Thursday Closing Dairy Market Update - Class III Lower on Cheese Weakness

GENERAL OVERVIEW:

Cheese blocks and barrels both traded lower in the spot market earlier today bringing weakness to Class III milk futures. Dairy market futures saw lower trade across the board in nearly every contract.

MILK:

Class III futures saw lower trade Thursday afternoon as futures traded 6 to 27 cents lower in the late day trade. The average price of Nonfat Dry Milk for the week ending Nov. 7, reported by the USDA was $2.0705 per pound. That is a decline of 4.6 cents from the previous week. Class IV futures have been extremely quiet this week with settlements nearly unchanged all week.

AVERAGE CLASS III PRICES:

3 Month:	$17.20
6 Month:	$17.08
9 Month:	$17.20
12 Month:	$17.36

CHEESE:

Cheese futures traded 1.2 to 2.4 cents lower Thursday afternoon. Cheddar cheese blocks fell 6 cents in the spot market today, while barrels traded 2 cents lower. There has been volatility in the spot market lately, driven by the time of year. Holiday buying has been supportive, but buyers are price sensitive. The AMS National Dairy Sales Report saw an increase of 11.2 cents from the previous week for 40-pound block cheddar cheese prices, coming in at $1.6397 per pound.

BUTTER:

Butter futures traded anywhere from 0.675 cents lower Thursday afternoon to as much as 1.475 cents higher in the deferred contracts. The spot market declined 2.5 cents for butter loads today. The AMS National Dairy Product Sales report saw a decrease in the average butter price of 1.4 cents from last week at $1.3560 per pound.

OUTSIDE MARKETS SUMMARY:

December corn closed down 5.50 cents per bushel at $4.4250, January soybeans closed down 11.75 cents at $12.1900 and December soybean meal closed down $4.30 per ton at $325.40. December Chicago wheat closed down 15.25 cents at $5.8425.

December live cattle closed down $0.08 at $218.90. December crude oil is up 2.17 per barrel at $88.70. The Dow Jones Industrial Average is down 189 points at 52,297 and NASDAQ is down 100 points at 25,366.

Thursday Midday Dairy Market Summary - Class III Milk Futures Lower

OUTSIDE MARKETS SUMMARY:

CORN:	4 Lower
SOYBEANS:	10 Lower
SOYBEAN MEAL:	$3.60 Lower
LIVE CATTLE:	$0.15 Lower
DOW JONES:	187 Points Higher
NASDAQ:	33 Points Higher
CRUDE OIL:	$1.13 Higher

MIDDAY MARKET UPDATE:

The block cheese price decreased by 6 cents to close at $1.62 with 11 loads traded. The barrel cheese price declined 2 cents to close at $1.6650 with no loads traded. Dry whey increased 2 cents to close at 89 cents with 1 load traded. Class III futures are trading 12 to 19 cents lower. The butter price decreased by 2.5 cents, closing at $1.2325 with 3 loads traded. Grade A nonfat dry milk decreased 2.25 cents to close at $2.05 with 9 loads traded. Class IV futures have not yet been traded today. Butter futures are 0.5 to 1.9 cents lower. Dry whey futures are mixed, trading 0.075 cents lower and 0.8 cents higher. Cheese futures are 0.1 to 3.1 cents lower. Nonfat dry milk futures are 0.275 cents lower to 1.775 cents higher.

More cows, more milk, tighter margins ahead

Rapid herd expansion is pushing U.S. milk production higher, increasing the risk that supply growth outpaces demand and pressures producer margins into 2027. In September, U.S. milk production increased 2.6% year over year, while the dairy herd reached 9.74 million cows, its largest size since 1992. Production per cow was also 18 pounds higher than a year earlier, meaning both a larger herd and improved productivity are adding milk to the market. Even if herd growth slows near current levels, continued productivity gains could keep milk supplies expanding in 2027, meaning supply pressure is likely to persist.  

New processing capacity has provided an outlet for that additional milk, but more processing does not necessarily mean more demand. Cheese inventories ended September 2% above year-ago levels, while butter stocks were 16% higher, suggesting production is not matched with consumption. With domestic cheese and butter demand relatively soft, exports have become increasingly important. U.S. dairy exports were up 7% year-to-date through August on a total-solids basis, led by a 22% increase in cheese and 41% increase in butter. Continued export growth will be critical to absorbing additional supplies and supporting dairy prices.  

Historically strong beef revenue has also helped fuel dairy expansion, but that incentive is beginning to weaken. Beef-on-dairy day-old calf and cull cow sales have provided an additional source of revenue for dairies, helping offset tighter milk margins. Cull cow prices, however, have fallen about 25% from the highs reached in May, and beef revenue is expected to decline in 2027 while remaining historically strong. As this supplemental income source moderates, one of the financial incentives supporting aggressive herd growth will begin to weaken.   

Ultimately, tighter margins could become the primary constraint on further dairy expansion. Growing milk supplies are pressuring prices while producers continue to face elevated feed and operating costs. If margins narrow and beef revenue declines, producers may become less inclined to add cows, eventually slowing supply growth. With margins expected to remain tight into 2027, risk management will remain important. Producers may consider tools such as Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC), with DMC enrollment for 2027 open through Dec. 18. 

Western producers face additional regional risks. In California, ongoing litigation involving dairy discharge requirements could affect the regulatory environment surrounding future expansion. In Washington, confirmed cases of highly pathogenic avian influenza (H5N1) in October add another animal-health risk. H5N1 has been reported in 27 dairy herds over a three-week period. For affected dairies, the financial impact is primarily tied to lost milk production from sick cows, along with additional testing and management costs. For processors, outbreaks could temporarily reduce available milk supplies from affected herds. 

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.