Market Reports

Dairy markets both in the U.S. and across the globe continue to feel out the balance of supply and demand. Although the dramatic price decreases seen during the last few weeks have given way to more modest movements, the overall market tone remains bearish. Tuesday’s Global Dairy Trade (GDT) auction, albeit glitchy, ultimately saw the GDT Price Index move down 1.4%, the fifth consecutive lower result. The decline in the index reflected lower prices across every product except anhydrous milkfat.

The dairy industry is the victim of its own success. Heavy milk output continues to weigh on milk and dairy product prices. USDA’s Dairy Market News reports that in California, milk production tops year-ago levels by a wide margin, “edging into double digits.” The eye-popping year-over-year increase can be partially explained by the onset of the devastating bird flu last year and the healthier herd today. That does not change the fact that the market has significantly more milk to absorb than it did in late 2024 and early 2025.

As the government shutdown stretches into its second week, the dairy industry continues to operate without access to key data. To this point, the main information gaps for the dairy sector include numbers for trade and dairy product output. However, if the shutdown persists, upcoming reports on milk production and inventories will also be missed, further obfuscating stakeholders’ understanding of market drivers.

The dairy markets continue to lean bearish, as milk output grows around the world. But that doesn’t mean that prices must move downward constantly. After several weeks of steep declines, the dairy markets regained a little ground this week. On LaSalle Street, traders describe this as a healthy correction in a bear market.

Milk is absolutely gushing out of the U.S. dairy industry. Milk production reached 19.52 billion pounds in August, up 3.2% from a year ago. USDA revised its estimate of July milk output and cow numbers, upward significantly. The agency now reports that dairy producers added 35,000 cows in July and another 10,000 head in August. That put the August milk-cow herd at 9.52 million head, larger than at any time since late 1993 and up 176,000 head from a year ago.

Taken together, the world is bracing itself to deal with these plentiful supplies. Global demand is not altogether poor, especially for cheese, and some data is beginning to show modest improvements. Nevertheless, demand remains far from robust and with economic uncertainty still rampant and volatile trade policy still casting a shadow over the outlook, it seems unlikely that it will improve meaningfully in the short term.

There were no bulls to be found on LaSalle Street this week. The bears roamed freely, showing no fear of an overcorrection even as parts of the dairy complex scored multi-year lows. Red ink poured into the cheese and milk powder trade and deluged the butter market. CME spot butter plummeted to $1.86 per pound, down 16.25ȼ in just five trading sessions. Spot butter is down more than 40% from the mid-summer high, languishing at its lowest level since October 2021, nearly four years ago. The weakness carried across the futures board, with May through October 2026 contracts dropping 10ȼ or more on Friday.

Whey remains the shining star in the dairy universe. Production of high-protein concentrates and isolates is record high, restraining output of lower-value whey powder. So far this year, whey powder output stands at the lowest January to July tally since 1984. But while May, June, and July output were light by historic standards, they still outpaced 2024 volumes. The industry is nearing its capacity for high-protein whey products. As cheese output climbs, so will whey powder production.

The butter market melted down. CME spot butter plummeted 19ȼ this week to $2.045 per pound, its lowest price in nearly four years. Last week’s Cold Storage report showed that inventories were not burdensome as of July 31.

Dairy producers continued to hold onto as many cows as possible, allowing for expansion despite the heifer shortage. The dairy herd reached 9.485 million head last month, up 159,000 from July 2024 and the highest head count since May 2021. The year-over-year increase is large enough for producers to send an additional 900 head to slaughter each week and maintain an annual cull rate below 30%, on par with the 2024 rate that fostered rapid expansion.