Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Sarina@DailyDairyReport.com

The dairy markets are drowning in milk. Across the globe, dairy output outpaces year-ago volumes by wide margins. In New Zealand, October milk output topped the prior year by 2.8%, a substantial increase for the peak of the highly-seasonal Kiwi milk cycle. Nearly halfway through the 2025-26 season, New Zealand milk solids collections were 3.4% ahead of the 2024-25 pace, and all of the surplus will be exported. In China, after 15 months of contraction, milk production rebounded unexpectedly in September, which will likely crowd out imports amid tepid consumer demand. 

But the real deluge is in the Western Hemisphere. U.S. milk production topped prior-year levels by 4.1% in July, 3.4% in August, 3.8% in September, and 3.7% in October marking the highest four-month average year-over-year increase since 2012. In Europe, milk production got off to a slow start this year, with January through August collections hewing close to year-ago volumes. But growth accelerated dramatically this fall. European milk collections topped 2024 by 4.2% in September and an astounding 5.3% in October. When the United Kingdom is included in the mix, October milk production soared 5.5% year over year.

Combined milk collections among the world’s five largest dairy exporters jumped 4.3% year over year in October, the fastest growth for the group since 2014, when Europe was preparing to end its quota system. Competition for exports is fierce, prompting a race to the bottom in the dairy markets. At the Global Dairy Trade (GDT) auction this week, the GDT Index extended its eight-event losing streak. The 4.3% drop pushed the GDT Index to its lowest level since early 2024. Fats were particularly plentiful and cheap. The value of anhydrous milkfat dropped 9.8% compared to the late-November GDT auction. Butter plummeted 12.4%. GDT skim milk powder (SMP) fell to its lowest price in over two years, and whole milk powder (WMP) set a new calendar-year low.

Closer to home, dairy product prices continued to drift downward. After a long Thanksgiving weekend replete with buttered rolls and creamy mashed potatoes, CME spot butter touched a fresh multi-year low of $1.43 per pound. It managed to recover to $1.4775 today, on par with the already-depressed prices recorded a couple weeks ago. CME spot Cheddar blocks plunged another 17ȼ over the past two weeks and closed today at $1.38, their lowest price since mid-2023. U.S. butter is the cheapest in the world, and is low enough to maintain the record-setting export pace. But despite the recent setback, U.S. cheese exports could slow as European merchants fight for a share of the global market.

The powders retreated from their pre-Thanksgiving perches, but the long-term trend is steady for spot nonfat dry milk (NDM) and higher for whey powder. CME spot NDM dropped 1.25ȼ in the two-week span and closed at $1.17. Spot whey powder slipped 1.5ȼ to a still-high 74.5ȼ.

Class III milk futures had anticipated the cheese market downturn, which gave them room for a recovery. While the December contract followed spot prices lower, 2026 Class III futures rebounded from the painfully low prices set on November 21. First-quarter futures are still painfully low, in the mid-$15s, but the April contract rallied to $16.25 per cwt. Meanwhile, Class IV futures continued their heartbreaking retreat. The December contract fell 8ȼ over the past two weeks and closed at $13.72. Class IV futures forecast prices below $15 until the second half of next year.

Prices like these inevitably invite questions about how long the dairy downturn might last. Those queries began to multiply this fall, when slaughter volumes topped prior-year levels. In the four weeks ending November 22, dairy cow slaughter exceeded 2024 levels by 3.8%. But those hoping for evidence of contraction will have to cast their gaze elsewhere. The dairy herd is at least 200,000 head larger than it was a year ago, so a modest year-over-year increase in the number of cows sent to the packer each week is to be expected. While they exceed the very low volumes of late-2024, cull rates are still well below the historical average. The industry can cull a few more cows than it did last year and remain in expansion mode.

Meanwhile, conversations with producers suggest that expansion is still underway, with several major building projects nearing completion. Producers who spent years planning, financing, and constructing new barns are not inclined to run for the exits at the first sign of financial strain. And, while producers would surely prefer the hefty milk checks they received in late 2024 and early 2025, many have endured financial constraints for a couple months at most. Producers who rely primarily on Class I or Class III income are likely still in the black. USDA announced the November Class III price at $17.18/cwt., up 27ȼ from October. Thanks to inexpensive feed and record-shattering beef revenues, the Class III price is above many producers’ cost of milk production. But producers who earn some Class IV income are in an unenviable position. Class IV milk was $14.30 in October and just $13.89 in November. The futures forecast more of the same. In the Pacific Northwest, where producers are absorbing steep discounts due to co-op losses, the auction docket is full. But in the rest of the nation, cow numbers continue to climb. It typically takes six months of negative margins to force industry-wide contraction, and the clock has only just started ticking.