Dairy Margin Coverage (DMC) has stayed quiet on the payout front for most of 2026, but rising feed prices and volatile grain markets could bring a different story for the rest of the year.
“Way back in January and February, we did get some payments, which was based on the really low milk prices we had in Q1,” says Katie Burgess, Dairy Market Advising Director with EA Risk. “But as the year rolled on, our milk prices moved higher, which then resulted in essentially zero payments for March through July.”
USDA’s official DMC forecast, as of September 9, shows potential payments from August through December, with some months projected at more than $1 per hundredweight. Whether those payments materialize will depend heavily on what happens to corn, soybean meal and hay prices through harvest.
But a recent rally in grain prices, coupled with mostly sideways milk markets, could be changing the DMC payment outlook.
“It’s really going to depend on grain price outlook,” Burgess explains. “The grain markets have been relatively volatile here over the past month. We’ve seen prices for corn spike. Soybean meal’s gone up a bit as well.”
Hay prices could add more pressure to the margin.
“We’ve been hearing hay has been getting a little bit more expensive,” she says. “We’ve heard it reported in some regions. I don’t know how it’s going to translate into the national number, but we’ll have to see if corn indeed stays more expensive as we make our way through harvest.”
If grain and hay prices continue to climb, Burgess says the DMC margin could begin to move into payment territory later this year
Class III Feels Tight While Class IV Runs Higher
Milk prices have moderated, but the gap between Class III and Class IV is putting very different pressure on producers depending on their market. For producers tied to Class III, that spread stings.
“The Class III market for September is closer to $16.25, whereas the Class IV market for September is up above $19,” Burgess notes. “If you’re in an area where your milk price is primarily based on Class III prices, those milk checks have probably felt a little tight. And if you’re having to pay higher feed costs, you probably are thinking, ‘Wow, this program feels like it should maybe kick in for me soon.’ But it’s important to remember it’s a national milk price.”
Regions with stronger Class IV, II and I utilization have had healthier pay prices, which lifts the U.S. all‑milk figure used in the DMC calculation and limits payouts.
Looking ahead, Burgess is not expecting a dramatic run‑up for Class III.
“In the big scheme of things, it seems like it will be mostly sideways for a bit,” she says. “Here in early September, it looks to be around $16.25. I think it could marginally increase as we make our way through the holiday demand season — prices could maybe get back to $17. But it’s hard to imagine anything over $18.”
On the Class IV side, nonfat dry milk is doing the heavy lifting.
“It has definitely been the non‑fat dry milk market pushing prices higher,” Burgess explains. “The butter market is very soft, so butter is pulling Class IV down. But non‑fat has a greater influence on Class IV values. So non‑fat is back up close to $1.90 per pound in the CME spot market, which then has pulled that market a bit higher.”
Margins Under Pressure: Feed, Beef and Fuel
The combination of sideways milk prices, higher feed costs, lower beef‑on‑dairy returns and expensive fuel has put margins under strain.
“It’s been a bit of a rough month with the Class III market down, cattle prices [off the highs] and feed costs up,” Burgess says. “There’s a few days that look pretty rough for producer on‑farm margins.”
The cattle market is one of the biggest changes from earlier this year. Calf and feeder cattle prices have pulled back sharply from their record highs, although prices remain historically strong. The decline comes as the market adjusts to a number of factors, including increased beef imports, the return of Mexican cattle supplies and weaker cattle prices at the feedlot and packer levels. USDA also recently lowered its outlook for cattle prices in the second half of 2026 following weaker recent price data.
For dairy farmers, the change has become noticeable in beef-on-dairy calves. The value of those calves has been a major source of revenue for dairy operations, so even a historically strong calf market can feel considerably less impressive after the highs seen earlier this year.
“While calf prices are well off the highs we saw earlier this year, they’re still relatively high compared to history,” Burgess points out. “A year and a half ago, producers would have been pretty excited about the prices we see today. They just don’t feel as good after the highs we saw a few months back.”
Fuel is adding another layer of pressure. Crude oil prices have moved higher in recent weeks, pushing up diesel and transportation costs. For dairy farms, higher fuel prices can show up across the operation, from hauling feed and manure to running tractors during harvest.
The timing is especially important as harvest gets underway. Higher diesel costs can add to the cost of getting corn out of the field, while higher corn and soybean meal prices are already putting upward pressure on the feed side of the DMC calculation. The result is a margin being squeezed from several directions.
