The USDA’s Dairy Market News report for the week of August 11-15th, showed a decline in supply for milk, Nonfat dry milk (NDM), dry buttermilk, dry whey, lactose, and unsalted butter. However, there is plenty of salted butter available, stocks up 9% with prices falling to the lowest price seen since April at $2.30.
Milk, on the other hand, has struggled with heat recently, reducing production especially in the Central and Eastern regions, leading to a short-term decline in milk output and component levels. On top of that, some plants are experiencing downtime or running lighter schedules temporarily. This has implications for cheese as well, since many processors are pulling back production of cheese while Class I milk takes all the attention for bottling efforts to supply schools as they are back in session.
U.S. schools use approximately 8% of all fluid milk sold in the country, accounting for about $1 billion in annual fluid milk sales through the school meal programs. While not the largest demand creator for milk, it is a reliable, structured demand that serves over 7.3 billion servings to students around the U.S. annually.
While the USDA contracts ensure that priority is placed on school milk production, the distributors have the ability to limit options when supply is tight. Such as less flavored options or fewer fat-choice options. Menus at the school can be easily adjusted to pivot towards unflavored options when harder to source or when school budgets are tight with higher milk prices.
The question about a short-term impact or longer-term rally may be answered by looking at the weather and data from the USDA. For the weather, there is a cooler stretch coming for the Midwest while a heatwave will impact the West. So, it appears that milk production will see a boost as cow comfort increases in the regions that need it the most and possibly a pullback in the one area that has an abundance of supply.
From the USDA, the August WASDE report released last week, showed higher milk production in both 2025 and 2026. Forecasted at 229.2 billion pounds for 2025, up 900 million pounds since the July report. On the demand side, we see exports higher on both fat basis and skim-solid basis for 2025 and 2026. This, on top of higher domestic use, keeps USDA forecasted prices steady at $18.50 for Class III in 2025 and $17.85 for 2026.
The spot milk supply shortage may have a cause-and-effect impact on cheese, cream and whey prices especially to the consumer. As said above, priority is placed on meeting school fluid milk needs, so cheese makers may pay more for the same product leading to higher snack, pizza and bakery good prices. It can also lead to less options available for the organic, lactose-free and flavored buyers, as well as a longer-term impact on frozen meals.
So, while the current spot milk shortage may cause some support in milk prices, the bigger impact is more on the consumer side, facing higher prices in store. The schools still get their supply, albeit with less variety, but consumers will feel higher prices down the line.
Sarah Jungman is a commodity broker with AgMarket.Net and AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Sarah’s office is located in Winterset, Iowa and she may be reached at 515-272-5799 or through the website www.agmarket.net.
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