How changes in FMMOs are impacting dairy markets

The U.S. has been in the process of building a record amount of new cheese processing capacity, which has now been coming online during 2025. There was a lot of concern that with all these plants starting up in quick succession cheese prices could collapse. Now that we are more than halfway through 2025, we can take a look at the data and see what impact the new capacity has had.

One of the most noticeable impacts of new dairy plants is the impact they’ve had on regional milk production. It takes time to build new plants and new farms. In the past 20 years we’ve seen a pattern where processors will announce that they’re starting to build a new plant and nearby farms will start their own expansions — or start constructing new farms. This assures that the milk supply will be available as the plants come online. The size of the dairy herd had effectively been trending down from mid-2021 until mid-2024, but with these new plants expected to start coming online in late 2024 we started to see the size of the dairy herd growing.

Nate Donnay is the director of dairy market insight at StoneX Financial Inc. He has been applying his interest in large complicated systems and statistical analysis to the international and U.S. dairy markets since 2005.

Over the past year, dairy farmers have added 146,000 head to the milking herd which is a 1.6% increase. Most of these cows have been added in states with new cheese plants, including the herd in Texas increasing by 46,000 cows, Kansas was up 29,000, South Dakota gained 21,000 and New York was up 8,000 head. Consequently, milk production in these states has been running very strong and much of the milk appears to be going into cheese.

More milk, strong cheese production

Cheese production has increased markedly in 2025. Over the past 20 years, cheese production has grown by an average of 2.4% per year. However, tight milk supplies and weak demand growth resulted in cheese production growing just 0.5% in 2023 and 0.4% in 2024 (after adjusting for leap year). With new dairy plants coming online and plenty of milk available near them, cheese production in the second quarter of 2025 was up 3.7% from last year. Most of the new cheese capacity is for American-style varieties (Cheddar, Colby, Monterrey Jack) and production of American-style cheeses was up 5.6% in the second quarter. One of the new plants makes mozzarella and mozzarella production was up 2.8% year-over-year in Q2 on top of strong 5.3% growth last year.

While cheese production is growing strongly, the plants aren’t running at full capacity. Monthly production in Q2 increased about 43 million pounds from last year. If the new cheese plants were running at full capacity, they should be producing about 56 million pounds of cheese. But it’s not just the new plants that are producing more cheese. It looks like existing plants also are running stronger with cheese production up in Wisconsin, Idaho and California despite no major new cheese plants in those states. So, we can’t assume that all the 43 million pounds per month production increase is due to new plants alone. Anecdotally we’ve heard that the new plants are not running at full capacity but operating at around 50% of capacity.

Cheese prices in the dairy market

The impact on prices is harder to quantify. The benchmark CME spot block cheese price averaged $1.79 per pound, nearly equal to the second quarter of last year and only down a penny from the first quarter. The new capacity hasn’t collapsed the market (yet), but prices would have likely been higher if cheese production had been weaker. We started the year with cheese stocks down nearly 6% from the prior January.

Yet, due to stronger cheese production and weak domestic demand, cheese stocks were only down 0.4% from last year in June. So, some of the extra cheese production is helping to rebuild inventories, which is dampening the upside for prices in the second half of 2025 and possibly into early 2026. When I work through my models, my best estimate is that the price of cheese would have been closer to $2 during the second quarter without the new plants.

However, new cheese plants are helping to boost cheese production and rebuild inventories. So far, though, cheese production growth hasn’t been strong enough to collapse prices, but they are likely lower than they would have been without the added capacity. The data suggests that cheese plants are not running at full capacity yet, so we’ll l likely continue to see good cheese production growth through the remainder of 2025 and into 2026. DF