The USDA’s Livestock, Dairy, and Poultry Outlook, issued Feb. 17, mirrored milk price and production projections in the Feb. 10 World Agricultural Supply and Demand Estimates. It also stated that recent data on dairy cow inventories, weekly estimated slaughter, and milk-feed ratio support downward revisions for the 2026 expected average number of milk cows. The herd is forecast to average 9.54 million, 15,000 less than last month’s projection. However, with higher-than-expected milk per cow in the last quarter of 2025, the 2026 forecast for milk per cow was increased 65 pounds to 24,585 pounds.

Milk components continue to test at higher levels as milk becomes denser over time, says the Outlook. The December milk-fat test averaged 4.51 percent, while the skim solids test averaged 9.23 percent, both higher year over year. For the full year in 2025, the milk-fat test averaged 4.32 percent, compared to 4.24 percent in 2024. Similarly, the skim-solids test averaged 9.12 percent in 2025, up from 9.1 percent in 2024.

The Restaurant Performance Index shows the restaurant industry remained largely in contraction for most of 2025, according to the Outlook. Restaurants serve as an important channel for food service, thus their reduced activity contributes to lower domestic utilization of dairy products, particularly milk-fat-based items such as butter and certain cheeses.

Meanwhile, CoBank says, “Low crop prices and high production costs are weighing heavily on U.S. farmers as spring planting season draws near and farmers make critical decisions about which crops will offer the most favorable economic return. While late-winter price movements and regional basis signals could influence farmers over the next few weeks, soybeans are currently expected to increase their share of American farmland in 2026 while planted acreage of corn, wheat, grain sorghum, cotton and rice is expected to decline.”

U.S. soybean acreage is projected to increase nearly 6 percent this year, according to a CoBank report, with soybeans pulling acres from multiple crops. “Expansion of U.S. soy crush capacity and expectations of continued Chinese demand lifted soybean prices to more attractive levels than competing crops,” says CoBank.

“Following recent price rallies, soybeans offer greater profit potential than corn, wheat, sorghum, cotton and rice,” says Tanner Ehmke, lead grains and oilseeds economist. “Beyond price signals, crop rotation needs will also play a role. Following a big year for corn in 2025 in which acres climbed to the highest level in decades, more corn acres will be available to rotate to soybeans. And with record supplies of corn in storage, farmers will look to rotate into other crops to diversify their marketing risk,” according to Ehmke.

The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. Reports, “Dairy margins weakened over the first half of February as milk prices declined (albeit following a sharp rally), while feed costs were steady to slightly higher. Both the Class 3 and especially Class 4 Milk Futures caught a bid from late January to early February as continued strength in the export market has absorbed increased dairy product production in the U.S., which has prevented inventories from building despite lackluster domestic demand.

“The U.S. dollar index is trading at its lowest level in four years and over the past 12 months has depreciated 12 percent versus the Euro and 6 percent against the New Zealand dollar, making U.S. dairy product exports much more competitive on the global market. Moreover, the U.S. dollar has also declined 19 percent relative to the Mexican Peso, with Mexico sharply increasing their purchases of U.S. dairy.

“With increased milk production and higher components, U.S. cheese production during December rose 6.7 percent year-over-year to 1.279 billion pounds, while butter production of 203.848 million pounds was up 2 percent from December 2024.

“The average fat test during December rose to 4.51 percent, up 0.05 percent from the prior year. U.S. butter prices have been trading at a steep discount relative to both EU and Oceania prices throughout 2025, with prices expected to remain competitive through the Northern Hemisphere spring flush. Canada accounted for 37 percent of total U.S. butterfat trade during 2025, running almost 50 percent ahead of 2024’s volume while the U.S. share of Mexico’s butterfat imports more than doubled to 35 percent while New Zealand’s share declined from 80 percent to 60 percent,” the MW concluded.

Agriculture Secretary Brooke Rollins, Thursday, announced steps to boost low milk prices and expand dairy consumption through Section 32 purchases of what National Milk called “A balanced, effectively targeted mix of dairy products, including the first major butter purchases in five years.”

“Dairy farmers have shared in the struggles faced throughout the agricultural economy, and these purchases will provide important relief to producers who will benefit from the additional demand, helping them provide nutritious dairy products to Americans and the world,” said NMPF President & CEO Gregg Doud.

USDA will purchase $75 million of butter; $32.5 million in Cheddar cheese; $20.5 million in fresh fluid milk; $10 million of Swiss cheese; and $10 million in Ultra-High Temperature (shelf-stable) milk.

After dropping 8.50 cents last week to $1.3875 per pound, CME block Cheddar was regaining ground in the President’s Day Holiday Week, closing Thursday at $1.51, still 39 cents below a year ago. Traders are anticipating Friday afternoon’s first Milk Production report of 2026. I’ll have details next week. The barrels were at $1.47 Thursday, 33 cents below a year ago. They closed Friday at $1.44.

Milk production is seasonally strong in the Central region as contacts tell Dairy Market News that farm level output is up from a year ago. Class III spot milk at mid-week ranged from $2-under to $1-over class. Spot trades were light. Cheesemakers are using milk from within their network and not often moving milk to the spot market or looking to it for additional loads. Demand is strong for barrel cheese. Retail and foodservice demand was unchanged. Competitive prices for cheese produced domestically is contributing to strong export interest, says DMN.

Milk production continues to cover needs of cheese manufacturers in the West. Demand for spot milk from cheese makers was strong. Domestic retail demand is steady, while domestic food service demand is moderate, says DMN. Demand from international buyers was steady to strong. Cheese production is strong.

Cash butter jumped 7.50 cents Thursday, hitting $1.78 per pound, highest since Sept.18, 2025, but still 63.50 cents below a year ago. It closed Friday at $1.7050.

Cream production is strong in the Central region and spot volumes were available. Some butter makers were securing additional cream to run busier production. Bulk butter demand is strengthening, while retail and food service sales are steady. Domestic 82 percent butter fat remains priced competitively globally and contributing to strong export demand. Spot loads of 80 percent butter are available, but contacts say loads with more recent production dates are more difficult to obtain.