As dairy markets appear to be in a free fall with no bottom in sight, we compare numbers from Friday’s WASDE report to see if there are encouraging signs for the future.
Last week, the USDA released the September WASDE report with a few hidden gems that show promise for 2026. While 2025 prices are struggling to find support, a new trend is starting to appear to give some hope for rising use in U.S. Dairy products.
To recap what the market is facing currently: Production numbers are high, and this month’s report did not help that projection, increasing production 800 million pounds from last month’s report. That trend is projected to continue as temperatures are starting to fall across the country, outside of the last few days. Lower temperatures help increase cow comfort and therefore produce a greater volume of milk.
USDA also increased production from 2025 to 2026, which is following the trend seen on the last few quarterly milk production reports due to not only an increase in milk production per cow but also a slowly growing herd size. The increasing herd size is interesting, indicating that as commercial beef herds are decreasing and cattle prices are at an all-time high, the dairy industry can continue to grow in that environment.
From a financial perspective, dairy on beef bulls makes more sense in the short term, as the value of that calf currently outweighs the risk of uncertainty with milk prices and bringing a heifer to milk production stage. On a long-term decision, 2026 is showing an increase in demand that may be timed just right as heifers are brought to production.
Exports seem to be the beacon of hope for fat-basis and skim-solid basis products. While fat-basis products are currently experiencing lower domestic demand, exports increased from the August report by 1 billion pounds, projected at 15.6 billion pounds. For 2026, USDA is currently estimating 13.9 billion pounds of exports, up 1.1 billion pounds from last month’s report. While lower than 2025, it is still 2.1billion to 3.4 billion pounds higher than 2023 or 2024.
For skim-solid basis products, exports are at 48 billion pounds for 2025, 300 million pounds higher than August projections. While this is still lower than 2023 or 2024, it is projected to increase into 2026, matching the values seen last year.
Skim-solid basis products have another story developing, as domestic use is increasing as well. 2025 is projected to reach 187.3 billion pounds of usage, up 1.5 billion pounds from last month’s report. There is also a 1.3-billion-pound increase in 2026 domestic usage from August, now reported at 188.9 billion pounds, which is over 5.7 billion pounds higher than 2024.
From these numbers, there is some optimism for 2026. While production is increasing, demand is slowly growing as well, projected to rise higher than the increase in supply. So, while 2025 demand is slow to react to the increase in supply, hope is on the horizon if USDA projections are correct.
As for the current market, the holiday season is coming, and the current price trend is counter-seasonal but warranted due to the increase in production. So, watch closely for a shift in buyer interest for holiday products.
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