U.S. milk production remains abundant to start 2026, supported by a historically large dairy herd. December milk production was up 4.4% year over year, and November’s figure was revised higher. High milk supplies are translating to smaller “milk checks” and tighter profit margins.
The national cow herd reached 9.57 million head as of January 1, 2026, thanks to minimal culling over the past year. The milking herd expanded by 244,000 head over the past 18 months, the fastest growth in more than 30 years. However, milk production growth may begin to slow in the second half of 2026 as producers manage their herds. In response to lower prices, producers could more aggressively cull cows. Additionally, replacement heifer inventories have dipped by about 10,000 head, in part because many farmers are crossbreeding dairy cows with beef sires – a trend that limits purebred dairy heifer availability. With fewer replacements entering herds, producers must rely more on older cows, which could dampen productivity.
At the same time, dairy product prices are showing unexpected strength. In late January, cheddar block cheese prices jumped more than $0.25, reaching about $1.45 per pound amid robust export demand and lean domestic inventories. Notably, U.S. cheese production climbed nearly 3% in 2025 even as per-capita consumption declined, making exports essential to clearing the market. Milk powder prices are also rebounding on tighter stocks. Nonfat dry milk (NDM) rose $0.20 per pound to its highest price in over a year. Skim milk powder (SMP) values followed suit. This broad price rally, though fueled partly by a recovery from last year’s depressed levels, marks a bullish turn for dairy markets. In turn, milk prices are finding price support.
As the year progresses, strong export-driven demand and potential milk supply constraints (fewer replacements, more culling) could bring the market into better balance.
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.
