Wednesday Closing Dairy Market Update - Light Trading Activity Resulted in Limited Volatility

OVERVIEW:

Class III futures price movement was rather uneventful. Trading volume was very light as traders saw insufficient volatility for day trading. The World Agricultural Supply and Demand Estimates is scheduled for release on Thursday but will not be because of the government shutdown.

MILK:

Class III milk futures were mixed, with the limited gain in the block cheese price being offset by the decline in butter. This left little reason for traders to do much trading. The volatility was too light to even try to scalp the market for a small profit. Trading volume was very light. Class IV futures took another hit, posting double-digit losses. Milk production is increasing seasonally as cooler weather improves cow comfort. The butterfat content in milk is increasing and remains above a year ago. This provides more cream for the production of butter and Class II products. Protein levels are also higher, increasing cheese yields. The World Agricultural Supply and Demand report is scheduled to be released on Thursday, but it will not be released due to the government shutdown. The report contains USDA estimates for milk production, milk prices, and dairy product prices for this year and 2026. Those estimates will be released when the government is in full operation again. It does not look like it will be anytime soon, as there seems to be no progress made on their differences of opinion on the budget.

AVERAGE CLASS III PRICES:

3 Month:	$17.05
6 Month:	$16.97
9 Month:	$17.00
12 Month:	$17.12

CHEESE:

Spot milk prices are strengthening, with spot milk running from class to $3.00 over class this past week. Cheese output has increased and remains strong. Demand is steady and should slowly improve as the holiday season nears. However, the increase in cheese production may outpace the decrease in cheese inventory.

BUTTER:

There is a balance between supply and demand for butter. Unfortunately, the balance is at a low price. The price at the close of spot trading today is only 3.00 cents from the previous low for the year, with a strong possibility that it will revisit that level.

OUTSIDE MARKETS SUMMARY:

December corn closed up 2.25 cents per bushel at $4.2200, November soybeans closed up 7.50 cents at $10.2950 and December soybean meal closed up $1.10 per ton at $278.00. December Chicago wheat closed up .50 cent at $5.0725. December live cattle closed up $1.15 at $238.88. November crude oil is up $0.57 per barrel at $62.30. The Dow Jones Industrial Average is down one point at 46,602, with the NASDAQ up 255 points at 23,043.

Wednesday Midday Dairy Market Update - Cash Provides Little Direction

OUTSIDE MARKETS SUMMARY:

CORN:	1 Higher
SOYBEANS:	6 Higher
SOYBEAN MEAL:	$2.80 Higher
LIVE CATTLE:	$0.50 Higher
DOW JONES:	134 Points Higher
NASDAQ:	207 Points Higher
CRUDE OIL:	$1.00 Higher

MIDDAY MARKET UPDATE:

The block cheese price increased 0.25 cent to close at $1.7375 with no loads traded. The barrel cheese price remained unchanged at $1.74 with no loads traded. The dry whey price remained unchanged at 63.00 with no loads traded. Class III futures are mixed, ranging from 10 cents lower to 7 cents higher. The butter price decreased 1.75, closing at $1.65 with no loads traded and no buyers showing up during spot trading. Grade A nonfat dry milk remained unchanged at $1.15 with no loads traded and no buyers or sellers showing up during trading. Class IV futures have only traded in the February contract at 28 cents lower. Butter futures are 0.52 to 5.25 cents lower. Dry whey futures are unchanged. Cheese futures are unchanged to 0.80 cent lower.

Dairy updates - Unprecedented milk production growth

Increases in U.S. milk production, driven by unprecedented herd expansion, have been bearish for milk prices. The U.S. now boasts the largest dairy herd in over 30 years. Over the past six months alone, the herd has grown by 125,000 cows, marking the fastest six-month growth period on record. Despite tight replacement availability, producers have found ways to bring on new capacity. Producers are holding onto cows longer, as shown by slaughter rates down 5% year-to-date compared to 2024. This trend reflects a cautious approach to herd management. Instead of investing significant capital to expand their herds, dairies have maintained a more conservative strategy.

The increase in cow numbers has fueled significant growth in both milk production and milk solids. Milk production in July rose 3.2% year over year, while milk solids growth increased 4.8%. As milk production increases, prices are softening. In 2025, milk prices have declined and are expected to drop further in the second half of the year. However, many producers are still operating above breakeven, largely due to additional income from dairy-beef crossbreeding. Most of the dairy herd growth has occurred on larger farms, which are better equipped to manage lower prices thanks to their economies of scale. However, the profit margins for large producers will not be immune if supply outpaces demand.

Dairy markets have also been bearish. While butter and cheese exports have been a bright spot for U.S. dairy in recent months, falling prices in global markets are challenging U.S. export competitiveness. Global milk production increases are fueled by higher production in the E.U., South America, and New Zealand. (The only major dairy-producing region to experience a decline in milk production is Australia, where drought conditions have limited feed supplies and led to herd culling.) In September, butter markets saw spot prices drop to a three-year low, an unusual trend for this time of year when prices typically begin to rise due to increased holiday demand. Cheese prices are stable and are holding near $1.60. However, softening E.U. cheese prices limit upside potential.

Profitability

Dairy: Slightly profitable - Neutral 12-month outlook

Rising milk production and falling futures prices could strain profitability. However, low feed costs and beef-on-dairy income should support margins.