Dr. Jason Hartschuh, Assistant Professor, OSU Extension Field Specialist, Dairy Management and Precision Livestock, Ohio State University
The latest USDA Dairy outlook shows a continued abundant milk supply and elevated dairy product stocks, supporting a cautious near-term price outlook. The 2025 all‑milk price forecast is $21.35/cwt for the year and forecasts for the 2026 all‑milk at $20.40/cwt. Milk production: year‑to‑date, 2025 milk output is above 2024 levels, driven by higher milk per cow and an expanded cow herd. In July, year-over-year milk production increased by 3.4%, with the cow herd growing by 159,000 head and a 34-lb annual increase in milk per cow. The Dairy Margin Coverage milk margin for July of 2025 was $1.39/cwt lower than the year prior but still about the $9.50/cwt margin level.
Exports remain a crucial component of the U.S. milk market. July 2025 set a new record high for milk-equivalent milk fat, totaling 1,602 million pounds. Increased exports are from cheese, butter, dry whey, and lactose; however, skim milk products experienced significant declines. Mexico remained the primary destination for cheese and dry skim milk products. The primary destination for dry whey is still China and Canada. While butter exports have increased, they remain relatively low, with the majority of the demand increase coming from Canada. Imports of dairy products to the US for July 2025, compared to the same period in 2024, declined by 201 million pounds on a milk fat basis, with the most significant reductions in cheese, butter, and infant formula.
Looking ahead to 2026, if feed costs remain low, the cow herd is expected to continue to expand with a slight increase in milk production per cow. This continued dairy herd expansion could lead to the largest U.S dairy herd in over 30 years. Imports are expected to remain low, while lower wholesale dairy product prices will continue to drive increases in exports.
Beef prices continue to be a critical source of income and are altering the economic signals for milk market expansion. When barn space is available, cows that would have historically been culled for low production are given one chance to get pregnant with beef semen, and those that would have been culled while pregnant for not covering their cost of production stay to have a calf. Holstein bull and heifer cull calves are selling for over $1,000 a head, and the top crossbreed beef calves are bringing in $1,500 a head. Even cull cows are a significant revenue stream, with well-conditioned cows bringing $2500 a head. To capture this premium, some farms now have cull cow conditioning pens. The high beef prices are sending signals for expansion that could plague the industry with an oversupply of milk in the future and significant challenges when the beef market softens.
Utilizing risk management strategies for both inputs, along with milk, cull calves, and cull cows, will be crucial as milk prices decline and to protect against future declines in the beef market. With lower feed costs, Dairy Margin Coverage is not projected to fall below the $9.50/cwt margin during 2025. However, if feed prices increase or milk prices decline more, the margin may fall below $9.50/cwt during 2026.
Dairy Revenue Protection (DRP) can be used on a quarterly basis to hedge against price declines. Developing a continuous protection plan with DRP, utilizing both Class III and Class IV prices, is a critical risk management tool. The Class IV milk price for the first quarter of 2026 has declined dramatically since August 1st, when the 95% coverage level was $18.22/cwt. However, by September 24th, that coverage had dropped to $14.90/cwt. While Class III has also declined, this decline was not as significant, at only $0.80/cwt. Develop a marketing plan now and stick with it. Study market signals, but don’t wish for a better price when the signal indicates a flat to lower prices.
Livestock revenue protection can also be utilized for bull calves heading into the beef market through the feeder cattle unborn dairy option. This tool can be used to set a price floor for up to the following year. The other risk management tool is for cull cows in 13 weeks using a Fed cattle cull cows’ coverage. Utilize the tools at your disposal to safeguard your farm against potential revenue declines and cost increases.