With milk production rising in nearly all major dairy exporting regions, something’s got to give in milk markets. Looking at the top-five export markets, year-to-date output through July is up about 1%, relative to the first seven months of 2024, according to calculations by Betty Berning, market analyst with the Daily Dairy Report.
That means there’s approximately 3.7 billion pounds more milk this year than last, highlighting the huge growth occurring globally. Berning adds that the increase is enough to make 370 million pounds of additional cheese, or 150 million to 200 million pounds of additional butter, assuming 4.3% butterfat and 82% fat butter.
“While dairy demand is rising in the developing world, this increase in milk volumes is more than these markets can absorb and will continue to overwhelm the balance sheet until producers somewhere cut back on production, or prices get low enough to spur additional buying,” Berning says. “Historically, during times of surplus, milk production has not adjusted overnight or even in a month, and given that the Southern Hemisphere is headed toward peak and U.S. producers are still making money, the tidal wave will likely continue to grow through the end of 2025 before a correction occurs.”
Impressive global supplies are exacerbating price decreases as milk collections swell. In the EU-27, year-over-year milk volumes rose between April and July, and July’s 0.8% gain, pushed year-to-date totals into positive territory, according to CLAL data. In New Zealand, with three months of data reported in the 2025-26 season, milk solids were up 4.25% compared to the same three months in 2024. And this year’s output in Argentina was up nearly 11% through August compared to last year’s poor showing. Among the major milk exporters, only Australia has posted lower output.
“At some point yet this year, markets will likely have to adjust, although it seems more likely that this will happen in other parts of the world because U.S. producers have some cushion in their cash flows,” Berning says. “In Europe, producers could exit or retire due to increased regulations. Some Aussie producers have already switched to beef, and that trend will continue, while New Zealanders will likely feed less palm kernel expeller and cull earlier if profitability wanes. And U.S. producers could eventually take advantage of high cull cow prices and adjust the herd downward from its current multiyear high.”
According to the Dairy Margin Coverage program’s income-over-feed-cost calculation, margins have ranged from $13.85 to $10.40 per cwt, but these strong levels are forecast to drop to an average of $9.80 per cwt next year, based on futures prices and USDA forecasts. The cost of labor and replacements will absorb most of the income over feed costs, but the money producers are making from crossbred calves and cull cows has provided dairy producers with an estimated $4 per cwt in additional income, Berning calculates.
“That means producers could maintain the current upswing in production longer if profitability is sustained,” she says.
For U.S. producers to truly feel the pinch of lower milk prices, Berning calculates the average All-Milk price would need to drop to $16 per cwt, which would equate to Class III and IV prices between$12 and $14 per cwt. And that means, for example, that CME spot Cheddar blocks would need to drop to $1.4 per pound with whey priced at about 50¢ per pound for the Class III price to drop to $13.10 per cwt. And for Class IV to drop to $14.07 per cwt, CME spot butter would need to fall to $1.80 per pound and nonfat dry milk would need to be priced at about $1.10 per pound.
“While this may not seem plausible relative to where current futures prices are trading, fundamentals are in a state of disequilibrium, and the problem could get worse before it gets better,” Berning says.
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