Global and domestic milk production remains strong entering 2026, with ample supplies continuing to weigh on market sentiment. Nearly all major dairy exporting countries are reporting growing milk supplies. U.S. milk production totaled 18.8 billion pounds in November, an increase of 4.5% year over year, supported by strong cow numbers and expanded processing capacity in several states.
Within the AgWest region, milk production increased 6.9% year over year, driven by higher yields and larger cow herds in most states. Part of this growth reflects California’s recovery from the highly pathogenic avian influenza (HPAI) outbreak that suppressed production in late 2024. While California’s production was up 10.4% year over year, this figure overstates true growth; when compared with November 2023 levels, output increased only 1.6%, indicating recovery rather than meaningful expansion. Idaho, Oregon, and Arizona posted more modest gains of 5.6%, 4.1%, and 3.2%, respectively. Washington was the exception, with production down 6.6% due primarily to a reduction in the state’s herd.
Nationally, producers are maintaining herd levels. U.S. dairy cow numbers in November were unchanged from October and remained higher than a year earlier, suggesting limited herd contraction despite declining milk prices. Futures markets reflect this pressure, with Class III milk futures now below $16 per cwt and Class IV prices in the $13–$14 per cwt range for spring, reinforcing expectations for continued margin stress in the near term.
Even with tightening margins from lower milk prices, it typically takes several consecutive months of financial pressure before meaningful reductions in milk production occur. At present, strong beef prices are helping offset weaker milk-over-feed margins for dairy producers. The most recent projections put milk margins over feed costs at $10.52 per cwt, a number last seen in May 2024. Milk margins are expected to reach lower levels in 2026, yet beef income is providing an important buffer, in some cases adding as much as $5 per cwt to producers’ bottom lines.
On the demand side, consumer behavior remains mixed, though several emerging trends are providing targeted support for dairy demand. The growing use of GLP-1 weight loss medications (now estimated to be used by more than one in eight U.S. adults) has increased consumer focus on protein intake to prevent muscle loss. This shift has benefited high protein dairy products. In addition, updated U.S. dietary guidelines, called the New Food Pyramid, place greater emphasis on whole milk and naturally sourced protein foods, including dairy. While dietary guidelines typically have limited influence on individual purchasing decisions, they do influence USDA programs including WIC, SNAP and nutritional guidance education. These federal programs will recalibrate according to these guidelines, likely increasing whole milk sales.
With global milk supplies expanding and demand remaining uneven, a sustained recovery in milk prices is unlikely before summer. In the near term, abundant production is expected to keep prices under pressure, even as protein-focused consumer segments provide pockets of support.
Profitability
Dairy: Breakeven profitability - Bearish 12-month outlook
Milk prices remain weak, and while lower feed costs and beef-dairy income offer support, margins are likely to tighten over the next year, increasing the risk of losses if prices or demand soften further.
