For dairy producers hoping for a fall milk price rally, the outlook is more measured. Milk prices may remain range-bound, while feed and energy costs could put more pressure on dairy margins heading into 2027.
Ben Buckner, chief grains and dairy analyst with Ag Resource Company, says producers should be ready to act when pricing opportunities appear.
“Overall, the news is pretty good, but we want people to be proactive,” Buckner says.
From Buckner’s perspective, the next 12 to 18 months are less about a major decline in milk prices and more about managing input costs.
“At the highest level, cash milk prices show very little change,” Buckner says. “Where margins change, though, I think, is in input costs — feed especially, and probably fuel as well.”
Milk Market Could Remain Range-Bound
USDA’s latest projections for 2026 leave much of the dairy outlook unchanged. Milk production and exports are little changed, while projected milk prices have moved only modestly.
“Class III is up 10 cents, and all-milk is down 15 cents per hundredweight,” Buckner says. “All things considered, that is virtually no movement in USDA’s forecast.”
U.S. milk production continues to run ahead of year-ago levels. June production increased 2.3% from a year earlier, while July production was projected around 1.8% higher. Cow numbers also remain strong across the central U.S.
“It’s hard for us to do an arithmetic forecast showing anything less than 1% growth when we think about milk production for the rest of 2026,” Buckner says.
Those larger cow numbers are already translating into more milk and components moving through the supply chain. Mike North, with Ever.Ag, says the U.S. dairy herd has reached levels not seen in decades.
“We look at this cow number now, 9.71 million head, the largest we’ve seen in over four decades,” North says. “Big, big cattle numbers putting out a lot of milk, and according to the last milk production report, more solids to go with it.”
The additional supply comes as U.S. dairy exports continue to absorb a significant share of production. North says strong trade in cheese, butter and other dairy products has helped keep supplies moving.
“Thankfully, we have had really strong exports,” North says. “We’ve had record exports throughout the year on cheese, on butter, and that has really helped.”
Even with strong exports, the U.S. remains the low-price supplier on the global market, creating an important outlet for growing milk supplies.
“We’re the cheapest price point in the world,” North says. “We’ve got cheese trading in this $1.52 and three-quarters price on the block, and if you’ve been watching, we get up to about $1.60, we kind of price ourselves out of market interest globally.”
That pricing dynamic is helping move product, but it also points to a global market with limited room for higher prices.
“The global market is not moving higher; it’s moving sideways,” Buckner says.
Demand for dairy protein continues to provide support. Whey and protein concentrates are moving, while cheese and butter consumption have established stronger demand floors. Still, U.S. milk supplies continue to grow alongside demand.
“We’re also out-producing all of that,” Buckner says. “So we think equilibrium has been found. These markets have turned very boring, and prices are more or less stuck.”
Beef Helps Hold Up the Milk Check
For many dairies, the milk check is only part of the story. North points to beef revenue as an important piece of how producers are weathering softer milk prices.
“We’ve been seeing a lot of revenue coming back to the dairy in the form of beef, whether it’s calves or cull cows, and at its peak it was adding about $5.50 on a per-hundredweight basis back into the revenue stream,” North says. “We’ve taken about $1 of that back out.”
High beef values have encouraged some producers to hang on to cows longer, particularly when those animals still carry a valuable beef-sired calf. North says the combination of strong beef values and a growing dairy herd is keeping more cows in production.
“Our numbers are up nearly 200,000 head from last year, and a lot of those producers are keeping some of these cows that maybe aren’t that productive anymore in the milk lineup, and they’ve got a valuable calf in them,” North says.
Calf and cull cow markets remain strong enough to reinforce the economics. Calves that would have commanded around $1,000 to $1,200 a year ago are now bringing $1,300 to $1,400, North says.
“There’s nobody backing down anytime quick,” he says.
That beef revenue changes how producers view a milk market sitting near $17 per hundredweight. North says the additional income from calves and cull cows can push the effective value of the milk check several dollars higher.
“We’re in a market right now where by the time you add beef revenue back into the fold, we’re still trading what I’ll call the equivalent of $20-plus milk,” he says. “They’re not getting rich, but they’re surviving, and history has shown to us if we can show black ink, we’re going to keep making milk.”
September milk futures around $17 only tell part of the story. When beef revenue is added back into the equation, producers have more incentive to keep cows milking and maintain production.
North says those incentives are becoming even more important as domestic dairy demand shows signs of weakness. Grocery store volumes have softened, while GLP-1 drugs and stretched household budgets add more pressure to consumer demand.
Domestic demand questions reinforce Buckner’s broader warning: the risk sits more in the margin than in an outright price collapse.
Winter Brings a Familiar Price Risk
While the near-term market looks steady, Buckner continues to watch the first quarter of 2027.
“It’s still that first quarter of the calendar year,” he says. “That is the weakest time of year for prices, and it is weakest for a reason.”
