Thursday Morning Dairy Market Update - Traders Search for Market Support

OPENING CALLS:

Class III Milk Futures:	Mixed
Class IV Milk Futures:	4 to 8 higher
Butter Futures:	Mixed

OUTSIDE MARKET OPENING CALLS:

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

MILK:

The significant increase in the Grade A nonfat dry milk price on Wednesday resulted in Class IV futures being settled higher. However, trading activity was very light, with only two contract months traded throughout the day. Traders held to their bids and offers, unwilling to move them. Higher prices have been met with increased selling, with upside potential limited. The World Agricultural Supply and Demand report released on Wednesday does not provide much hope for higher milk prices the rest of this year and next year if the USDA's estimates come to fruition.

CHEESE:

Cheese prices have remained stable for two consecutive trading sessions. Buyers have been absent the past two days, giving the market a bearish tone. Supply and demand seem to be balanced at current prices. No significant price moves are expected today.

BUTTER:

The butter price remains in an overall downtrend. There is a substantial amount of butter available, with buyers remaining unaggressive. Demand is being met with supplies purchased for later demand without having to chase the market higher.

Wednesday Closing Dairy Market Update - Milk Futures Reflect the Lack of Direction

GENERAL OVERVIEW:

There was more positive excitement in Class IV futures due to the increase in the nonfat dry milk price. Class III futures remained mixed, with underlying cash providing no direction. Then USDA lowered its expectation for milk prices in 2027 by 100 million pounds.

MILK:

Spot cheese and dry whey prices provided no direction for Class III futures as steady prices generated little trading volatility and light trading volume. Class IV futures showed strength due to the strong gain in Grade A nonfat dry milk. Class IV futures are above $18.00 in September through December contracts and higher than Class III futures throughout 2027. Prices can change significantly as the market will respond to supply and demand. Supply and demand seem to be balanced at lower prices for the time being. USDA released the World Agricultural Supply and Demand Estimates report today. It was supportive of the grain market with substantial gains. The estimate for milk production this year remained unchanged at 236.6 billion pounds. Milk production for 2027 was lowered by 100 million pounds to an estimated output of 238.0 billion pounds. The decrease in the estimate for milk output in 2027 was minor after the substantial increases in the June and July reports. The Class III average milk price this year was raised $0.10 to $16.25 per cwt and raised $0.20 for 2027 to $17.25 per cwt. The Class IV average price was lowered $0.25 to $18.15 per cwt. The price for 2027 is estimated at $17.20, down $0.20 from the July estimate. The All-milk price was lowered $0.15 this year to average $19.85 per cwt, with the 2027 average price lowered $0.05 to $19.80 per cwt.

AVERAGE CLASS III PRICES:

3 Month:	$17.17
6 Month:	$17.32
9 Month:	$17.36
12 Month:	$17.45

CHEESE:

The average cheese price for this year was raised to $1.5750 per pound, up 0.50 cent from the July estimate, according to the World Agricultural Supply and Demand Estimates report. USDA left the price unchanged for 2027 at $1.6650 per pound. The dry whey price was raised 1.00 cent this year to 67.00 cents per pound. The price for 2027 was raised 3.00 cents to an average of 68.00 cents per pound.

BUTTER:

The average butter price for this year was reduced by 4.50 cents to $1.6450 per pound and reduced by 4.50 cents in 2027 to $1.7050 per pound. The nonfat dry milk price was reduced by 1.00 cent to $1.6050 per pound. The average price estimate for 2027 remained unchanged at $1.4700 per pound.

OUTSIDE MARKETS SUMMARY:

December corn closed up 20.25 cents per bushel at $4.8075, November soybeans closed up 14.50 cents at $11.8325, and December soybean meal closed up $4.20 per ton at $315.10. September Chicago wheat closed up 22.50 cents at $6.5275. October live cattle closed down $2.53 at $223.80. September crude oil is down $0.60 per barrel at $82.60. The Dow Jones Industrial Average is down 22 points at 53,770, with the NASDAQ up 143 points at 26,588.

Dairy growth continues, but markets show signs of softening

The U.S. dairy sector continues to expand as producers add cows and increase milk production. Recent USDA cattle inventory and milk production underscore this trend. As of July 1, the U.S. dairy herd totaled 9.65 million head, up 2.1% from a year ago and nearing 30-year highs. The number of replacement heifers also increased to 3.6 million head, compared to 3.5 million head last year, indicating continued herd expansion ahead.

Across AgWest states, Arizona, Idaho, California, and Oregon all posted year-over-year growth in dairy cow numbers. Washington's dairy herd appears to be stabilizing, with losses limited to 2,000 head compared to a year ago. The state has reduced its dairy herd by approximately 20,000 head over the past 18 months.

Milk production growth is being driven by both larger herds and improvements in productivity. In the major dairy-producing states, June milk production reached 18.9 billion pounds, up 2.4% from last year, while milk production per cow increased by 7 pounds year over year. California was a notable exception, as June's extreme heat limited productivity gains and kept milk yields relatively flat compared to last year. Continued growth in milk supplies could pressure milk prices if production outpaces demand growth or if new processing capacity comes online more slowly than expected.

Despite a seasonal rebound in milk prices during the spring, dairy producers face increasing margin pressure as milk supplies continue to grow. The year began with an All-Milk price of $17.50 per cwt, resulting in Dairy Margin Coverage (DMC) payments for the first three months of 2026. Prices strengthened through May, peaking at $21.30 per cwt, before beginning to soften in June. July prices may again be low enough to trigger a DMC payment, signaling renewed pressure on producer profitability. Further price declines are expected during the second half of the year, which could continue to erode dairy margins.

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.