Market Reports

The dairy markets are singing the same song as they were last week, only louder. Dairy proteins are in demand, and prices continue to climb. But we’re making more cheese and butter than the market can absorb, and those markets are in retreat.

A late-Autumn heat wave and competition from other processors has reduced milk powder production in the Central and East regions. Dryers continue to run hard in the West, but supplies are not keeping pace with demand. European milk powder output is also running light after a punishingly hot summer. In New Zealand, milk production is ramping up quickly as the herd leans toward peak production next month. But, on the heels of the winter off-season, milk powder inventories are scant.

Relentless growth in milk output and sky-high components kept dairy manufacturers busy in July. Dairy processors made 2.1% more cheese and 5.5% more butter than in July 2025. Domestic demand is not keeping pace with this growth, and neither are exports. Despite another month of record-smashing cheese shipments, year-over-year growth in January through July cheese exports was 19.5 million pounds smaller than the increase in cheese output.

Drought in the Plains withered the U.S. wheat crop to its smallest harvest since 1970. The drought has also reduced forage supplies and raised hay prices throughout the West. Similarly scorching weather reduced Europe’s grain harvest by 8% compared to last year’s bumper harvest. Meanwhile, Russia and Ukraine continue to bomb one another’s ports and cargo ships, throttling grain exports from the breadbasket on the Black Sea. Smaller, less accessible global wheat supplies suggest that U.S. corn exports could speed up from an already breakneck pace.

USDA raised its estimate of June milk production as well, from an already strong 2.3% increase to an impressive 3% advance. Dairy producers did not add any cows in July, according to USDA’s best guess, but they didn’t get rid of any either. The dairy herd held steady at 9.71 million cows, up 199,000 from the year before. The U.S. dairy industry is milking more cows than it has in 33 years, and those cows are making 59% more milk than they did in 1993, the last time the herd was this large, before adjusting for today’s super-charged components.

The dairy markets remained unsettled this week as prices shifted under the weight of evolving supply and demand dynamics. Different commodities exhibited markedly divergent trajectories with milk powder and cheese finding traction while, butter and dry whey slid lower.