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.

Wednesday Morning Dairy Market Update - Markets Show Limited Potential

OPENING CALLS:

Class III Milk Futures:	2 to 4 Lower
Class IV Milk Futures:	4 to 8 Lower
Butter Futures:	1 to Lower

OUTSIDE MARKET OPENING CALLS:

Corn Futures:	3 to 4 Higher
Soybean Futures:	3 to 5 Higher
Soybean Meal Futures:	$1 to $2 Higher
Wheat Futures:	7 to 9 Higher

MILK:

Tuesday was a dismal day for milk futures. Class IV contracts took the brunt of the weakness due to the large decline in the spot Grade A nonfat dry milk price. Class IV futures had been carrying a substantial discount in deferred contracts in the anticipation that nonfat dry milk would not be able to hold its lofty price. It has not as high prices cure high prices. Butter and cheese seem to have found support, but the support for nonfat dry milk may be substantially lower. Trading activity will be light ahead of spot trading. Traders will wait to see the direction of spot prices before either adding or removing contracts.

CHEESE:

There is little expectation for the current supply and demand situation to change anytime soon. Increased milk supplies moving to cheese vats result in higher cheese output. Increased cheese demand keeps supply from overwhelming the market. However, this keeps cheese prices in a range. Prices are not expected to change much for a while.

BUTTER:

There are always a large number of loads to be sold showing up each day in the spot market. Buying has been impressive as the market has held the gains of recent weeks. However, the volume of butter offered for sale will limit the market's upside price potential.

Tuesday Closing Dairy Market Update - Nonfat Dry Milk Pressures Class IV Contracts

GENERAL OVERVIEW:

It was a rough day for Class IV futures, with contracts declining substantially. The large decline in nonfat milk triggered liquidation in a thinly traded market. The decline in nonfat dry milk was the second-largest decline since the market peak.

MILK:

Sometimes, there have been glimmers of hope that maybe the market has found support in seasonality and demand. Those hopes have been temporary, with the aftermath being more bearish than previously. Two weeks ago, Class IV futures rebounded, looking as if support may have been found. That was eliminated over the past week, with prices plummeting today. The decline in spot Grade A nonfat dry milk was the second-largest one-day decline since the market peaked on May 7. The price has declined 39.75 cents since the record high that day. We are again seeing that the market always falls faster than it increases. The price increased until there was demand destruction, resulting in buyers stepping back. The same holds in all markets as high prices cure high prices. The unusual is taking place in the milk market, as low milk prices are not reducing milk production as is usually the case. Milk production is increasing as cow numbers grow. Revenue other than for milk is fueling the increase in milk output and further expansions.

AVERAGE CLASS III PRICES:

3 Month:	$16.66
6 Month:	$17.38
9 Month:	$17.49
12 Month:	$17.49

CHEESE:

Demand is improving and so is supply. It is keeping pace with one another, keeping spot cheese prices in a range. Spot cheese prices remained unchanged, but there were 12 uncovered offers remaining for blocks at the close of trading. Manufacturers want to limit the build-up of inventory and will continue to offer cheese to the market.

BUTTER:

The uptrend in the butter price has stalled and has been moving sideways. This could lead to buyers stepping back as they see sufficient butter supplies. Consistent butter production due to churns operating seven days a week will keep butter readily available to the market.

OUTSIDE MARKETS SUMMARY:

July corn closed up .75 cent per bushel at $4.1950, July soybeans closed down 2.00 cents at $11.1375, and July soybean meal closed down $1.60 per ton at $301.10. July Chicago wheat closed up 2.00 cents at $5.8525. August live cattle closed up $2.98 at $239.70. July crude oil is down $3.10 per barrel at $88.20. The Dow Jones Industrial Average is up 86 points at 50,872, with the NASDAQ down 251 points at 25,679.