped the pricing landscape.

Whey prices settled at 73.5¢ per pound by year-end, down from their stronger position twelve months earlier. CME spot nonfat dry milk (NDM) closed at $1.175 per pound, despite a slight monthly increase in December, the product finished 20¢ lower for the full year.

Butter experiences steepest decline

Butter faced the sector’s sharpest correction, falling $1.15 throughout 2025 to reach $1.40 per pound. The 45% decline brought butter to its lowest price point since February 2021.

CME spot Cheddar blocks finished at $1.375 per pound, representing a 53.5¢ drop over twelve months, a 28% annual decline.

Milk production continues to expand

The pricing weakness stems from continued growth in U.S. milk production capacity. According to USDA data, the national milking herd stood at 9.57 million head in November 2025, representing 211,000 additional cows compared to November 2024.

National milk production increased 4.5% year-over-year in November. California output rose 10.4% compared to the previous year when avian influenza had disrupted operations. Component levels remained elevated throughout the year.

Manufacturing activity increases across most categories

Strong milk availability drove increased manufacturing activity in October. Butter production jumped 10.1% year-over-year, while cheese output rose 3.2%. Whey protein isolate production surged 17.7%, and whey powder increased 5.8%.

Nonfat dry milk and skim milk powder production declined to 157.8 million pounds, the lowest monthly total in over a decade. Despite this reduction, milk powder stocks remained higher than year-ago levels as export demand continues to underperform.

Futures signal pressure on producer margins

January through March Class III futures averaged $15.54 per hundredweight, below breakeven levels for most dairy producers. The outlook appears more difficult for producers receiving Class IV milk pricing, with January through March futures averaging $13.99 per hundredweight.

Supply adjustment timeline remains uncertain

Market analysts expect reduced milk prices will eventually prompt contraction in U.S. dairy production capacity. However, the path to supply adjustment may extend over a longer timeframe. The industry absorbed substantial capacity additions throughout 2024 and early 2025, with several large-scale operations scheduled to begin production in early 2026.


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