Higher Feed Prices Eat into Dairy Margins in August
Published: Friday, September 11, 2026
The U.S benchmark milk price headed higher in August but is facing some headwinds as feed prices climb and strengthened beef prices are in question. The Agriculture Department announced the August federal order Class III price at $16.64 per hundredweight, up $1.12 from July, but is still 60 cents below August 2025, and the lowest August Class III since 2021. It put the 2026 average at $15.95, down from $18.47 a year ago, and compares to $17.75 in 2024. Last Friday morning Class III futures portended a September price at $16.15; October, $16.33; November, $16.66; and December at $16.74.
The August Class IV price is $17.36 per hundredweight, down 98 cents from July, and $1.14 below a year ago. Its eight month average stands at $18.50, down from $18.82 a year ago, and compares to $18.82 in 2025.
The latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC says, "Dairy margins deteriorated sharply over the last half of August on a combination of lower milk prices and a significant surge in feed costs. Both the corn and soybean meal markets rose sharply as the Pro Farmer crop tour results revealed a yield forecast well below USDA's, with adverse weather continuing across the Corn Belt causing market participants to reprice risk in both the soybean complex and corn. Furthermore, ongoing attacks between Russia and Ukraine have sharply curtailed grain export shipments out of the Black Sea, while escalating conflict between the U.S. and Iran has caused oil prices to surge and raise concerns about fertilizer availability from the Gulf."
"Continued growth in milk production is weighing on the market while a correction in the cattle market is beginning to lower revenue dairies receive from cull cows and day-old cross calves," the MW warned, and it detailed the July Milk Production and Cold Storage reports, which I have previously reported.
Higher hay and soybean prices, plus another drop in the All Milk price, pulled the July milk-feed ratio lower. The USDA's Ag Prices report showed July at 2.12, down from June's 2.23, and down from 2.35 in July 2025. The index is based on the current milk price in relationship to feed prices for a ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. One pound of milk would purchase 2.12 pounds of dairy feed of that blend.
The All Milk Price averaged $20.30 per hundredweight, with a 4.19% butterfat test, down 80 cents from June's $21.10, which had a 4.23% test. It compares to $20.80 a year ago, with a 4.13% test.
The national corn price averaged $4.28 per bushel, down 2 cents from June, and 3 cents below July 2025.
Soybeans averaged $11.60 per bushel, up 30 cents from June, and $1.40 per bushel above a year ago. Alfalfa hay averaged $203 per ton, up $5 from June, and $28 above a year ago.
The July cull price for beef and dairy combined averaged $175 per hundredweight, unchanged from June, $18 above July 2025, and $103.40 above the 2011 base.
Milk production margins decreased for the second month running by losing 93 cents per cwt. and were below $11 per hundredweight for the first time since March at $10.71, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo. "Income over feed costs in July were above the $8 per cwt. level needed for steady to higher milk production for the 35th month in a row," says Brooks. "Input prices were mostly higher in July with all three input commodities inside of the top ten for July all-time. Feed costs were the ninth highest ever for the month of July and increased 13 cents per hundredweight from June."
Brooks says milk income over feed costs for 2026 (using Aug. 31 CME settling futures prices for Class III milk, corn, and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $10.63 per hundredweight, a loss of 56 cents per hundredweight versus last month's estimate. Income over feed costs in 2026 would be above the level needed to maintain or grow milk production, down $1.78 per hundredweight from 2025's level, and 7 cents lower than the 2021-25 average.
Milk income over feed costs in 2027 are expected to be $9.79 per hundredweight, a loss of 84 cents per hundredweight versus 2025. Income over feed costs in 2027 would be above the level needed to maintain or grow milk production, 91 cents per hundredweight less than the 2021-25 average, and down $1.33 per hundredweight from the previous month.
