If you want to understand the dairy market in 2026, looking solely at local milk production will lead you astray. Today, a dairy farmer’s bottom line is being dictated by the shrinking U.S. beef herd, the sudden popularity of cottage cheese, the rise of weight-loss drugs, the “Californication” of the Chinese diet and shifting production levels in places like New Zealand and Europe.
That was the overarching message delivered by a powerhouse panel of HighGround Dairy analysts at the 2026 HighGround Dairy Conference in Chicago. Betty Berning, contributing dairy economist; Cara Murphy, senior manager of dairy market intelligence; Alyssa Badger, vice president of global operations and insights; and Stu Davison, senior manager of global market insights, took the stage to unpack a market that is increasingly complex, highly interconnected and driven by unprecedented external forces.
For producers trying to navigate the next 18 months, the consensus was clear: the historical models are broken, and survival requires looking far beyond the milking parlor.
The Protein Boom: Why Skim Solids Went to the Moon
For the first half of 2026, the big story in U.S. dairy commodities was the massive run-up in nonfat dry milk (NFDM) prices, which peaked at a staggering $2.29 per pound in May before aggressively selling off. But according to Berning, this spike was not driven by traditional powder demand. It was driven by an insatiable global and domestic appetite for protein.
“Demand for protein in other formats is the culprit behind the big run-up,” Berning explains.
Consumers are aggressively shifting toward high-protein dairy products. Yogurt production hit an all-time high in 2025, and year-to-date data shows the peak hasn’t even been reached yet. Furthermore, cottage cheese — long viewed as a stagnant product for an aging demographic — is experiencing a massive renaissance, hitting production levels not seen since the 1980s.
This is compounded by the explosive growth of ultra-filtered milk.
“Ultra-filtered milk makes up 3.1% of the fluid milk category in the U.S. and volumes grew 7.4% year-over-year,” Berning notes.
Because these products require significantly more milk to hit their high protein claims (often 13 to 14 grams per serving), they are pulling a massive amount of skim solids away from dryers.
Berning estimates ultra-filtered milk alone is now consuming roughly 1% of all U.S. skim solids — a category that barely existed a few years ago.
Much of this protein craze is linked to the rise of GLP-1 weight-loss drugs, which are forcing consumers to prioritize muscle retention and high-quality proteins. While powder prices have recently cooled as processors ramped up production to chase the high margins, Berning warns the underlying demand for protein isolates and whey protein concentrates (WPC-80) will remain highly elevated.
Class Prices: A Tale of Two Markets
How does this translate to the milk check? Murphy broke down the math, painting a bifurcated picture between Class III and Class IV prices.
On the Class III side, the U.S. is drowning in cheese. Production reached an all-time high in April, bolstered by new capacity coming online in the West and Central regions. While exports to Mexico, Japan and South Korea are at record highs, Murphy emphasizes the U.S. cheese market is 89% reliant on domestic consumption.
“Americans love their cheese, but we’ve seen a decline coming into March and April,” Murphy notes. “Our major pizza chains are reporting sluggish sales, as well as quick service, and they tend to use a lot of cheese.”
This massive supply and sluggish food service demand has suppressed the Class III milk price, holding it in the historically painful $16 to $17 per hundredweight range.
Class IV, however, has been the lifeline. Buoyed by those record-high non-fat dry milk prices and robust butter production, Class IV prices surged. Even as powder prices soften, Class IV is expected to hover in the upper $18 range.
The Beef-on-Dairy Lifeline
With Class III prices suppressed and feed costs always a concern, how are U.S. dairy farmers maintaining profitability? The answer isn’t in the bulk tank — it’s in the calf hutch.
“Beef prices matter,” Murphy stresses. “It is not enough just to know the dairy markets. Now you have to pay attention to the beef price.”
The U.S. beef cow herd currently sits at its lowest level since 1961. This historic shortage has driven feeder cattle prices into the stratosphere, making the beef-on-dairy crossbred calf a massive and necessary revenue stream for dairies.
When HighGround mapped estimated dairy margins for 2026, the data revealed a stark reality: Without the revenue from beef calves, average U.S. dairy margin would be negative.
“No beef equals no margin,” Murphy states flatly.
Because beef is so critical, the dairy industry must now actively monitor threats to the beef supply chain, including drought in the Plains and the alarming re-emergence of the New World screwworm.
The Global Stage: China’s “Californication” and Rising Milk Volumes
While domestic producers manage crossbred calves and cheese stocks, global dairy trade is undergoing a seismic structural shift.
Badger says to forget the old narrative of China as a dumping ground for bulk commodity powders. Today, the Chinese consumer is rapidly evolving, driven by government pushes for high-quality protein and a burgeoning sports and fitness ecosystem.
“The Economist recently published an article breaking down the ‘Californication’ of the Chinese diet,” Badger explains. “If you look at the scale in which this has shifted, cheese is the most impressive. We’re up 21% by volume over the past 12 months.”
China is actively pivoting away from bulk whole milk powders toward value-added products: cheese, whey proteins and specialized nutrition. Astonishingly, they are achieving this while their domestic milk production is actually falling. By selectively allocating their limited milk solids and heavily investing in processing infrastructure, they are producing massive amounts of their own skim milk powder and specialized dairy products.
And they aren’t the only ones shaking up the global market. Davison points out global milk production has been surprisingly robust, led by the European Union and New Zealand.
“The talk five years ago was that New Zealand would no longer grow milk production. That’s been well and truly put to bed with this season,” Davison says, noting the country produced over 2 billion kilos of milk solids this year.
Driven by strong milk prices and reduced debt, New Zealand farmers are investing heavily in technology like fenceless collars and improved reproduction metrics, signaling sustained future production. This surge in volume means more product is entering the global market. While China remains New Zealand’s top customer, New Zealand processors are shifting away from whole milk powders toward higher-value items like UHT cream, cheese, butter and milk protein concentrates — directly competing with U.S. exports.
Similarly, Europe has seen impressive production growth, particularly in Germany and France. This influx of European milk is translating into increased butter exports and a looming stockpile of skim milk powder waiting to enter the global market, which will inevitably place downward pressure on prices. Even Australia, though dealing with flatter production overall, has seen an increase in U.S. cheese and butter imports as American products capitalize on price advantages.
Geopolitics and The Godzilla El Niño
The HighGround panel concluded by highlighting the macroeconomic risks threatening the global food supply. While recent ceasefires in the Middle East have somewhat stabilized energy routes, the dairy trade map has already been rewritten, with countries like India stepping in to bypass traditional transit hubs.
More concerning is the looming threat of weather. Meteorologists are tracking what is being dubbed a “Godzilla Super El Niño,” drawing comparisons to the devastating 2015-2016 event that triggered historic droughts in Africa and Asia, spiking the cost of palm oil, coffee and cocoa.
While the direct correlation to global milk production is complex, the threat to global feed and grain production is severe.
“There is no doubt that food systems will be under pressure,” Badger cautions.
If Asian and African governments are forced to spend billions subsidizing basic food and energy costs for their citizens, purchasing power for imported dairy products will rapidly deteriorate.
A New Era of Dairy Management
As the HighGround Dairy panel made abundantly clear, the days of looking exclusively at local milk basis and feed costs are over.
To run a profitable dairy in 2026, a producer must be a student of global macroeconomics. They must understand how a GLP-1 prescription in New York impacts whey isolates, how a shrinking beef herd in Texas changes their culling strategy, how fitness trends in Beijing alter the export viability of their cheese and how a flush of milk in New Zealand impacts their global competitiveness.
The market has never been more complex, but as the data shows, those who understand these interconnected global levers are the ones finding the margins to thrive.
