Milk prices may have found some footing, but the outlook for dairy margins is getting more complicated.
Over the next six to 12 months, Ben Buckner, chief grains and dairy analyst with Ag Resource Company, sees plenty of milk moving through the system. He also sees a feed market with more potential to push costs higher.
This combination could make margin management even more important heading into 2027.
“There’s going to be a lot of milk produced,” Buckner says. “We’ve talked about that for the last 12 months, but the thing we want to acknowledge is we can’t at identify a threat to that yet.”
He notes that milk isn’t going to get much help from a tighter supply anytime soon. Instead, prices look fairly steady, while feed costs could put more pressure on margins in the months ahead.
Milk Has Found an Equilibrium
Buckner describes the milk market as being in a state of equilibrium, with prices holding in a fairly steady range.
He does not expect a dramatic decline in milk prices through the remainder of 2026, barring the typical seasonal weakness heading into winter.
“I think milk has shown us it’s found some equilibrium price,” Buckner says. “It’s hard for us to be real bearish of milk, at least for the remainder of 2026.”
There is also more strength underneath milk checks than Class III alone might suggest.
Cash markets have been showing solid premiums, driven in large part by demand for protein. Buckner says those premiums have been stronger than expected, with many producers seeing an additional $2 to $4 per hundredweight.
Protein demand continues to pull product through the market.
“The demand for protein, even over fat, is just kind of unending, unceasing, insatiable,” Buckner says. “We’re meeting that demand because we’re producing lots of milk.”
Whey and high-protein powders continue to find buyers across markets. This demand is helping provide support even while the underlying milk market remains well supplied.
Exports Need a Competitive Price
U.S. dairy has also made impressive gains in global markets, particularly with cheese.
Buckner says the industry deserves credit for capturing more export business, but the growth comes with a tradeoff. U.S. product is moving because it is competitively priced.
“We have to, I think, celebrate this newfound share of exports that we’ve got,” he says. “But we’re starting to see cracks in U.S. export disappearance.”
U.S. cheese has found an outlet around $1.50 per lb. That price supports volume, but it does not leave much room for a major price rally.
“We have found an outlet and that’s what we do want to celebrate here,” Buckner says. “But this is all happening because U.S. cheese is very competitive, but not expensively priced.”
The same tension runs through much of the dairy export market. The U.S. can capture global demand, but asking buyers to pay significantly more could send some of those sales back toward Europe or Oceania.
“We can’t have both really strong demand and high prices,” Buckner says. “We can have one of the two.”
Nonfat dry milk offers an example of how quickly buyers can step away when U.S. prices get too high.
After prices rallied to roughly $2.60 per lbs. in the spring, importers backed away.
“Importers just kind of left the space,” Buckner says. “They said we’re not going to buy non-fat dry milk from anyone, but certainly not from the United States.”
June nonfat exports fell about 20% from a year earlier, helping pull total U.S. dairy exports for 2026 below the previous year’s level.
Global Milk is Still Plentiful
Weather headlines from Europe offered some hope of tighter global milk supplies earlier this summer.
Drought and heat across Western Europe looked severe enough to create a lasting production decline. May reports showed contractions in the U.K., Spain and France.
June data painted a different picture.
“France and Spain both were able to produce more milk year-over-year in the month of June,” Buckner says. “French milk production was up 1.5%. Spanish milk production also up 1.5%.”
But New Zealand is adding even more milk to the global supply picture.
“New Zealand has retained year-over-year growth of 5% overall for14th consecutive months,” he says.
That growth will become more important as Oceania moves into its seasonal production increase. New Zealand and Australia have relatively little presence on the export stage during June, then ramp up production as spring progresses.
For dairy markets, the timing creates another wave of available milk just as the U.S. heads toward its own seasonally weaker demand period.
“For now, there will be no shortage of milk available for processors,” Buckner says. “Everything is pretty balanced when you think about the entire flow of milk and dairy products worldwide.”
He expects global growth rates to slow from the unusually strong increases seen over the past year. But slower growth does not mean a supply shortage.
“We’ve gone through seeing European milk production at times in the last 12 months at 5% or 6%,” Buckner says. “That probably does go to 1% or 2%. But for now, no one’s panicking over supplies today, or probably in supplies three and six [months out].”
Cheese Demand Has a Gap to Fill
Cheese offers another example of a market finding balance despite strong demand.