As reported last week, concerns over high beef prices have prompted the administration to open the doors to more imports, to the chagrin of beef and dairy producers relying on the higher beef prices. Agriculture Secretary Brooke Rollins last week announced the "Ranchers First Initiative" to "rebuild the American beef herd and put America's ranchers back at the center of our nation's food supply," according to a USDA press release.
The initiative includes provisions that would will allow producers to insure the economic value of retaining a heifer for breeding over a two-year period. USDA will allow producers to use the Emergency Conservation Program on Grassland Conservation Reserve Program acres to speed recovery after wildfires and other natural disasters, and will "Continue to revitalize American local processing by supporting small and regional beef slaughter facilities," in view of recent processing closure announcements.
USDA will also "prioritize federal procurement of locally processed American beef by encouraging purchasing across federal and state institutions and expand support for beginning farmers and ranchers."
July U.S. dairy exports slipped to 548.3 million pounds, down 0.4% from a year ago, and the second month in a row to trail 2025 levels. HighGround Dairy says this occurred despite increased shipments to Mexico, Canada, Japan and South Korea and that Southeast Asia and China drove the overall decline.
Cheese sailings totaled 143.9 million pounds, up 25% from a year ago and up 24% year to date, thanks to U.S competitive prices. Butter exports slipped to 17.2 million pounds, down 8.3%, but up 69.3% YTD.
Nonfat-skim milk powder exports fell to 101.5 million pounds, down 23.3%, as high prices turned buyers away. HighGround says powder fell to its lowest level since June 2019. "Much of July's volume was likely booked in April or May, when US prices were well out of alignment with European and Kiwi skim milk powder, limiting export opportunities," says HGD. Shipments to Mexico fell 12%.
Dry whey exports, at 62.9 million pounds, were up 76.1% from a year ago. Shipments to China doubled from a year ago. StoneX says whey exports were higher than expected, which has been true for most of the year, "However there is a significant amount of dry permeate that is being misclassified as dry whey so it is hard to say how actual dry whey exports are holding up."
You'll recall July milk production was up 2.2% from a year ago, again plenty to process, but was compounded by a 10-day outage at all four Fairlife facilities, which the Daily Dairy Report says, added milk that would have gone to the bottle.
The USDA's latest Dairy Products report shows cheese production climbed to 1.264 billion pounds, up 2.3% from June, and 2.1% above July 2025. Year to date (YTD) output hit 8.75 billion pounds, up 2.4% from 2025.
Italian style cheeses totaled 551.1 million pounds, up 5.5% from June, and up 4.1% from a year ago. Mozzarella cheese totaled 433.3 million pounds, up 2.9% from a year ago. American cheese, at 479.8 million pounds, was down .6% from June, and down 1.1% from a year ago.
Cheddar output fell to 328.6 million pounds, down 6.9 million or 2.1% from June's total which was revised down 2.6 million pounds, and was down 5.8 million or 1.7%, from a year ago. YTD Cheddar hit 2.3 billion pounds, up .1% from 2025.
Butter production fell to 189.2 million pounds, down 18.7 million pounds or 9% from June, but was up 9.8 million pounds or 5.5%, from a year ago. YTD, 1.5 billion pounds had been churned, up 5.9% from a year ago.
Yogurt production totaled 477.7 million pounds, up 6.3% from a year ago. Hard ice cream came in at 69.3 million pounds, off .3% from a year ago.
Dry whey slipped to 80.9 million pounds, down 900,000 pounds, or 1.2%, from May, but up 11.8 million or 17.3%, from a year ago. YTD 544 million pounds had been produced, up 8.3%. Whey stocks grew to 68.4 million pounds, up 3.3 million or 5.2%, from June, and up 18.3 million pounds, or 36.5%, from a year ago.
Nonfat dry milk output climbed to 165.1 million pounds, up 1.3 million pounds or .8% from June, and up 34.6 million, or 26.6%, from a year ago. YTD output hit 1.2 billion pounds, up 10.6%. Stocks fell to 232.8 million pounds, down 10.4 million, or 4.3% from June, and down 12.1 million,pounds or 5% from 2025.