Milk production typically rises seasonally during the first quarter across the Northern Hemisphere, while per-day dairy consumption declines. Futures markets also tend to focus more heavily on available supplies during the winter months.
“We’ve seen sub-$15 Class III prices the last two years,” Buckner says. “I don’t know if that will be the low this year, but I do think we won’t avoid seasonal price weakness.”
Buckner encourages dairy producers to consider pricing opportunities when Class III futures reach the upper-$17 to $18 range.
“Once you see $17.50 or $18 March Class III, those are places to make some kind of move,” he says.
Global Milk Supplies Could Limit a Bigger Rally
The global dairy market also does not provide much support for a major U.S. milk price rally yet. New Zealand and Australia are positioned for strong seasonal milk production, while European production has returned to growth despite extreme summer heat.
“We did see production, even in France and Spain, rebound in the month of June,” Buckner says.
For U.S. prices to move substantially beyond the upper teens, Buckner says global milk production likely needs to contract.
“I do think we need to see these bars below zero if there is any hope for rallies above and beyond something like $18 in the Class III market,” he says.
Global dairy prices reinforce his outlook. Cheddar recently moved to $1.70 per pound, only seven cents higher than two weeks earlier, while butter prices have softened.
“For U.S. dairy producers,” he says, “that adds to the weight of the U.S. dairy market.”
Feed Could Be Where Margins Get Squeezed
While milk prices look relatively stable, Buckner sees more risk in the markets dairy producers rely on every day.
“At the highest level, we are neutral dairy and becoming bullish everything else,” Buckner says. “So the risk to the dairy operation is managing those margins.”
Corn, soybeans, wheat and energy could all become more expensive as weather, geopolitical tensions and changing commodity flows influence global supplies.
Corn is especially important for dairy producers. Buckner points to the potential for a global production deficit of more than 1 billion bushels on a corn-equivalent basis.
“Once we have production deficits, that tends to foreshadow lasting upside momentum in the feed space,” he says.
Dairy producers will be competing for corn.
“Dairy operations are going to have to compete with ethanol plants for what will be finite corn supplies in 2026 and 2027,” Buckner says.
Ethanol margins remain positive even with corn near $5 per bushel. Buckner expects ethanol demand to face more pressure only as corn prices move higher.
“We’re not slowing corn demand today at $5,” he says. “If gasoline prices stay where they are, I think you do start to stress ethanol production margins at $5.40 December Chicago corn, but not until then.”
Drought-related losses in sorghum could add more pressure to the corn market as well, with fewer sorghum bushels available to compete with corn in feed and ethanol markets.
“Demand growth in the domestic sector is probable,” Buckner says.
Fuel Costs Add Another Concern
Feed is not the only input Buckner is watching. Diesel and other distillates also could become more expensive.
“None of the energy markets in the U.S. are terribly well supplied,” he says.
Reduced refining capacity and geopolitical conflicts could support fuel prices even as additional crude oil reaches the market.
Currency and inflation trends also could influence commodity prices. A weaker dollar can encourage investment in commodities, adding another layer of risk for dairy operations purchasing feed and fuel.
“Looking at the bond market and the dollar index in this new, modest bear trend, I do think there is some reason for momentum to weaken the U.S. dollar,” Buckner says.
Weather Adds Risk
Weather remains another major variable heading into the next crop cycle. Buckner is watching the development of a strengthening El Niño and its potential influence on South American crops.
“We just don’t know what this is going to do to South America,” he says.
Brazilian soybean yields often perform well during El Niño, but the weather pattern can bring dryness to other regions and influence the timing of rainfall.
“We need very, very big crops out of South America,” Buckner says. “Does El Niño throw a wrench into this? That is going to be the next question.”
Buckner expects the market to learn more over the next 30 to 45 days as Brazil approaches its planting window.
Protecting the Dairy Margin
Buckner’s outlook does not call for dairy producers to panic. Instead, he encourages producers to manage the margin in front of them and avoid waiting for markets to make the decision.
“Does a dairy operation need to lock in feed from now until late winter or spring? I think the answer always is yes, but especially this year because there is a lot of risk,” he says.
For dairy producers, the strategy includes looking beyond the next milk check and running income-over-feed budgets through the winter and into the first quarter of 2027. Current Class III rallies also may offer opportunities to price milk, especially if Q1 contracts move toward the upper-$17 to $18 range.
“The risk is managing those margins,” Buckner says. “Be very proactive about that. Be actively buying feed even today.”
Longer term, Buckner remains optimistic about dairy demand. If milk production growth slows in Europe and Oceania, the U.S. could once again be called on to supply more of the world’s dairy needs.
“I do think that supply-side weight starts to get eliminated,” he says, looking roughly 18 months ahead. “We all can see and feel the protein story everywhere we go. Dairy is going to be a part of that.”
For dairy producers, getting to the other side of the next several months could come down to protecting margins while milk prices remain stuck in a relatively narrow range, feed and fuel costs threaten to move higher, and beef revenue buys a little more breathing room in the milk check.
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