Diesel fuel over $6, corn pushing toward $5 and cheese around $1.45 are making for a tougher setup as dairy producers head toward the end of 2026.
The pressure is coming from both sides of the ledger. Milk production continues to climb, while consumers are showing more signs of pulling back.
“We’re looking at 19 months straight of stronger milk production in the U.S. July alone was up 2.2% year-over-year,” says Kathleen Wolfley, head of insights with EA Risk, during a quarterly Dairy Market Desk webinar.
USDA revisions put the U.S. dairy herd near 9.71 million cows, with growth concentrated in the Upper Midwest, Mideast, Northeast, Kansas, Southwest and Southeast.
More cows and more milk are coming into a consumer economy where household budgets are feeling the squeeze.
“If you’ve filled up your gas tank anytime in the last few months, you’ve probably noticed prices are going up,” Wolfley says. “We’re seeing inflationary pressures return, and fuel costs are rising. Unleaded gas prices are now well above $4 per gallon.”
Higher fuel costs also work their way into freight, packaging and other farm expenses. For consumers, higher costs at the pump and elsewhere leave less money available for eating out and buying higher-priced food products.
Consumers Pull Back on Food Service
One of the more visible signs of softer demand is showing up at quick-service restaurants. Foot traffic at chains such as McDonald’s and other fast-food restaurants has declined for 19 consecutive weeks.
“That means you and I aren’t going into a McDonald’s or Chipotle as often. We’re ordering less cheese, maybe less butter on your Culver’s Butter Burger. People just aren’t consuming the way they have been,” Wolfley says.
She notes how a pullback in fast-food spending can work its way back to dairy markets. McDonald’s uses significant amounts of cheese and other dairy ingredients, particularly in breakfast items. Fewer restaurant visits can mean less demand for those products.
Cheese markets have been feeling the pressure.
CME cheddar has struggled to stay above the mid-$1.60s this year and recently moved toward $1.45 as the holiday season approaches.
“As you look around, there’s lots of cheese out there,” Wolfley says. “But demand is just mediocre. We’re not seeing a lot of growth.”
Domestic demand has been slow, putting more emphasis on exports. U.S. cheese exports have responded, reaching record levels in 2026.
“We set another record for cheese export volume in 2026. So far this year, 11% of all U.S. cheese production has gone to international markets,” Wolfley says.
Mexico, Australia, South Korea and Japan have all been important buyers. But competition is increasing, particularly from New Zealand.
“New Zealand has more cheddar available, and their prices are about a dime lower than U.S. prices,” Wolfley says. “I think there is some risk to U.S. exports, especially on the cheddar side.”
Butter is facing a similar supply-and-demand challenge.
Milk components continue to run higher, and butter production is following along. July butter production was 10 million lbs. higher than a year earlier.
“We’re making a lot of fat. Demand is okay, but it’s hard to chew through all this additional supply,” Wolfley says.
Butter prices around $1.35 are well below some recent holiday-season levels. Exports have helped move product, but July shipments fell to about 17 million lbs., the lowest level since October 2025.
Retail promotions around Thanksgiving and Christmas could play a big role in how much butter moves through the system.
Household Budgets Add Another Challenge
Consumers are also dealing with changes in household spending.
SNAP enrollment recently fell to 19.9 million households, down about 2.6 million from a year earlier. Average benefits per household were relatively steady, but total dollars in the program declined by about $130 million from April to May and nearly $1 billion from a year earlier.
For dairy, those changes come as lower-income consumers are already dealing with higher costs for fuel, housing and other necessities.
Wolfley also points to the growing impact of GLP-1 medications on food consumption.
“With a supplementation of GLP-1, calories are reduced by 20% to 30%,” she says. “That ultimately is thinning out how much people are consuming, whether in retail or in food service, or shifting what types of products they’re consuming.”
When people eat less, the effect can show up across the food system, from pizza, cheese and ice cream to burgers and fries.
Milk Production Keeps Climbing
While demand is showing some cracks, milk production continues to grow in the U.S. and around the world.
Within the U.S., production gains are broad-based. Areas preparing for additional processing capacity, including the Northeast and Kansas, continue to add milk. The Upper Midwest is also producing more milk despite its heavy exposure to cheese markets.
Wolfley says producers in some regions are beginning to feel more pressure.
“We’re starting to see a few twinges of tighter producer economics out there, specifically in places like the Upper Midwest,” she says. “Looking at %16, low $17 milk prices and a a $5 corn price, we can see the potential for some struggle at the farm level in late Q4 into early 2027.”
The global milk supply picture is a little more mixed. Europe dealt with a hot, dry summer that reduced production in several major dairy regions.
“Milk production was knocked back in key places like France, the UK and Ireland,” Wolfley says. “There is concern as we roll through the second half of the year that Europe just won’t have as much milk on the ground as folks had expected.”
New Zealand has continued strong production as farmers head into the seasonal spring flush. Weather could become a bigger concern heading into 2027, with forecasts pointing to a potential strong El Niño and drier conditions in New Zealand.
