Thursday Morning Dairy Market Update - Weakness Dominates the Market

OPENING CALLS:

Class III Milk Futures:	Mixed
Class IV Milk Futures:	4 to 10 Lower
Butter Futures:	1 to 2 Lower

OUTSIDE MARKET OPENING CALLS:

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

MILK:

Class III milk futures broke lower on Wednesday with the Une contract closing at $16.00. Overnight trade has the June contract trading at $15.93 as a low. As time moves forward, futures contracts continue to roll down, eliminating the premiums they have carried. The underlying cash prices have had limited upside potential, with price bounces being met with yet lower prices. USDA will release its estimates for milk production, milk prices, and dairy product prices for this year and 2027 on the World Agricultural Supply and Demand report. The report is not a market-mover but will reflect price potential as estimated by USDA.

CHEESE:

There is little expectation for cheese prices to see sustained strength anytime soon. Buyers see no need to be aggressive as supplies are sufficient for demand. They see no reason to build inventory at this time.

BUTTER:

There is concern that the butter price may experience greater weakness as sellers continue to offer substantial volumes to the spot market. There is little reason for buyers to be aggressive. There are sufficient supplies to meet demand with increased production keeping up with demand.

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.