Cheddar block prices reached $2.27 per pound in early September, the highest in 27 months on the Chicago Mercantile Exchange. This signals tight cheese supplies in the U.S. and Europe. Lead dairy economist at CoBank Corey Geiger notes that this represents a major reversal for dairy farmers. Earlier in the year, cheese prices were low due to expectations of new cheese plant capacities.

The market saw Class III futures (cheese and whey) invert compared to Class IV (butter and powder) prices. This was an unusual situation that some predicted might continue into 2025. By Labor Day, Class III futures for September-December rose above Class IV due to climbing spot cheese prices.

While this trend benefits dairy farmers in high cheese-producing regions, like the Midwest, traders remain uncertain if it will hold. Milk production has declined for 13 consecutive months, marking a rare occurrence not seen since the 1960s. With scarce dairy replacements and fewer cows being culled, tight supplies are expected to persist. This may cap future milk production growth in the U.S. for the next few years.

Read more on the tight cheese supply driving higher prices here.