Thursday Morning Dairy Market Update - Traders Show Optimism in Overnight Trade

OPENING CALLS:

Class III Milk Futures:	8 to 15 Higher
Class IV Milk Futures:	Mixed
Butter Futures:	Mixed

OUTSIDE MARKET OPENING CALLS:

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

MILK:

Class III milk futures rebounded overnight with the expectation that cheese prices will remain supported and potentially increase as buyer interest improves. If there is any impact on buying interest due to hot weather and reduced milk output, it is considered to be psychological. Even with reduced milk production, there is sufficient milk available for demand. An increase in demand would provide fundamental support and at least maintain milk futures at the current levels. There is no indication culling has been increasing. This will keep cow numbers high. Calf prices may have decreased recently as a result of lower cattle prices, but that is not expected to last long as cattle numbers are low and beef demand will improve after the seasonal decline. Significant income from calves will continue keeping farms profitable despite lower milk prices.

CHEESE:

Cheese prices have had a nice uptrend and are nearing the highs of early May. Prices may have difficulty moving above that level unless production stabilizes and demand improves. However, the weakness in the butter price may be a limiting factor. The strength or weakness of butter is generally a barometer of cheese, as it historically indicates price potential.

BUTTER:

The weakness in butter on Wednesday was a surprise, as it seemed the market was finding support. The price remains in a sideways trend with supply and demand balanced

Wednesday Closing Dairy Market Update - Choppy Futures Dominate

GENERAL OVERVIEW:

There was not much excitement generated in milk futures, with limited price fluctuation. It is as if the market is on hold for the time being. The best that can be said for milk futures is that they have not fallen back to the levels of nearly two weeks ago.

MILK:

Milk futures experienced a recent push higher but have since retraced some of the gains. The underlying cheese and dry whey prices are supportive of Class III futures. However, traders have not been very aggressive buyers of contracts. Class IV futures did not see the pressure that would have been anticipated based on the lower butter and nonfat dry milk prices today. Traders are not chasing the market one way or the other unless there is a greater indication of price direction. Milk production is declining seasonally, being impacted by rising temperatures. Milk output is not expected to fall below the levels of last year, keeping sufficient supply available for bottling and manufacturing demand.

AVERAGE CLASS III PRICES:

3 Month:	$16.76
6 Month:	$17.27
9 Month:	$17.32
12 Month:	$17.35

CHEESE:

Spot milk prices have increased from the previous week. The hot weather has had an impact on milk output, resulting in less milk moving to the spot market. Cheese plants that need to purchase extra milk are paying from $2.00 under class to as much as $5.00 over class. Some plants are not operating on full production schedules, anticipating milk receipts will improve after the hot weather subsides, as the forecast indicates.

BUTTER:

The Central region reports that the hot weather is impacting cream production more than anticipated. Most plants have reduced their production schedules, but it has not impacted the spot butter market so far. The spot price decline today was more than anticipated, indicating that sellers have butter to move and are willing to sell at lower prices. Butter supplies remain ample for demand.

OUTSIDE MARKETS SUMMARY:

December corn closed up 9.00 cents per bushel at $4.6950, November soybeans closed up 10.75 cents at $12.0175, and December soybean meal closed up $3.70 per ton at $320.00. September Chicago wheat closed up 32.50 cents at $6.7750. August live cattle closed down $1.30 at $230.13. August crude oil is up $0.92 per barrel at $80.26. The Dow Jones Industrial Average is up 150 points at 52,659, with the NASDAQ up 162 points at 26,269.

Dairy update - Strong demand offsets headwinds, but milk supplies continue to build.

Strong export demand continues to support dairy markets, but growing milk supplies are weighing on prices. USDA's May Milk Production report showed U.S. milk production increased 2.3% year over year, driven by both herd expansion and higher milk output per cow. The national dairy herd grew by approximately 10,000 head in May, while upward revisions to April data added another 10,000 cows, extending a trend of steady growth fueled in part by strong beef-on-dairy economics and historically high calf values.

Export markets remain the strongest source of demand for the dairy sector. April marked the seventh consecutive month of year-over-year export growth, with U.S. dairy exports increasing 15% on a milk-solids-equivalent basis. Through the first four months of 2026, exports were up 12% from the same period last year, representing the strongest start to a year on record. Cheese continues to lead export growth, with April volumes reaching a record high and increasing 30% year over year, while butterfat exports also posted impressive gains thanks to competitive U.S. pricing and strong shipments into Middle Eastern markets.

Milk prices are expected to remain under pressure despite strong export performance. Expanding milk production, ample product inventories, and softer domestic demand have created headwinds for prices. After an impressive rally earlier this year, nonfat dry milk and cheese prices have begun to soften as supply growth matches demand. While whey prices have remained comparatively stable due to continued consumer demand for protein products, Class III and Class IV milk futures are generally expected to remain rangebound through the remainder of 2026. Future price direction will likely depend on export demand, currency values, and broader economic conditions.

Dairy fundamentals remain generally positive, supported by healthy milk checks, robust processor demand and strong beef revenues. However, producers are increasingly balancing those positives against higher feed costs, drought-related water concerns, and expectations for tighter margins in the months ahead. As a result, operational efficiency, risk management, and financial discipline remain top priorities for dairy operations in the West.

Strong beef-on-dairy economics continue to provide an important financial cushion for many producers. Arizona dairies reported day-old calf values near $1,800 per head, helping offset milk price volatility and support profitability. Favorable milk checks during the second quarter and widespread use of Dairy Revenue Protection (DRP) programs have further strengthened margins. At the same time, extreme heat has reduced alfalfa quality and lowered winter wheat yields in parts of Arizona, while similar feed-related challenges have emerged elsewhere in the West.

Water availability is a continued risk across much of the west. Although many Arizona dairies rely primarily on groundwater and face less immediate exposure to Colorado River shortages, water uncertainty continues to shape producer decisions throughout the West. California producers are closely monitoring litigation surrounding groundwater extraction fees in the Tulare Lake Subbasin. Idaho has seen a variety of water allocations lowered following a statewide declaration of drought declared in April.

Highly Pathogenic Avian Influenza (HPAI) cases have increased alongside spring bird migrations, with Idaho accounting for most recent dairy detections in June. While current impacts on milk production remain limited and HPAI does not pose food safety concerns for dairy products, producers are closely monitoring developments. Any broader resurgence of HPAI could temporarily reduce milk output and add volatility to markets.

The outlook for the remainder of 2026 remains cautiously optimistic. Strong export demand, healthy processor demand, and favorable beef-on-dairy economics continue to support margins, but expanding milk supplies, elevated input costs, and ongoing water concerns are creating a less favorable market environment.

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.