Milk prices started 2026 on a soft note, but the outlook has improved somewhat as the year has progressed. Futures markets now suggest slightly stronger prices later in the year, offering some optimism for dairy margins.
Still, the improvement is measured. Strong protein demand, shifting consumer habits, global trade dynamics and record beef values are all shaping today’s dairy outlook. Those same forces could also introduce volatility over the next year.
“We have a lot better story to tell today than we did a few weeks ago,” says Kathleen Wolfley, market intelligence director with Ever.Ag. “We’re looking at a market today that is significantly higher than where we were trading at the beginning of the year. Class IV prices are around $19 a hundredweight. Class III prices are around $18 a hundredweight average.”
Even with prices looking a bit better, tight budgets and higher costs are still weighing on dairy demand. During a recent Standard Dairy Consultants webinar, Wolfley and Mike North, president of the producer division at Ever.Ag, gave their take on the current economic outlook for dairy.
A Split Consumer Economy
Energy costs are emerging as one of the biggest economic pressures affecting food demand, particularly for middle- and lower-income households.
“Fuel prices are the top item I’ve been watching here in the last few weeks,” Wolfley says. “I’m in New York, so if I pay over $4 a gallon, it pinches a little bit more than it did back in February when gas prices were in the mid-$2 range.”
But when fuel gets more expensive, family budgets feel it in a hurry.
“In our estimation, it’s costing a family $30 to $40 more per week to fill the tank. That’s basically takeout for a family of four,” Wolfley says. “It’s an easy way to cut back, especially in an environment where folks are feeling pinched.”
The result is a split consumer economy.
“You have some consumers, middle-to-lower income, that consistently say, ‘Hey, I am struggling with affordability,’ versus higher-income consumers that are going to feel the pinch of these energy prices a lot less,” Wolfley adds. “They’ve been absorbing the inflation over the last few years and just kind of taking it in stride.”
That uneven spending environment creates uncertainty for dairy demand.
“I’m a bit concerned about domestic demand here in the U.S. and the ability of domestic demand to recover on the backside of all this uncertainty,” Wolfley notes.
Protein Demand Off the Charts
If one theme defines today’s dairy markets, it is protein. Nonfat dry milk, skim milk powder and whey are increasingly tied to demand for high-protein foods and beverages.
“We’re sitting at $2.06 per pound on the CME nonfat dry milk market, Wolfley says. “That’s a really exciting move, especially for those of you that have a lot of Class IV exposure.”
But the story goes beyond price. Milk solids are increasingly moving into higher-value uses.
“There’s solids now going into cheese production or yogurt production, or into ice cream, or even into the fluid bottle that is no longer making its way into the dryers,” she adds.
Ultrafiltered milk and protein beverages are capturing a growing share of milk solids, pulling more wet solids away from traditional drying channels and into high-protein beverage production. At the same time, U.S. powder markets remain tighter than global supplies, creating added competition pressure for exporters.
“It’s really important to consider that the tightness in this nonfat dry milk market is just a U.S. issue,” she says. “In the rest of the world, they’ve got a lot of supply, and they’re making a lot of powder.”
European milk production rose about 5% year-over-year early in 2026, increasing global powder availability. With U.S. powder priced 50¢ to 60¢ above global competitors, export buyers may start looking elsewhere.
“If you’re a buyer in Southeast Asia, why would you go to the U.S. for your nonfat dry milk or your skim milk powder needs when you can buy it cheaper out of New Zealand or the EU?” Wolfley asks.
Mexico, one of the largest buyers of U.S. dairy products, may already be exploring alternatives.
“I think those Mexican buyers are now looking at alternate sources to say, ‘Can I get it cheaper out of the EU even with the freight costs? Can I go to the GDT auction and get supply that helps alleviate some of that price pressure?’” she says.
For U.S. producers, that means the current rally in nonfat prices could face pressure if exports slow.
Butter Markets Swing with Global Trade
Butter markets have already experienced volatility this year.
“Butter prices rallied all the way above $2 a pound to begin the month of March,” Wolfley says. “Fast forward six weeks, and we’re basically back to where we were in early February.”
The early butter rally was largely fueled by strong export demand, with significant volumes moving through the CME spot market and a steady flow of fat heading into international channels.
February butter exports totaled about 22 million lb., with a large share headed to the Middle East. But geopolitical tensions quickly disrupted that trade. As exports slowed, more butter stayed in the domestic market.
“I think that does open up more potential that we’re keeping fat in the domestic market that may have otherwise been earmarked for the international space,” Wolfley says.
Even so, retail demand has been strong.
“Butter has been crushing it. Cheap butter has allowed retailers to promote aggressively. To see the four-week average on butter and butter-blend sales up 10% is pretty astounding,” she notes.
Still, Wolfley cautions the Class IV complex faces potential downside risk if powder markets weaken or exports slow.
Cheese Markets Lean on Exports
Cheese markets tell a similar story of volatility and global competition. Wolfley points to how prices dropped sharply earlier in the year.
“We hit sub-$1.30 cheese in mid-January. Sub-$1.30 cheese is pretty dang cheap, especially when you compare it to the $1.70 to $1.80 price points at the end of October,” she says.
Those low prices encouraged stronger demand.
“Low prices tend to cure low prices,” Wolfley adds. “We’ve seen more advertising in food service, more promotional activity in retail and opportunities in the export market.”