U.S. cheese exports reached a record in June. Production has also been flat to lower in some recent months.
Yet inventories continue to build.
“We have all-time record exports of cheese in June,” Buckner says. “We have produced at times less American cheese year-over-year over the last few months, and stocks are still building.”
The missing piece is domestic demand. Buckner says U.S. cheese consumption has fallen by 4 million to 6 million pounds per month over the past three months, helping explain why stocks are building despite strong exports.
Buckner does not view the growing cheese inventory as an emergency. Instead, it reinforces his view of a market with enough supply to meet demand.
“We’re building cheese stocks despite exporting an incredible amount of it,” he says. “The market is still balanced despite finding lots of demand.”
Butter offers a little more room on the upside.
U.S. butter prices remain below global values, creating some potential for domestic prices to move higher. But the global market still puts a ceiling on how far that rally can go.
“You have the world butter market still very elevated compared to the U.S. market,” Buckner says. “There’s upside in the U.S. market potentially. That’s kind of where upside ends.”
Winter Could Bring Another Test
The next test for milk prices may come as the calendar moves into the first quarter.
Buckner points to two seasonal forces working against dairy prices during the winter. Southern hemisphere milk production is approaching its seasonal peak, while U.S. dairy consumption tends to slow.
“We do know that Q1 maybe into April is typically weak,” he says. “We’ve got peak southern hemisphere milk production and we consume the least amount of dairy during the second half of winter.”
That combination has pushed Class III prices lower during the past two years.
“In the last two years, we’ve gone to $15.50 to sub-$15 Class III,” Buckner says.
Those price dips do not necessarily determine the average milk price for an entire year, but they create a period of risk farms can plan around.
For producers with profitable margins available today, Buckner sees value in putting some protection in place for the first quarter rather than waiting for the market to make the decision.
Feed Could Be the Bigger Concern
While Buckner does not see an immediate milk-price crisis, he is more bullish about feed.
Corn around $4.40 per bushel is still relatively manageable for dairy farms, especially compared with some of the higher prices seen in recent years. But the direction of the market is beginning to change.
A year ago, corn was closer to $3.80.
“Even in the best-case scenario with a trend corn yield, you’re still looking at a billion bushels less production. Production deficits are kind of the dominant theme of the grain market in ’25 and ’26,” Buckner says.
Current USDA projections show global corn, wheat and soybean production falling short of expected use. Corn accounts for much of the tightening.
Add in uncertainty around the Black Sea region, European drought, solid export demand and strong ethanol and soybean crush margins, and Buckner sees more risk on the feed side over the next several months.
“I do think the price of feed on the margin goes up, not down, over the next nine months,” he says.
Seasonality also plays a role.
Corn markets often establish a seasonal low in August before moving higher into the fall and winter. Buckner says producers should recognize the timing when considering feed coverage.
“August is the exact wrong time of year to be bullish of corn,” he says. “But it is also the exact right time of year to start thinking about forward supply needs and coverage.”
Soybean meal is showing similar signals.
“Meal today in Decatur, Illinois, is 15 over the board of trade, and that’s been the case for a long time,” Buckner says. “A year ago, meal basis was negative.”
Stronger crush returns and the change in basis make Buckner less confident about seeing soybean meal fall below $300 per ton.
He says for dairy farms, the message is not to panic over feed prices today. It is to recognize the possibility of a less favorable feed market before it arrives.
Protect the Margin, Not the Prediction
Buckner’s advice comes back to the relationship between milk income and feed expense.
Trying to correctly predict the high or low in milk, corn or protein meal is difficult. Instead, he encourages producers to look at the margin available today and decide how much risk they want to keep.
“Without being able to call highs and lows in milk or corn or protein meal, it’s locking in margins,” he says. “Margins, the way they exist today, to me are better. And I think we want to pass some of this risk off on to someone else.”
Milk has found some stability. Protein demand is supporting premiums. U.S. dairy continues to find buyers around the world.
But global milk supplies remain ample, cheese inventories are building and the seasonal Q1 pressure is still ahead. Meanwhile, grain markets are beginning to look less forgiving.
Thos leaves dairy farms with a window to work on margins before the feed side potentially becomes more expensive.
“The number one thing to take away is, think very hard about milk-producing margins,” Buckner says. “If they’re decent, let us pass that risk off to sleep better at night.”
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