A “wall of milk” is building across global dairy markets, and the surge in production is already showing up in price signals for U.S. farmers, says Lucas Fuess, senior dairy analyst for RaboResearch Food & Agribusiness, based in Chicago.
“It is exceptionally rare to see the growth numbers that we are experiencing right now,” Fuess says, pointing to months of near 4% year-over-year U.S. milk production growth and expectations for above-average strength into 2026. “U.S. farmers are doing everything possible to maximize that output right now, but we’re tipping the scales a little bit into an oversupplied situation, and that weighs on prices.”
We’ve Tipped the Scale Into An Oversupply Situation Now
That unprecedented growth has led to a serious pressure on prices. Fuess says the price board makes the argument plain.
“If you look at a year ago, milk prices are $22 to $23, and right now the Class IV futures curve is in the $13 range,” he says. “That is well below cost of production. It is a clear market signal that we have enough milk right now in the U.S.”
How did we get here? He says last year’s profitability helped set the stage for the current supply burden.
“A year ago, profitability is really good for farmers,” Fuess says. “There is a market signal that says, ‘Make more milk. We need this product, and you’re profitable.’”
But the normal dairy lag is catching up, and dairy producers saw the signals last year to produce more milk.
“We can’t just shut off the cows overnight,” he says. “Now that we have these cows in milk, we deal with the supply through the next several months until we can readjust the overall situation.”
It’s Not Just The U.S.
Fuess says the bigger problem is the same output response is happening across the world’s key exporting regions — tightening the competitive squeeze.
“It’s not just the U.S. It’s essentially any of our key exporting areas around the world right now,” he says. “If you look at the European Union, there is massive milk production growth. Into South America, some countries are close to 10% growth versus the prior year. Even New Zealand could have a record milk production season.”
“When you consider this all in sum, there is really no part of the world that is slowing down on milk right now, and that exacerbates the situation,” he adds.
The growth in the EU has been even bigger than what most were forecasting. Analysts say the expectation was production in Europe would grow, but not this much.
What’s behind the global growth? It’s a similar incentive structure: strong prices.
“It is very much milk-price driven,” Fuess says. “When the market signals that, farmers respond with additional milk supply.”
Cow Numbers Hit 30-Year Highs
It’s not just that producers are seeing more milk per cow. Fuess says another layer to the supply story is the expansion in the U.S. milking herd — bigger-than-normal swings.
“Historically, there is probably around a 150,000-cow swing that we are used to between highs and lows,” he says. “But between summer of 2024 and into fall of this year, cow numbers grow by more than 200,000 head. That is massive compared to what we are typically used to.”
He says the herd is now the largest since the 1990s, which is roughly 30-year highs. And the growth in cow numbers can also be attributed to profitability last year, plus beef-on-dairy economics that are incentivizing that growth.
“It reflects profits coming from that milk check, but also the beef-on-dairy trend,” Fuess says. “Farmers want to keep those adult cows in milk to capitalize on the value and revenue they get from cows right now.”
Tale of Two Demand Stories
Fuess says demand depends on where the product is headed.
“If you look at domestic U.S. demand — product we consume in country — we are maybe a little bit oversupplied right now,” he says. “That’s where we get some of these weaker price signals.”
He points to the product categories feeling the pressure.
“Products like cheese or butter are at multi-year lows on their prices,” Fuess says.
Still, he sees a major outlet continuing to do heavy lifting: exports.
“The good news is we could see a record export year for dairy products leaving the U.S. in 2025,” he says, following what he calls a “really good” 2024. “It’s another testament to how powerful exports are in removing excess product and capitalizing on growing global demand for dairy.”
Dairy Remains Largely Untouched By Tariffs
Even with trade tension in the news, Fuess says dairy exports have seen limited disruption, especially with the U.S.’s two biggest North American buyers.
“With all of the trade and tariff discussions, dairy has very minimal impact,” Fuess says. “Part of that is the USMCA agreement that allows products to continue to flow openly into Mexico and with some restrictions into Canada.”
He says there is a brief hiccup earlier this year for whey shipments tied to the U.S.-China tariff escalation, but he describes it as temporary.
“Overall, it is a very strong and solid year for our exports,” Fuess says. “That’s really good to talk about regardless of the back-and-forth in the headlines.”
Pressure Expected to Continue Into Early 2026, But Is a Mid-Year Recovery Possible?
Fuess says the start of 2026 could remain difficult as demand seasonally cools and milk production builds toward spring flush.
“Into the first quarter of 2026, demand is falling a little bit after the holidays,” he says. “At the same time, milk production is growing toward seasonal highs — toward that spring flush. I’m not optimistic for milk price growth in the near-term months of 2026.”
But he expects some tightening later in the year as producers respond to economics.
“Into the middle of next year, I do think herd size starts declining as farmers take a look at how many cows they need,” Fuess says. “We expect a little bit of upside moving throughout the year. Milk prices are certainly not good right now, but I think it is short-lived before we see some recovery into 2026.”