Cheese production continues to climb, with February output up 4% compared to a year earlier. At the same time, exports have helped absorb some of that additional supply and keep the market more balanced.
“We shipped 129 million lbs. of cheese in February, 30% more than last year, a record-high volume,” Wolfley says. “At the same time, we’re importing less.”
Exports have become essential to keeping the market balanced.
“It tells me we have to stay competitive,” Wolfley says. “If we want to move that cheese, and the domestic consumer isn’t saying ‘Hey, I want a bunch more,’ it ultimately comes down to staying competitive versus the European mozzarella market.”
Price gaps between U.S. and European cheese have narrowed recently, reducing the cushion U.S. exporters have relied on to stay competitive in global markets. With that spread tightening, the risk of oversupply in the domestic cheese market increases if export demand softens.
“Without a big splash into the international marketplace, we could find ourselves with a lot of product looking for a home,” Wolfley notes.
GLP-1 Drugs Shift Dairy Demand
Another emerging factor shaping dairy consumption is the rapid rise of GLP-1 medications used for weight loss and diabetes management.
“I joke that you can’t talk about dairy now without talking about GLP-1, because I think it is a really important piece of the puzzle,” Wolfley says. “About 12% of U.S. adults are using it today, compared to 6% in 2024.”
These drugs reduce overall food intake, with users typically consuming about 20% to 30% fewer calories, and that shift is starting to show up in dairy demand, particularly across categories tied to indulgence and higher-calorie foods.
“We’re seeing less pizza consumption because it doesn’t sit well with people’s stomachs on GLP-1. We’re seeing less ice cream consumption,” Wolfley says.
But the change is not entirely negative for dairy. Protein-rich foods are gaining traction.
“We’re seeing more cottage cheese consumption,” Wolfley adds. “There’s a big boom in cottage cheese production and investment because of opportunities to hit high protein needs. There’s also growth in yogurt and whey protein.”
The shift may ultimately move dairy demand away from indulgent products and toward nutrient dense, protein-focused foods.
Milk Production Expands
At the same time demand patterns are shifting, milk production continues to grow.
“We’ve asked for more milk in terms of processing,” Wolfley says. “We’ve added a lot of capacity in a short amount of time here in the U.S. — about $11 billion worth of investment expected between 2025 and 2030 — and producers have responded.”
U.S. milk production rose nearly 3% in February, showing continued strength in output as the year gets underway. Cow numbers are also increasing, up about 211,000 head year over year, signaling ongoing herd expansion across the industry. At the same time, productivity continues to improve.
“Every cow that’s out there is making more milk today than she was last year and the year before that, and she’s making more components,” Wolfley says.
Advances in genetics and feeding strategies are pushing component levels higher across the U.S. dairy herd. As a result, Wolfley has adjusted her production outlook, reflecting stronger-than-expected gains in milk output potential.
“If you’d asked me this question at the beginning of January, I would have said we might see contraction by the end of 2026,” Wolfley says. “I’m singing a little bit of a different tune today. I expect around 1.5% growth in milk production in 2026 compared to 2025.”
Beef-on-Dairy Income Remains Strong
Strong beef markets have added another layer to the dairy profitability picture. What once served as a modest income source has grown significantly.
“The more crowds of producers I get in front of, the more I hear how important beef revenue is to the operation,” North says. “This went from casual spending money to something that’s much more substantive and really a big part of the overall profitability picture on a dairy.”
Revenue from beef-on-dairy has increased sharply.
“From late 2022, we estimated revenue on a per hundredweight basis of beef to the bottom line of about $1 to $1.50. Today, that number has grown to anywhere between $4.50 to $5,” North says.
Day-old beef-on-dairy calf prices reflect the strength of the market.
“Recently reported numbers coming in from out of the East Coast show $1,700 for a wet calf,” North says. “It seems insane, but the market has been going up for the better part of three and a half years.”
These high prices are sending a strong message to producers, pushing them to take a closer look at how beef-on-dairy plays a role on their operation.
“If you aren’t addressing beef prices in your operation right now, what are you waiting for? These prices are called record prices because we don’t get to touch them very often,” North says.
Managing Risk in a Volatile Environment
Feed markets add another layer of uncertainty. Large U.S. crops could keep pressure on corn prices, but geopolitical events and energy markets continue to create volatility.
For dairy producers, it’s another reminder to keep an eye on risk.
“There are plenty of headwinds that crude oil prices bring into our economy,” North says. “GLP-1s are real. We see big growth as we come through 2026. It’s going to create domestic headwinds for demand that we may not fully understand yet.”
Even with those challenges, the outlook for margins is cautiously optimistic.
“We are cautiously optimistic about margins as we look at the 2026 year,” North notes. “But we cannot overlook managing the risk around strong beef and dairy prices. The bottom line is: manage risk. It’s too volatile to just leave it to chance.”
An Industry in Transition
Taken together, today’s dairy markets reflect an industry in transition. Prices are improving but remain tied closely to global trade. Protein demand continues to reshape product markets. New consumer trends and medications are shifting how dairy is consumed.
At the same time, milk production continues to expand, beef-on-dairy revenue is strengthening farm balance sheets and risk management tools are playing a larger role in protecting margins.
The opportunity for growth remains strong. But in a market like this, North and Wolfley say it comes down to making the most of the good opportunities while keeping a handle on the risks.
