PAGE HEADER DAIRY INDUSTRY REPORT


Milk Production


Dairy Market Outlook – 2026 Mike McCully, Founder, McCully Consulting


Summary


The wave of milk keeps growing in key export regions with downward pressure continuing on commodity products – milk powder, cheese, and butter. The momentum in milk growth is expected to carry into Q2 with scenarios for both a quicker slowdown due to low milk prices (primarily US) or a longer expansion given high beef prices (US) or still adequate milk prices (Europe and New Zealand). Price forecasts are lowered once again in anticipation of an oversupplied market in the coming months.


As farmers start to see October milk checks, the optimism that has prevailed for over a year is starting to fade. This is especially the case in several Western states where additional deductions are being taken out of milk checks. The spread between class 3 and 4 milk prices has widened substantially over the last few months. This will lead to de-pooling of class 3 milk and lower blend prices in regions with heavier class 4 milk utilization. While the class 3 milk forecast is $17.34 in 2026 (at 3.5% fat), the class 4 price forecast is $15.01, down $2.30/cwt from this year. Factoring in the higher beef revenue, the break-even point for milk prices is likely in the $15-16 range for most farms. Any sustained move below those prices will likely result in an acceleration of culling and eventually a slowdown in milk supply growth.


Cheese


CME block cheese prices had a brief rally into the $1.80’s before falling back into the $1.60’s. Increased orders for cheese ahead of the holidays along with continued strong export demand has supported prices over the last month. There were also multiple plant-related issues that resulted in tighter fresh cheese supplies. As those get resolved, and US export prospects dim into early 2026 given lower European prices, cheese prices are forecast to trade in the $1.60’s through mid-2026. Like other dairy products, the bias is to lower prices than the forecast and futures given milk supply growth. The forecast for CME block cheese for 2026 was lowered to $1.69 with a more pronounced recovery in the second half versus current futures prices. A slowdown in exports in early 2026 would define a lower price scenario with block cheese prices under $1.50 for a period of time.


Milk production in the major export regions grew more than 3% in September with similar gains expected in Q4. If demand is only growing around 1%, that quickly becomes too much product. The GDT index reflects softer market conditions as it has declined nearly 11% since mid-August and is down 16% from the early May peak. Milk expansion cycles can last longer than expected, and as a result, dairy and milk prices may fall lower than current forecasts and futures markets indicate.


Butter


CME butter prices found brief support before making new lows for the year, falling below $1.50, the lowest price since February 2021. Cream supplies remain heavy which have kept butter churns busy into Q4. As a result, fresh butter has supplemented frozen butter supplies, thereby limiting any upward movement in prices this fall. Lower prices will have an impact on both supply and demand. First, some large dairy farms are reducing their feed ration cost


WHAT’S IN STORE | 2026 © 2026 International Dairy Deli Bakery Association


Industry Landscape


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