Value of dairy

Changes in the dairy market have caused prices of milk in all classes of the Federal Milking Marketing Orders to fluctuate, making margins tighter for dairy farmers.

During a webinar organized by Edge Dairy Farmer Cooperative Dec. 16, Dr. Marin Bozic and Brian Walton spoke about current market conditions and projections for 2026.

Bozic is the founder and CEO of Bozic LLC and a designer for Dairy Revenue Protection, Livestock Gross Margin and Livestock Risk Protection. Walton is an economics and research specialist at Bozic, focusing on market analysis and risk management in the dairy, livestock and grain sectors.

“2026, in general, is going to be a tougher margin year for most farms,” Walton said. “There’s general consensus that we might have oversupplies, especially in the first half of the year. As we look out into the second half, there’s a little bit more optimism, because there’s probably going to be some farmgate margin signals to slow down production.”

In the last few months, the milk market has fallen for block cheese and butter prices. Walton and Bozic are also seeing that butterfat has saturated the market, and they are seeing prices roll back.

Walton said this is likely due to rapidly expanding dairy herds to meet all the new processing capacity that is added or is being added.

In the past year and a half, the U.S. has added roughly 250,000 cows. Walton said the closest cycle to this would be 2005-2008.

“If you remember, the narrative early in 2025 was no replacement heifers,” he said. “‘There’s no way we can grow this herd.’ That was what everyone was saying, and all of a sudden, this summer, the narrative flipped on its head.”

Walton said U.S. cheese exports lost some ground due to Europe having lower prices for the first quarter of 2026.

“We missed out on our export window for the first quarter,” Walton said. “It looks like we’re trying to buy business back that we lost. So that’s one angle that we need to focus on for 2026. It’s going to be a dog fight for getting these cheese exports.”

Although demand for dairy in the U.S. has been low, the exports are 9%-10% of production, which is a record high, Walton said.

Aside from the U.S., other areas of the world have seen growth in dairy, creating a wave of milk.

“Overall, Europe, New Zealand, Argentina and the U.S. combined, we’re seeing, for October, probably somewhere around 4% year-over-year growth.”

Whey protein isolate has also increased in the market by about 11%, Walton said.

“A lot of processors are trying to push their whey stream into the higher end of WPI because margins are just fantastic. They can really make a lot higher return than just doing sweet whey or (whey protein concentrate) 34, so we are seeing a lot of production shift in the high-end whey.”

Walton said part of the increase in the market for WPI is due to glucagon-like peptide-1 gaining ground for weight loss and diabetes use.

In the last 3-4 months, WPI has seen record-high prices, Walton said.

“It’s driving a lot of margins for processors,” Walton said. “The other solids price is one of the few areas in the milk check that’s been holding its value, so that’s adding some value back to the milk check.”

Walton said he has seen an interest in protein consumption with consumers.

“Every food manufacturer is trying to capture or jump on the bandwagon,” Walton said. “Starbucks has protein-infused lattes. A packaged goods company has a protein-enhanced version of its product. We are seeing a lot of different demand across a wide variety of products.”

Walton said another thing for farmers to pay attention to is beef revenue opportunities.

“Producers are going to be able to weather lower milk prices for a lot longer than people think because of the beef revenue,” Walton said.

Bozic encourages farmers to utilize livestock insurance programs such as DRP, LRP and LGM. Bozic is also working on proposing improvements to the U.S. Department of Agriculture safety net. These include coverage for unborn dairy calves, adjusting the price adjustment factor for dairy feeders, expanding cull cow coverage to 52 weeks and concurrent use of LGM-dairy and DRP. If passed, these changes would start July 1, 2026.

If LGM-dairy and DRP were concurrent, it would extend the trade period to allow farmers to do last-minute coverage.

While Walton is optimistic for better prices in the second half of 2026, he said he cautions that many different factors can impact the market.