Overview & Key Points
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The margin outlook for the upcoming year has weakened over the past month, primarily due to declining milk prices. Although feed costs came down, sharp declines in the four major dairy products pushed Class III and IV futures lower, adding pressure to margins. While HighGround’s projected margin for Q2 2025 has fallen, Q3 and Q4 are looking more favorable, with Q4 showing particular strength at the 84th percentile.
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Milk prices have softened due to concerns over international and domestic demand as well as improved milk and component production. CME cash-settled cheese futures for April through June have dropped between $0.06 and $0.11 per pound, pushing Q2 2025 Class III prices down nearly $1/cwt, further contributing to the weaker milk price outlook.
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On the feed side, costs have declined, driven by trade uncertainties related to tariffs and USDA projections for a record corn crop. The nearby May 2025 corn contract has fallen $0.12 per bushel compared to last month, while soybean meal has also moved lower, down by double-digit figures per ton.
Change in CME Futures from Last Month
Projected Margins by Quarter
This report is intended to be a simple barometer of the margin potential for dairy farms in the United States. This is not necessarily an accurate measure of a specific farm’s profitability, as margins can vary greatly from farm to farm. If you are interested in customizing this model to your operation, please email us at info@highgrounddairy.com to learn more.
Beginning with June 2025, milk price projections utilize the new FMMO pricing formulas set forth in USDA’s Final Rule released on January 17, 2025. A negative change in feed cost vs. prior week means feed prices decreased. Percentiles compare the listed price to quarters with the previous ten years of data. Higher percentiles represent greater historical benefits to producers.
Assumptions: All projections are estimated on an accrual basis. Quarterly margins are determined using current CME futures prices for dairy products, corn, and soybean meal. Milk prices are derived from CME dairy product futures and adjusted for component levels and class utilization. Assumed component levels by quarter are: 4.30% BF / 3.40% PRO in Q1 & Q4 and 4.00% BF / 3.20% PRO in Q2 & Q3. Component estimates are based on recent data available for milk composition levels across the US. Class utilization is set to 55% Class III / 45% Class IV. Feed costs are calculated using CME corn and soybean meal futures (“correlated feeds”) and a fixed value for non-correlated feeds at $3.00/cwt. Correlated feed costs are based on the assumption that 60 lbs of corn (or its equivalents) and 14.7 lbs of soybean meal (or its equivalents) are required to produce 100 lbs of milk. A basis adjustment of +$1.00/bushel is added to corn futures, and no basis is added to soybean meal futures. The remaining adjustments are fixed at: -$8.00/cwt for total non-feed costs; -$1.30/cwt for milk check premiums/deductions; and +$1.50 for non-milk revenue.
Disclaimer: HighGround Insurance Group (HGIG) is an agency affiliated with HighGround Dairy (HGD). HGIG is a licensed insurance agency in many US states. HighGround Dairy is a division of HighGround Trading (HGT), an Introducing Broker (IB) registered under United States Laws. Nothing contained herein shall be construed as a recommendation to buy or sell commodity futures or options on futures. This communication is intended for the sole use of the intended recipient. Futures and options trading involves substantial risk and is not suitable for all investors.