Skim milk powder dropped to 22 million pounds, down 6.7 million or 23.1% from June, and down 22.4 million or 50.3% from a year ago. YTD skim milk powder stood at 205.8 million pounds, down 13.3% from a year ago.
Price checking Chicago, block Cheddar closed the first Friday of September at $1.4650, down 1.75 cents on the week, lowest since July 6, and 22.50 cents below a year ago, as traders weighed the July Dairy Products report and anticipated the Labor Day holiday on Monday. The barrels finished the week at $1.5325, 3.25 cents lower, lowest since July 8, and 16.75 cents below a year ago. 51 loads of block traded this week, 33 on Wednesday alone and no barrel.
Milk in the Central region became more available due to mild weather and the approaching holiday weekend, according to Dairy Market News. Spot milk was available however, hauling constraints were limiting some buyers' ability to secure additional loads. Retail cheese demand remains strong while food service sales are below expectations.
Cheese manufacturers in the West report production remains steady. Domestic retail demand is soft to flat, but contacts note growing interest in artisanal and private label cheeses. Western producers are actively developing new flavors and high protein options to capture that demand. Food service demand continues to be weak and export demand is mixed. Contacts are closely monitoring evolving international conditions for disruptions to packaging requirements for parmesan, feta, and asiago, according to DMN.
Cash butter fell to $1.3925 per pound last Tuesday, lowest CME price in five weeks, but reversed last Wednesday and closed Friday at $1.44, 2.25 cents lower on the week, and 58.25 cents below a year ago, with 82 sales reported on the week.
Central region cream supplies are steady and shipments to Mexico remain active while domestic spot loads continue moving toward Class II and Class III use. Butter producers note that spot cream availability for Class IV use remains tight.
Western butter makers report milk and cream supplies are meeting needs. Peak heat has passed and milk volumes have returned to seasonal norms. Spot cream remains mostly available across the region, though Northwest contacts reported shortages. Butter production is stable. Domestic butter demand is holding steady. International demand is stronger and one manufacturer said export sales have doubled year over year. Ongoing global concerns and regional negotiations however may affect exports, DMN warned. Retail stocks continue to build.
Grade A nonfat dry milk climbed to $1.90 per pound last Tuesday, highest since June 8, but it closed last Friday at $1.88, 1.50 cents higher on the week and 66 cents above a year ago, with 29 sales put on the board.
Dry whey saw its Friday finish at 75.25 cents per pound, up 1.50 cents on the week, highest since Dec. 12, 2025, and 18.75 cents above a year ago, There were seven sales on the week.
Powder continued to add strength to the Global Dairy Trade. Tuesday's weighted average inched .9% higher, down from the 2.3% advance on Aug. 18. Volume climbed to 96.9 million pounds, up from 90.5 million on Aug. 18. The average metric ton price was $3,910, up from $3,873.
Skim milk powder again led the gains, up 5.3%, after rising 7.6% on Aug. 18, though whole milk powder was off .1%, following a 3% gain. Buttermilk powder was up 4.6%, and lactose was up 2%, following a 3.2% rise last time. Cheddar led the declines, down 6.6%, after inching .6% higher, while GDT Mozzarella inched up .3%, after jumping 6.1%. Anhydrous milkfat was down 1.3%, after leading the declines on Aug. 18, falling 6%. Butter was down 0.8%, following a 2% decline.
StoneX says the GDT 80% butterfat butter price equates to $2.2251 US per pound, down from $2.2525 on Aug. 18, and compares to CME butter which closed last Friday at $1.44. Cheddar equated to $1.5889, down from $1.6983 last time and compares to last Friday's CME block Cheddar at $1.4650. GDT skim milk powder averaged $1.6759 per pound, up from $1.5885, while whole milk powder averaged $1.6260, down from $1.6288, while CME Grade A nonfat dry milk closed last Friday at $1.88 per pound.
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