Wednesday Closing Dairy Market Update - Light Trading Activity Was the Order of the Day

GENERAL OVERVIEW:

Class III milk futures were mostly lower, with traders seeing limited volatility. Trading volume was light. Class IV futures only showed trading activity in the January contract.

MILK:

Milk futures closed about as expected, with Class III mostly lower and Class IV higher. Milk volumes are increasing in much of the country as weather has become cooler. Corn silage harvest is either complete or ongoing, with many indicating good tonnage. There has been little indication of any slowing of milk production due to an increase in culling. The milk production and livestock slaughter report will provide a good indication of the direction of the market for the rest of the year. The anticipation is that the increase in cow numbers will slow as low milk prices may increase the culling of lower producers and reduce the desire to pay higher prices for replacements. However, it may take some time before that will be evident, much less tightening the milk supply.

AVERAGE CLASS III PRICES:

3 Month:	$16.04
6 Month:	$16.31
9 Month:	$16.60
12 Month:	$16.82

CHEESE:

The milk supply has reportedly tightened somewhat this week. However, it has not had much impact on spot milk prices. Spot milk is flat to $2.00 over class, which is lower than usual during this time of year. Manufacturing plants are running on full schedules. Spot cheese is readily available, leaving buyers unaggressive in the market.

BUTTER:

Butter production is steady to higher as ice cream production winds down and more cream is available to the market. Domestic butter supplies are ample for demand. Many butter plants are now running on six-day weeks.

OUTSIDE MARKETS SUMMARY:

December corn closed down 1.50 cents per bushel at $5.3425, November soybeans closed up 1.75 cents at $13.2050, and December soybean meal closed up $.20 per ton at $365.60. December Chicago wheat closed up 2.25 cents at $7.3075. December live cattle closed down $3.15 at $220.20. October crude oil is down $3.76 per barrel at $102.07. The Dow Jones Industrial Average is down 631 points at 51,462, with the NASDAQ down 3 points at 25,978.

Wednesday Midday Dairy Market Summary - Milk Futures Continue to Struggle

OUTSIDE MARKETS SUMMARY:

CORN:	6 Lower
SOYBEANS:	5 Lower
SOYBEAN MEAL:	$1.40 Lower
LIVE CATTLE:	$0.85 Lower
DOW JONES:	29 Points Lower
NASDAQ:	171 Points Lower
CRUDE OIL:	$3.12 Lower

MIDDAY MARKET UPDATE:

The block cheese price slipped 0.25 cent to close at $1.4325 with 4 loads traded. The barrel price increased 1.25 cents to close at $1.4525 with one load traded. The gain in barrels did not offset the decline in blocks because barrels are not part of the calculation in the Class III price. The dry whey price remained unchanged at 76.25 with no loads traded. Class III futures are 19 cents lower to 1 cent higher with the September contract the only one showing a gain. The butter price remained steady at $1.3550 with 21 loads traded. Then price initially declined 0.75 cents before regaining the loss. There were 12 unfilled bids and 45 uncovered offers remaining at the close. Grade A nonfat dry milk increased 1.50 cents to close at $2.05 with 5 loads traded. Class IV futures have not yet traded. Butter futures are 3.00 cents lower to 2.25 cents higher. Dry whey futures have not traded. Cheese futures are steady to 1.00 cent lower. Nonfat dry milk futures are 0.77 cent lower to 1.32 cents higher.

Dairy margins narrow as beef buffer fades

Dairy producers across the West continue to navigate tight margins as softer milk prices and elevated input costs limit profitability. While many operations remain near breakeven or slightly profitable, financial performance varies significantly by region.

In 2025, profitability varied considerably across Western dairy regions. AgWest dairy customers in Western Washington averaged a loss of approximately $0.20 per cwt, reflecting high processing assessments and production costs. In contrast, Idaho and Arizona dairy producers averaged net earnings of more than $2.00 per cwt, while California producers generated average net income exceeding $4.00 per cwt. Much of this advantage was driven by strong non-milk revenue streams, particularly cattle sales. Historically high beef and calf prices provided valuable supplemental income, helping offset weak milk margins and support overall dairy profitability.

Conditions have shifted in 2026. In Washington, producer sentiment has improved following a significant reduction in milk assessment fees at a major regional processor, with average assessments declining from roughly $4.00 per cwt to $1.75 per cwt. At the same time, an important source of supplemental revenue has begun to weaken. Beef-cross calf prices remain historically strong but have declined approximately $300 to $400 per head from peak levels, while Holstein calf prices have fallen roughly $150 per head in recent months.

Looking ahead, dairy margins are expected to remain under pressure through the remainder of 2026. As cattle markets normalize and analysts suggest the industry may be approaching the later stages of the current cattle cycle, supplemental cattle revenue is expected to decline. Feed costs have increased as drought conditions support higher hay prices in parts of the West; grain markets have strengthened amid global supply concerns and the continued Russia-Ukraine conflict; and milk prices remain subdued. The All-Milk price fell to $19.35 per cwt in August and, while modest improvement is expected, prices are projected to remain below $21 per cwt through year-end. With both milk prices and cattle-related revenue expected to soften, dairy producers are preparing for tighter margins and increased financial pressure in the months ahead.

Profitability

Dairy: Slightly profitable - Neutral 12-month outlook

Despite persistent pressure from low milk prices and elevated production costs, many dairy producers have maintained slight profitability due to strong supplemental income from cattle sales. As calf values retreat and feed costs rise, that profitability buffer is shrinking, creating a more challenging outlook.