Wednesday Closing Dairy Market Update - Milk Futures Showed Volatility Without Much Change at Close

GENERAL OVERVIEW:

Milk futures held well despite further weakness in the spot butter and cheese prices. The bounce of the spot block cheese and butter prices might have provided hope that a bottom has been found. Milk production is seasonally strong in much of the country.

MILK:

Milk output is increasing seasonally in much of the country. The increase is moving more milk to manufacturing. Whether this will increase supplies significantly will be up to demand. The pressure on spot prices may indicate that inventory is building, and sellers want to move supplies. Even though increased milk production might limit the upside potential for milk prices, it is not expected to slow milk production. Bottling is slowing somewhat as the next few weeks will show spring break at many educational institutions. This may move more milk into the spot market at a discount to class. Both Class III and Class IV futures were mixed despite the further weakness in the spot butter and cheese prices.

AVERAGE CLASS III PRICES:

3 Month:	$16.49
6 Month:	$17.14
9 Month:	$17.54
12 Month:	$17.53

CHEESE:

Demand for cheese has improved. Cheese plants are operating on full schedules, utilizing the increased milk supply. Most plants are running on full schedules. Spot milk prices range from $5.00 under to flat class. Spot milk prices are expected to decrease further over the next few weeks as schools close for spring break.

BUTTER:

Butter production is strong with churns running seven days a week. The abundant cream supply is sufficient to supply demand from Class II products. Retail demand is improving due to lower prices. International demand remains very strong. However, it has not been able to support the market sufficiently to maintain the uptrend.

OUTSIDE MARKETS SUMMARY:

May corn closed up 8.00 cents per bushel at $4.6025, May soybeans closed up 12.25 cents at $12.1400 and May soybean meal closed up $.90 per ton at $315.40. May Chicago wheat closed up 3.75 cents at $5.9475. April live cattle closed down $2.23 at $230.15. April crude oil is up $3.80 per barrel at $87.25. The Dow Jones Industrial Average is down 289 points at 47,417, with the NASDAQ up 19 points at 22,716.

U.S. dairy herd growth is slowing, even as milk production remains strong

The U.S. dairy herd has grown to its largest size since the 1990s, adding approximately 258,000 cows since the current expansion began nearly two years ago. However, the pace of herd growth has slowed over the past four months, signaling that expansion is beginning to level off. As a result, production growth is expected to normalize in 2026.

U.S. milk production remains high, increasing 2.6% in 2025. January milk production is up 3.4% from a year earlier, supported by both higher per cow productivity, up 24 pounds from January 2025, and an additional 200,000 head compared to the previous year. The Western U.S. posted modest gains, though performance differed by state. Among AgWest states, Arizona, California, Idaho, and Oregon reported year-over-year production increases of 0.5%, 4.7%, 3.2% and 4.9%, respectively. Washington remained an outlier, with milk production declining 6.1%. This was largely driven by a 17,000 head herd reduction as producers responded to narrowing margins and rising costs.

Dairy cow slaughter rates remain near the five-year average, supported by strong beef demand. Elevated beef prices continue to bolster dairy economics, with day-old dairy beef cross calves averaging more than $1,500 per head, helping to offset higher production costs and marginal milk prices.

Exports, government purchases and cold storage support milk prices.

Milk prices are near breakeven levels, generally constrained by strong milk supplies. However, milk prices have some upside potential in the current environment, supported by robust export demand, increased USDA purchases and tightening cold storage supplies.

Overall, dairy markets are showing renewed strength and optimism heading into the spring.

U.S. dairy exports rose 4% in 2025, led by significant gains in butter and cheese. Butter exports surged 162% year over year, reaching record volumes in November and December, with strong shipments continuing into early 2026. Cheese exports also posted solid growth, increasing 20% over the same period.

Additional support came from USDA’s announcement of $148 million in Section 32 dairy product purchases. These purchases are expected to increase total U.S. dairy utilization by just over 1% and include $75 million for butter, $32.5 million for cheddar and related cheeses, and smaller allocations for Swiss cheese, fresh fluid milk, and ultrahigh temperature milk.

Cold storage data highlights the tightness in butter supplies. From December to January, butter inventories increased by just 28 million pounds, well below the typical seasonal buildup of about 40 million pounds. Even after the post-holiday period, butter stocks remained historically low through February, helping push butter futures above $2.00 per pound.

U.S. butter is currently the lowest priced among major global exporters, enhancing export competitiveness and suggesting additional upside potential. These dynamics have translated into a strong rally in Class IV markets, with February futures gaining $4 to $5 per cwt and pushing future prices above $19 per cwt. Tight supplies, strong exports, and competitive U.S. pricing continue to provide bullish support for Class IV markets.

Cheese markets, while supported by broader dairy strength, present a more balanced outlook. Spot cheese prices above $1.80 per pound could begin to pressure U.S. export competitiveness, particularly as European Union cheese exports expanded by 20% in 2025. Still, rising butter and nonfat dry milk prices may continue to lend indirect support to cheese values. Futures markets reflect cautious optimism, with spring Class III contracts trading near or above $17 per cwt and much of the forward curve holding in the $18 range.

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.

Wednesday Midday Dairy Market Summary - Butter and Cheese Prices Drop

OUTSIDE MARKETS SUMMARY:

CORN:	7 Higher
SOYBEANS:	14 Higher
SOYBEAN MEAL:	$0.30 Higher
LIVE CATTLE:	$2.12 Lower
DOW JONES:	292 Points Lower
NASDAQ:	16 Points Higher
CRUDE OIL:	$3.28 Higher

MIDDAY MARKET UPDATE:

Class III futures are holding well despite further weakness in both the block and barrel cheese prices. The block cheese price decreased by 4.00 cents, closing at $1.51 with three loads traded. The price initially decreased by 4.25 cents before buying interest moved it off the low. The barrel cheese price decreased by 5.75, closing at $1.5125 with no loads traded. The dry whey price remained unchanged at 64.00 cents with one load traded. Class III futures are 15 cents lower to 1 cent higher. The butter price decreased 4.25 cents, closing at $1.8525 with 40 loads traded. The price initially dropped to $1.82 before buying interest brought the price off its low. There were 26 unfilled bids and two uncovered offers remaining at the close. As we have seen over the past few days, the volume of unfilled bids does not mean the market will find support. There have been 68 loads traded so far this week. Grada A nonfat dry milk increased 1.50 cents to close at $1.7225 with no loads traded. This is a new high and the highest price since July 12, 2022. Class IV futures are 15 cents lower to 22 cents higher. Butter futures are 4.25 cents lower to 2.32 cents higher. Dry whey futures are 0.27 cent lower to 0.25 cent higher. Cheese futures are 0.90 cent lower to 0.10 cent higher.