Wednesday Closing Dairy Market Update - Fundamentals Remain Bearish

GENERAL OVERVIEW:

Milk futures close under further pressure as spot prices fell. Traders find it difficult to find anything to support the market. The USDA will release the World Agricultural Supply and Demand report tomorrow.

MILK:

Market fundamentals are not friendly, with traders having difficulty trying to find something to be bullish about. Milk production continues to remain strong, although it has past the spring flush peak. Sufficient milk supply is available for all classes and all production needs. Supplies of cheese and butter are readily available to the market.

Spot milk prices changed substantially from last week. Spot prices range from $7.00 under to flat class. Cheese plants have milk readily available, and any extra they need is available for purchase. Most dairy plants are running on full schedules. USDA will release the WASDE report on Thursday. It will report USDA's estimates for milk production, milk prices, and dairy product prices for this year and 2027. The report is not a market-mover but will reflect price potential as estimated by USDA.

AVERAGE CLASS III PRICES:

3 Month:	$16.40
6 Month:	$17.17
9 Month:	$17.34
12 Month:	$17.17

CHEESE:

Cheese production is strong, providing a sufficient supply for demand. This is not expected to decrease anytime soon and will keep the upside price potential limited. Demand will need to improve to keep inventory from building at the plant level. Currently, plants continue to offer supplies on the spot market.

BUTTER:

The weakness of butter over the past two days may indicate that buyers may step back for a short time and purchase at reduced prices. If manufacturers continue to offer supplies to the spot market, there is no reason to be aggressive.

OUTSIDE MARKETS SUMMARY:

July corn closed down .50 cent per bushel at $4.1900, July soybeans closed up 9.25 cents at $11.2300 and July soybean meal closed up $.80 per ton at $301.90. July Chicago wheat closed up 2.25 cents at $5.8750. August live cattle closed up $1.80 at $241.50. July crude oil is up $2.68 per barrel at $90.88. The Dow Jones Industrial Average is down 665 points at 49,919, with the NASDAQ down 509 points at 25,170.

Dairy margins improve as milk production surges

National milk production is expanding as improved profitability supports herd growth. In April, the U.S. dairy herd increased to 9.65 million cows, driving a 2.7% year-over-year increase in milk production. Most major dairy states posted higher cow numbers, though Washington was an exception as cows shifted to nearby states. Production gains in the West were led by Oregon, Idaho and California, which increased by 7.0%, 3.0% and 2.3%, respectively, compared to a year ago.

Margins have strengthened meaningfully, with Dairy Margin Coverage (DMC) income over feed costs rising to $10.54 per cwt in April, the highest level in six months and up $2.73 per cwt since the start of the year. This improvement has been driven by higher all-milk prices, supported by a rally in Class IV futures and persistently low feed costs.

Tight nonfat dry milk (NDM) supplies and strong butter demand are sustaining elevated Class IV prices and driving increased depooling activity. As NDM prices rise, the spread between Class III and Class IV milk has widened significantly, with Class IV holding a premium of more than $5 per cwt, the largest on record. This pricing advantage is incentivizing producers to depool to capture higher returns. The impact is especially evident in California, where Class IV utilization in the pool has dropped sharply from 38.1% in April 2025 to just 2.7% in April 2026.

Profitability

Dairy: Slightly profitable - Neutral 12-month outlook

Improving milk prices and relatively low feed costs, combined with added revenue from elevated beef values, support modest profitability.

Wednesday Morning Dairy Market Update - Markets Show Limited Potential

OPENING CALLS:

Class III Milk Futures:	2 to 4 Lower
Class IV Milk Futures:	4 to 8 Lower
Butter Futures:	1 to Lower

OUTSIDE MARKET OPENING CALLS:

Corn Futures:	3 to 4 Higher
Soybean Futures:	3 to 5 Higher
Soybean Meal Futures:	$1 to $2 Higher
Wheat Futures:	7 to 9 Higher

MILK:

Tuesday was a dismal day for milk futures. Class IV contracts took the brunt of the weakness due to the large decline in the spot Grade A nonfat dry milk price. Class IV futures had been carrying a substantial discount in deferred contracts in the anticipation that nonfat dry milk would not be able to hold its lofty price. It has not as high prices cure high prices. Butter and cheese seem to have found support, but the support for nonfat dry milk may be substantially lower. Trading activity will be light ahead of spot trading. Traders will wait to see the direction of spot prices before either adding or removing contracts.

CHEESE:

There is little expectation for the current supply and demand situation to change anytime soon. Increased milk supplies moving to cheese vats result in higher cheese output. Increased cheese demand keeps supply from overwhelming the market. However, this keeps cheese prices in a range. Prices are not expected to change much for a while.

BUTTER:

There are always a large number of loads to be sold showing up each day in the spot market. Buying has been impressive as the market has held the gains of recent weeks. However, the volume of butter offered for sale will limit the market's upside price potential.