Surviving the squeeze: How dairy farmers can thrive as prices tumble

Profit margins for US dairy farmers are set to tighten in 2026 as rising production continues to put pressure on milk prices.

In November, the USDA once again revised up its milk production forecast for 2025 and 2026 over higher expected productivity per cow and a growing dairy herd.

Class III and IV milk prices for 2025 were also revised down again and the all-milk price was lowered to $21.05 per hundredweight (cwt) for 2025 and $19.25 per cwt for 2026.

But in 2026, the Class III price is set to perk up through resilient demand for whey, while producers of Class IV milk products (butter, NDM) should expect reduced prices in both years due to lower commodity prices.

For 2025, Class III (used for cheese and whey) prices are reduced, as lower cheese prices more than offset higher whey prices. Class IV prices (used for butter and powdered milk) are reduced on lower butter and nonfat dry milk (NDM) prices. The butter price forecast has been reduced because butter prices have fallen sharply due to an increase in milkfat supplies; and cheese and NDM prices are also lowered due to increased supplies. Strong demand for whey however is pushing the whey price forecast up.

For 2026, the Class III price is raised with higher whey prices more than offsetting the declines in cheese prices. The Class IV price is reduced on lower butter and NDM prices. Butter, cheese, and NDM prices are lowered on increased milk supplies. The whey price forecast is raised, as strong demand is expected to continue into 2026.

Despite the downward pressure on prices next year, producers will have several levers to keep profit margins healthy.

Lean into exports

According to the USDA’s latest WASDE report, exports of butter, cheese and whey are set to rise next year thanks to competitive pricing.

This means that producers with access to international markets could offset some of the domestic pricing pressures by leaning into exports.

Here are the top markets for US cheese, butter and whey (including whole milk powder and WPC80+ exports) according to USDEC trade data:

Consider alternative feed options

Dairy feed costs remained low or declining in 2025, and the trend is likely to continue into 2026.

According to the latest ERS feed outlook report, US feed grain supply remains at a record-high level thanks to increased corn and sorghum production.

Corn season-average farm price is projected at $3.90 per bushel: relatively low compared to prior years.

At the same time, strong US corn exports are poised to put downward pressure on domestic feed prices; while soft exports of sorghum will leave more supply available domestically.

Overall, lower grain prices are expected to help producers offset some of the pressures from falling milk prices. With corn prices near $3.90 and strong feed availability, feed costs are expected to stay low through 2025/26.

This provides a cushion against lower milk prices, but overall margins will still depend on milk price trends and other input costs.

Some producers may make additional cost savings by swapping corn for sorghum, particularly in regions close to production areas, e.g. Kansas and the Sorghum Belt.

But doing so may have negative impact on long-term feed efficiency and metabolic health, according to this recent study from Italy (see ‘sources’ below).

It found that replacing corn meal with sorghum meal may reduce starch and protein digestibility, leading to less efficient nitrogen utilization and potentially higher milk urea nitrogen.

Beat fertilizer price spikes

Crucially for crop and dairy producers alike will be how fertilizer prices move next year. Based on recent trends, fertilizer prices are likely to remain elevated in 2026. This means that crop producers face higher production costs, and dairy margins are expected to tighten despite soften grain prices.

The latest USDA Fertilizer Use and Price report shows that nitrogen-based fertilizers are facing moderate increases (likely $850 to $950 per ton for ammonia and $650 to $750 per ton for urea by 2025/26) if energy costs remain high.

Phosphate fertilizer (DAP) prices are projected in the $700 to $800 per ton range; and potash is trending at $600 to $700 per ton by 2026.

This means it’s the right time for producers to come up with strategies to minimize risk from sourcing and using commercial fertilizer: whether that’s to do with smarter nutrient management, leveraging manure or local by-products; locking in prices now or bulk-purchasing, or investing in soil health to reduce the need for fertilizer use.

Launch value-add products

With demand for natural, healthy and protein-rich foods on the rise globally, there’s never been a better time to invest in value-add dairy products.

Yogurt, kefir, lactose-free milk and soft cheese remain in high demand in the US and beyond, with consumer hungry for food that’s satiating, natural, and nutritious.

Meanwhile, farmer-led or farmer-supporting brands such as Painterland Sisters and Alec’s Ice Cream just two of the companies that have been making waves on the market with distinct brand stories and unique propositions, such as Icelandic skyr yogurt and better-for-you dairy desserts and ice creams.

Demand for premium butter is also strong, with cooking and flavored portions leading the way in format innovation.

And there’s plenty of runway in fortified dairy, such as prebiotic fiber- and biotics-containing yogurts that deliver greater nutritional and gut health benefits.

Lactose-free milk is another potential avenue for producers and a segment that’s been in growth despite overall declining milk consumption.

Would Dairy Margin Coverage payments kick in next year?

US dairy producers are subsidized by the government through the Dairy Margin Coverage Program if margins drop under $9.50 per cwt. Throughout 2025, margins remained above this threshold, but with milk prices under greater pressure next year, would DMC payments restart in 2026?

The answer is: unlikely. Even if milk prices and feed costs experience sharp decreases and hikes respectively, the likelihood of margins dropping below $9.50 per cwt is zero, because of just how low feed prices are currently.

But this milk prices decline beyond the current forecast, or if feed costs rise sharply in the course of next year.

Sources:

Pontieri, P., Del Giudice, L., Masucci, F., Di Francia, A., Lambiase, C., Scalera, G., … Serrapica, F. (2025). The potential of sorghum meal as a replacement of corn meal in the diet for lactating buffaloes: impacts on milk yield and nutrient digestibility. Italian Journal of Animal Science, 24(1), 1415–1426. https://doi.org/10.1080/1828051X.2025.2519824