Thursday Closing Dairy Market Update - Milk Futures Show Limited Volatility

GENERAL OVERVIEW:

Class III futures closed lower while Class IV contracts were mixed. Traders again found little to set market direction other than limited upside potential. Blocks continue to show weakness.

MILK:

Most have resigned to the fact that milk prices will remain low for an extended period of time. Farmers continue to push milk production to compensate for lower prices. Cash flow has tightened significantly, but the desire to keep barns full remains. Prices move in cycles, and the idea is that this cycle may run its course as well. However, the fundamentals that have put the market in the current situation are different than any other time. This may extend the period of low milk prices. Culling is expected to increase, but it may take some time to reduce the herd to a point where milk supply will tighten. The best would be to increase demand, but that may be difficult during the first half of the year when demand is usually slower. Winter weather is having an impact in some areas, reducing milk output and causing transportation issues. However, those are disruptions and do not have a long-term impact.

AVERAGE CLASS III PRICES:

3 Month:	$15.56
6 Month:	$15.88
9 Month:	$16.28
12 Month:	$16.58

CHEESE:

There has not been a monthly cold storage report released since the government shutdown. The report will be released on Dec. 23, and hopefully, it may show less inventory than anticipated, which could generate some excitement in the market. However, strong cheese production may have limited the decline of inventory and may provide a reason as to why cheese prices are this low.

BUTTER:

Traders are not getting overly excited about the butter price holding and slowly increasing. The increased butterfat content in milk, strong milk production, and plentiful cream supplies will limit the upside price potential of butter for some time. The best we may hope for is that the market may have established a bottom.

OUTSIDE MARKETS SUMMARY:

March corn closed up 2.25 cents per bushel at $4.4650, January soybeans closed up 2.25 cents at $10.9350 and January soybean meal closed up $.90 per ton at $302.10. March Chicago wheat closed up 4.00 cents at $5.3350. February live cattle closed up $2.43 at $230.95. January crude oil is down $0.57 per barrel at $57.89. The Dow Jones Industrial Average is up 646 points at 48,704, with the NASDAQ down 60 points at 23,594.

First dip in milking herd in 2025

USDA’s October milk production report revealed the first monthly decline in the U.S. dairy cow inventory for 2025. The national herd contracted by 6,000 head from September to October, bringing the total to 9.58 million cows. Despite this dip, the herd remains over 200,000 head larger than a year ago, reflecting earlier expansion trends. This reduction aligns with historically tight replacement heifer inventories, which have fallen to a record low of 2.922 million head, with a heifer-to-cow ratio of 41.9, the lowest since 1991.

Class IV milk prices have dropped sharply throughout 2025, falling over $6 per cwt to $14.30 in October, down from earlier highs. Class III prices have also softened, averaging $16.91 per cwt in October, though their decline has been less severe. These price drops have pressured producer margins and future stability could be threatened by herd expansion or weakening consumer demand.

Despite the smaller herd, October milk production rose 3.7% year over year to 19.5 billion pounds, driven by a 1.5% increase in productivity per cow and higher milk component levels. California, Idaho, and Kansas led production gains, while Washington and New Mexico saw declines.

Butter production surged over the summer, with August output up 8% year over year, supported by new processing capacity in the Pacific Northwest and California. This expansion has weighed on prices, with butter prices below $2 per pound for the first time since early 2024. Competitive pricing and abundant supply have positioned the U.S. as a leading butter exporter. Butter exports are up more than 130% over the past 12 months, reaching 10-year export highs. This is largely attributed to butter prices being more than $0.75 and $1.00 lower than New Zealand and European exports, respectively.

Cheese production has grown more modestly, with August output up less than 1% year over year. However, prices have softened significantly. Spot prices for cheese barrels dropped $0.31 from late October to late November, averaging $1.49 per pound in the last week of November. Cheese block and barrel prices have declined 20–30% from last year, fueling record export demand. Year-to-date cheese exports are up 14.1% and are set to surpass the record 1.12 billion exported pounds in 2024.

While producer margins have been supported by lower feed costs and supplemental income from beef-on-dairy sales, risks remain. Cooperative assessments in states like Washington and California are adding financial strain. If milk prices continue to weaken or consumer demand softens, profitability could erode further. Strong holiday demand for butter and cheese may provide short-term price support, but structural oversupply in butterfat markets suggests continued volatility heading into early 2026.

Profitability

Dairy: Breakeven profitability - Bearish 12-month outlook

Milk prices remain weak, and while lower feed costs and beef-dairy income offer support, margins are likely to tighten over the next year, increasing the risk of losses if prices or demand soften further.

Thursday Midday Dairy Market Summary - Block Cheese Declines

OUTSIDE MARKETS SUMMARY:

CORN:	2 Higher
SOYBEANS:	2 Higher
SOYBEAN MEAL:	$2.00 Higher
LIVE CATTLE:	$3.80 Higher
DOW JONES:	619 Points Higher
NASDAQ:	102 Points Lower
CRUDE OIL:	$1.04 Lower

MIDDAY MARKET UPDATE:

The block cheese price moved to a new low for the year, with the 0.25-cent decline in the price closing at $1.3450 with one load traded. The barrel cheese price remained unchanged at $1.4125 with no loads traded. The dry whey price remained unchanged at 76.00 cents with no loads traded. Unfortunately, Class III futures are unchanged to 14 cents lower. The butter price increased 0.25 cent to close at $1.48 with no loads traded. Grade A nonfat dry milk decreased 0.50 cent, closing at $1.1650 with no loads traded. Nonfat dry milk continues to trade within a tight range. Class IV futures are 2 cents higher with only the March and June contracts traded. Butter futures are 0.50 cent lower to 0.50 cent higher. Dry whey futures are unchanged to 0.75 cent lower. Cheese futures are 1.00 cents lower to 0.20 cent higher.