Dairy producers across the West continue to navigate tight margins as softer milk prices and elevated input costs limit profitability. While many operations remain near breakeven or slightly profitable, financial performance varies significantly by region.
In 2025, profitability varied considerably across Western dairy regions. AgWest dairy customers in Western Washington averaged a loss of approximately $0.20 per cwt, reflecting high processing assessments and production costs. In contrast, Idaho and Arizona dairy producers averaged net earnings of more than $2.00 per cwt, while California producers generated average net income exceeding $4.00 per cwt. Much of this advantage was driven by strong non-milk revenue streams, particularly cattle sales. Historically high beef and calf prices provided valuable supplemental income, helping offset weak milk margins and support overall dairy profitability.
Conditions have shifted in 2026. In Washington, producer sentiment has improved following a significant reduction in milk assessment fees at a major regional processor, with average assessments declining from roughly $4.00 per cwt to $1.75 per cwt. At the same time, an important source of supplemental revenue has begun to weaken. Beef-cross calf prices remain historically strong but have declined approximately $300 to $400 per head from peak levels, while Holstein calf prices have fallen roughly $150 per head in recent months.
Looking ahead, dairy margins are expected to remain under pressure through the remainder of 2026. As cattle markets normalize and analysts suggest the industry may be approaching the later stages of the current cattle cycle, supplemental cattle revenue is expected to decline. Feed costs have increased as drought conditions support higher hay prices in parts of the West; grain markets have strengthened amid global supply concerns and the continued Russia-Ukraine conflict; and milk prices remain subdued. The All-Milk price fell to $19.35 per cwt in August and, while modest improvement is expected, prices are projected to remain below $21 per cwt through year-end. With both milk prices and cattle-related revenue expected to soften, dairy producers are preparing for tighter margins and increased financial pressure in the months ahead.
Profitability
Dairy: Slightly profitable - Neutral 12-month outlook
Despite persistent pressure from low milk prices and elevated production costs, many dairy producers have maintained slight profitability due to strong supplemental income from cattle sales. As calf values retreat and feed costs rise, that profitability buffer is shrinking, creating a more challenging outlook.