Protecting Beef Income and Feed Costs
In this environment, Burgess is urging producers to lean into risk management on both the cattle and feed sides of the ledger.
“I do think right now, protecting that cattle income, while it is still very strong, is important,” she says. “We’ve been encouraging people to look at the Livestock Risk Protection insurance or LRP insurance. That’s a good thing to do.”
On feed, she recommends working closely with an advisor to tailor coverage to each operation’s buy‑versus‑grow balance.
“Work with a feed advisor on protecting feed costs,” she notes. “There are a few different strategies people can take right now, depending on how much you grow yourself versus how much you buy. But that’s also a good thing to look at because as we think about where the market sits today, we don’t spend a lot of time at current prices.”
Between U.S. harvest and South America’s upcoming season, she sees more upside risk than downside for grain.
“Just given how it’s been a little bit on edge, it does feel like there’s a bit more upside risk this year than we’ve had over the past couple years,” Burgess says. “So definitely good things to be taking a look at.”
Trade, Tariffs and a Split Export Picture
On the trade front, Burgess describes a mixed but active export picture for U.S. dairy.
“The latest trade data that came out last week for the month of July showed that cheese exports hit a new all‑time high in July, so that’s exciting to see,” she says. “Also, though, I think the flip side of that is we set a new record for exports, and cheese prices are still relatively low. It just speaks to how much cheese we have out there in the industry.”
Domestic cheese demand has been only “so‑so,” and even record exports have not been enough to pull prices significantly higher.
New Zealand’s production season looms large for the months ahead.
“Over the course of this year, we’ve picked up market share into a lot of places, including Australia,” Burgess explains. “So New Zealand, so far, it seems like their milk production season will be off to a strong start. Seems like they’re trying to perhaps win some of the market share back. So [we’re] watching pretty carefully what happens with New Zealand cheese prices and New Zealand competitiveness over the months ahead.”
Butter exports from the U.S. have also been strong, while nonfat exports recently stumbled.
“In the month of July, non‑fat exports fell to the lowest level they had been since 2019,” Burgess notes. “That’s due to the fact we had non‑fat close to $2.30 per pound during the second quarter, when international prices were more $1.50, $1.60. So we are seeing the impact [of] very high prices before; we did lose some of our market share in the non‑fat market.”
On top of that, producers and processors are watching developments on Canadian tariffs.
“From the tariffs, I mean, watching carefully as that news seems to continue to grow or escalate,” she says. “From a U.S. perspective, the thing we send the most up to Canada is butter, which thus far I think has been excluded from the tariffs, but it does seem like they’re ramping up. So to me, what happens with butter becomes the most important category.”
A Little Good News in Whey Demand
Amid the margin pressure and market uncertainty, high-protein whey is giving the dairy market something to feel good about.
“We could talk about good high-protein whey demand,” Burgess says. “Similar to how nonfat dry milk prices have been high, we see the whey market is relatively strong as well, especially high-protein whey prices. There’s still very strong consumer demand out there for protein products.”
The spot whey market has also moved higher in early September.
“We’re up to 75 cents, which is the highest we’ve been in that market in a long time,” she says. “It’s good to see the whey market holding together pretty well, even while cheese prices are low.”
Because whey is part of the Class III price, stronger whey values can help offset some of the pressure from weaker cheese prices.
Looking Toward 2027
While producers are watching to see if DMC triggers more payments through the end of 2026, Burgess says it is also time to start thinking about 2027 risk protection.
“We continue to believe DMC is a good program for producers, just given the relatively low cost,” she says. “With those payments in January and February, it was enough to pay the premium bill for this year. So, given that, anything we get over the next few months is kind of like true money back to dairy producers.”
For producers looking ahead, she encourages them to consider signing up for DMC again when 2027 enrollment opens.
“We do encourage producers to continue to look into signing up for DMC for 2027 when enrollment opens here,” she says.
Dairy Revenue Protection also is getting more attention as producers look for ways to protect milk prices in the year ahead.
“We are also seeing a lot of producers look at Dairy Revenue Protection, crop insurance for the year ahead as well,” Burgess says. “There is a lot of risk out there.”
One of the biggest risks is the size of the U.S. dairy herd. The country has more cows than it has had since 1991, creating the potential for more milk to hit the market.
“With all the cows and potential milk supply, and maybe a little more competition on the international front, we do want to make sure producers are looking at protecting their milk prices for the year ahead,” she says. “Especially with some price floors, just to keep protected in case supply starts to build up on us.”