Powder Prices Find Support
Those global supply questions are also supporting nonfat dry milk and Class IV markets. U.S. nonfat prices climbed to about $2.30 per lb. earlier this year before falling as more milk moved into dryer plants and buyers pushed back on higher prices.
More recently, production issues and recall concerns in California, along with heat across North America and Europe and the potential for El Niño, have brought buyers back into the market. Prices have moved into the high $1.90s.
“We are in this position with prices continuing to push higher,” Wolfley says. “Buyers have been part of the reason why we’ve been pushing up to these higher price points once again.”
Wolfley describes the current supply situation as “adequate but not abundant.”
U.S. plants are producing more nonfat than a year ago, while Europe has increased skim milk powder production. The bigger question is what happens with weather and plant performance in the months ahead.
Still, Wolfley does not expect the rally to continue without some pushback from buyers.
“We will likely lose further export opportunities from a U.S. perspective,” she says. “I can’t imagine the buyer in Southeast Asia is going to say, ‘Hey, you know what, I’m going to go pay 50 cents more for U.S. product than what I can get it out of New Zealand.’”
Mexico is expected to remain an important buyer of U.S. nonfat, but higher prices could push other buyers toward Europe or Oceania.
Higher Grain Costs Put Pressure on Margins
Feed costs are another concern heading into winter and the 2027 crop year.
The Pro Farmer Crop Tour lowered its national corn yield estimate to 173.2 bushels per acre, compared with USDA’s August estimate of 180.7 bushels. If the lower yield is realized, it would remove roughly 665 million bushels from ending stocks.
Corn futures have moved sharply higher from early summer levels around $4.20 to $4.30, reaching peaks near $5.50 along the way.
EA Risk’s Mike North says the market has established a different price range.
“The price levels we saw as the highs in 2026 are now becoming the new lows. You should expect buyers to be willing to pay around $5 for corn,” North says.
Global corn stocks-to-use ratios have also moved closer to levels seen following the 2012 drought. World demand has continued to grow faster than supply, while fund traders have built large positions in corn, soybeans and wheat.
“We have more fund traders invested in grain than ever before,” North says. “History suggests they won’t stay in the market for long.”
For dairy producers, higher corn prices and firm protein costs mean rations could look considerably different than they did last spring.
Fertilizer costs are another piece to watch.
Geopolitical tensions have affected fertilizer, oil and LNG flows through the Strait of Hormuz. About 30% of the world’s fertilizer, much of it nitrogen-based, along with 30% of global seaborne oil and 20% of LNG, moves through the region.
Even with those supply concerns, North says nitrogen prices heading into fall were only about 10% to 15% higher than a year earlier as some of the earlier price increases eased.
How fertilizer prices affect 2027 planting decisions will have an impact on corn and soybean acres, and eventually feed costs.
Beef-on-Dairy Income Starts to Fade
For many dairy farms, beef-on-dairy calves have provided an important source of additional income during periods when milk margins were tight. However, that cushion is getting smaller.
“Those beef-on-dairy calves have provided a lot of extra income for dairy farmers. Now, as those revenues start to ease, there isn’t as much cash available to provide that cushion,” North says.
The broader beef market is also dealing with more imports and policy changes affecting supply.
North points to a recent move to bring in 300,000 metric tons of beef at a 25% discount to domestic markets. Imports were already running 13.6% ahead of last year.
Much of the imported beef is lean product used for grinding. Even with more beef entering the country, U.S. beef inventories remain relatively tight and consumer demand is holding up.
“The consumer seems at least at this moment unmoved in their willingness to buy beef,” North says.
Calf prices, however, have backed off their earlier highs.
For dairy producers, lower calf revenue comes as milk prices soften and feed costs rise. The combination leaves less room in the farm budget.
“Will some of these softer milk prices, combined with higher feed costs and lesser beef revenue, lead to some form of increased culling event?” North asks. “Will this 9.7 plus million head dairy herd become something smaller?”
Risk Management Moves Higher on the List
With milk prices under pressure and costs moving higher, both Wolfley and North see more reason for producers to look at their risk management plans.
Dairy Revenue Protection can provide a floor under milk revenue while leaving room for upside. Current offerings include Class III floors in the mid-$15 range for late 2026, Class III prices in the high-$15 to low-$16 range for early 2027, and some Class IV opportunities in the $17 to $18 range through mid-2027.
On the cattle side, Livestock Risk Protection can help protect the value of beef-on-dairy calves and cull cows as the beef market changes.
The market may not stay in one place for long. Milk production, consumer demand, grain prices, exports and weather all have the potential to move the numbers again.
North says producers should be prepared to act when opportunities show up.
“The market is ripe for risk management. Don’t skate. Be active.”
For more on business, read:
- What Will it Take to Finally Trigger a DMC Payment?
- U.S. Bans Canadian Dairy, Alcohol as Trade War Escalates — Dairy Farmers Look to Washington for Relief
- From $150 to $1,500: How Beef-on-Dairy Drove Record Herd Growth — And Why It’s Now at Risk
- U.S. Milk Production Hits 20.1 Billion Pounds in July, Up 2.2% Year-Over-Year
- Is $7 Corn Possible? What It Would Mean for Feed Costs, and Why Timing Matters
