Milk and dairy product futures indicate that milk prices will move much lower in coming months, but feed costs are also dropping — and that will help offset some of the decline in milk prices. However, the pain will not be felt equally, says Sarina Sharp, analyst with the Daily Dairy Report.
“USDA’s national average All-Milk price captures broad industry trends without telling the full story,” she says.
For example, in August, the All-Milk price ranged from $26 in Georgia to $19.20/cwt in New Mexico. Even within states, Sharp says, milk revenues can vary widely. While the Federal Milk Marketing Order system attempts to smooth over differences between Class III and Class IV milk prices, variances can impact dairy cooperatives and ultimately dairy producer revenue.
“This year, two major dairy cooperatives on the West Coast suffered financial losses that they had to pass on to their members, resulting in monthly milk checks far below the All-Milk price,” Sharp notes. “And other dairy cooperatives and milk processors are struggling with extremely high butterfat-to-protein ratios, and they are not paying producers for the full value of extra butterfat. The combination of these steep discounts plus a significant drop in fourth-quarter Class IV prices suggests that producers will suffer much slimmer margins — or even red ink — in coming months despite low feed costs and record-shattering beef revenue.”
Looking at feed costs, U.S. crop growers received an average of $3.96/bu. of corn, the lowest price in a year and substantially less than May’s peak of $4.64, according to the data from the Agricultural Prices reports. While benchmark soybean meal prices rebounded to $284.34/ton, Sharp notes that they were lower than in most months of 2025 as well as under the 2024 average of $354.28. The national average price for premium alfalfa in August fell to $222/ton, the lowest price since April 2021.
Using USDA’s Dairy Margin Coverage (DMC) program’s feed costs calculations, the average dairy producer spent $9.38/cwt of milk production on feed in August, down from $9.86/cwt in July. That means August feed costs were the lowest for any month since October 2020.
“These feed prices reflect the national average prices that crop farmers receive, but dairy producers buying feed often pay more than the average farm price, due to storage and merchandising expenses,” Sharp notes. “And just like milk prices, feed costs can vary widely by location. USDA’s assessment of premium hay prices, for example, ranged from $380/ton in Pennsylvania to $175/ton in Idaho. So, while national average indices do not reflect individual on-farm circumstances, they are an indication of industry trends. Today, they clearly point to waning feed costs across the nation.”
Sharp noted that these indices are important because they’re used in the DMC program’s income-over-feed index, which determines whether the 73% of dairies enrolled in the program receive indemnity payments when national average milk revenues are inadequate to cover national average feed costs, plus an assumed margin for all other dairy expenses.
“Using the DMC’s income-over-feed index, dairy producers have enjoyed an exceptionally long period of prosperity. The national All-Milk price minus feed expenses came to $12.29/cwt of milk in August, far above the $9.50/cwt margin that would trigger indemnity payments for the highest tier of DMC enrollees,” Sharp says. “Indeed, the DMC’s income-over-feed index has not dropped below $9.50/cwt since January 2024. These figures are affirmed by dairy producers’ immense appetite for expansion. While the heifer shortage prevented producers from adding cows in late-2023 and early 2024, producers are now growing the milk-cow herd at the fastest rate since 2008. But if milk prices are low enough for long enough, the dairy herd could shrink just as quickly.”
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