Dairy herd growth moderates

U.S. dairy herds continue to expand, though growth has moderated from last year. Through the first quarter of 2026, the national dairy herd increased by 55,000 head (0.6%), supporting stronger milk production. U.S. milk output rose 4.4% in the first quarter, with March production up 2.3% from a year earlier, driven by both additional cows and improved productivity per cow.

Across the Western U.S., all states posted increases in milk cow numbers during the first quarter except California. California’s herd declined by 5,000 head (-0.2%) during the period, reflecting a combination of low milk prices and processing capacity constraints. The closure of a cheese processing facility, which has since relocated to Texas, reduced in‑state capacity, while over‑base milk penalties imposed by at least one processor have sharply discounted milk shipped above monthly base volumes. For some producers, limited milk dumping has occurred to avoid these over-base charges which can be quite substantial.

In contrast, Idaho continues to post strong herd growth, supported by expanding processing capacity. The first confirmed case of highly pathogenic avian influenza (HPAI) in 2026 was identified in a dairy herd in Idaho. After causing meaningful production losses and revenue impacts in 2024, HPAI activity has remained largely muted since mid‑2025, making this the first confirmed case since December 2025. USDA officials have indicated that this case likely reflects localized circulation rather than a broader outbreak. There is cautious optimism that it remains contained.

In Washington, the milk cow herd increased by 1,000 head during the first quarter of 2026, following a significant contraction in 2025 when herd size declined by 19,000 head (-7.5%). Last year’s culling was tied to tightening margins and processor disruptions that weighed heavily on milk checks. The recent return to modest herd growth signals improving financial conditions for producers in the state.

Ample milk supplies are keeping U.S. processors highly competitive in global markets. On a total solids basis, U.S. dairy product exports increased 8% in March compared to the previous year. U.S. cheese and butter prices have enhanced competitiveness abroad, with cheese exports up 28.7% and butter exports surging 109.9% year over year. Nonfat dry milk (NDM) monthly exports fell in March due to reduced shipments to Mexico and Southeast Asia. Despite the March pullback, NDM exports remain more than 5% higher year-to-date, and spot prices reached record highs amid tight domestic inventories and ongoing strength in both domestic and export demand.

Profitability

Dairy: Breakeven profitability - Neutral 12-month outlook

Slowing herd expansion and steady demand are balancing dairy markets, while elevated costs and ample milk supplies continue to limit upside. The neutral outlook favors disciplined cost management and cautious growth rather than expansion.

Thursday Morning Dairy Market Update - Market Best Described as Rangebound

OPENING CALLS:

Class III Milk Futures:	Mixed
Class IV Milk Futures:	Mixed
Butter Futures:	Mixed

OUTSIDE MARKET OPENING CALLS:

Corn Futures:	3 to 4 Lower
Soybean Futures:	12 to 18 Lower
Soybean Meal Futures:	$3 to 5 Lower
Wheat Futures:	2 to 3 Higher

MILK:

There is little expectation of milk futures moving higher anytime soon. The choppy nature of the spot prices leaves traders with no specific price direction other than sideways. This keeps traders scalping the market for a small profit if realized, limiting long-term market participation. Milk output is expected to remain strong as cows respond to good weather and cow numbers increase. Expansions continue to take place, increasing cow numbers and adding to the nation's dairy herd. Increasing milk production will satisfy increased demand, eliminating concerns over supply. Nonfat dry milk will be the market to watch as the recent price activity suggests the market may have reached a plateau. If price begins to weaken, there may be a significant amount of premium eliminated from Class IV futures.

CHEESE:

Cheese prices remain in a tight range with no reason to break out of that pattern. Cheese production is higher due to increased milk production. More milk will be available for manufacturing as schools close for the summer. This may limit the upside price potential.

BUTTER:

Strong butter output with churns operating seven days per week keeps the maket well-supplied with product. Plants are not interested in building inventory and are moving supplies to the spot market as quickly as possible.

Wednesday Closing Dairy Market Update - Spot Milk Supplies Tighten

GENERAL OVERVIEW:

Class III futures were mixed while Class IV futures increased, with most contracts posting double-digit gains. Market fundamentals remain as they have been during the past weeks. Weather remains mostly favorable for cow comfort.

MILK:

Milk production is mostly steady at a higher level than a year ago. The spring flush continues with good weather for cow comfort. There are many discussions over whether the trend for increasing cow numbers will continue or whether cows have been held onto for calves. Once those calves are born, they will be culled. Strong output per cow does not suggest there are many cows being held onto only to obtain their calves. Otherwise, we would see milk production per cow decrease, but that has not been the case. With the current milk prices and high calf prices, cow numbers are likely to be maintained or increase further, as increased culling is not necessary to improve cash flow. If milk production this year ends as the USDA estimated on their recent World Agricultural Supply and Demand report, it would be an increase of 3.7 billion pounds from 2025.

AVERAGE CLASS III PRICES:

3 Month:	$17.39
6 Month:	$18.00
9 Month:	$18.00
12 Month:	$17.99

CHEESE:

Retail demand for cheese is strong and keeps cheese moving, preventing inventory from building. However, food service demand is slower than anticipated for this time of year. Higher fuel prices and increased costs for goods and services are impacting restaurant traffic to some extent. The spot milk supply has tightened to some extent this week, with spot prices ranging from $4.00 under class to $2.00 over class. That is expected to change as schools close for the summer and more milk becomes available for manufacturing.

BUTTER:

The weakness in the butter price was a disappointment today. There had been hope that support might develop under the market, and the price could slowly trend higher. However, the weakness today may have traders questioning whether that is the case. The fact that there were 19 uncovered offers at the close of spot trading suggests upside price potential may be limited.

OUTSIDE MARKETS SUMMARY:

July corn closed up .75 cent per bushel at $4.8075, July soybeans closed up 2.25 cents at $12.2900, and July soybean meal closed up $10.10 per ton at $338.50. July Chicago wheat closed down 3.50 cents at $6.7550. June live cattle closed up $5.10 at $252.80. June crude oil is down $1.32 per barrel at $100.86. The Dow Jones Industrial Average is down 63 points at 49,693, with the NASDAQ up 314 points at 26,402.