The No, 1 topic this week, of course, was the U.S. and Israel’s war with Iran. The ripple effects are affecting the world in many ways, including perhaps the biggest being oil and other goods shipped through the very busy Strait of Hormuz. Shipping of dairy products are included.

Back home, farm milk prices are slowly heading back up. The USDA announced the February Federal order Class III price at $14.94 per hundredweight (cwt.), up 35 cents from January, but $5.24 below February 2025. It is the highest Class III price since October 2025 and its two-month average stands at $14.77, down from $20.83 at this time year ago.

Wednesday’s Class III futures settlements portend a March price at $16.57; April, $17.62; May, $18.04; and June, $18.26; with a peak at $18.56 in September.

The February Class IV price is $16.29, up $2.74 from January, but $3.61 below a year ago. Its two-month average is $14.63, down from $20.32 a year ago.

Dairy margins strengthened nicely, particularly in third quarter, over the second half of February as milk price increases more than offset a modest feed market increase, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“Both the Class 3 and especially the Class 4 milk futures continued to see strength,” the MW stated. “Some of the increase was attributed to an announcement from USDA to buy additional nutritional items for food banks and nutrition assistance programs. Of the $263 million allocation, $75 million will be used to purchase butter, $32.5 million will be used to purchase Cheddar cheese and cheese products, $10 million will be used to purchase Swiss cheese, $20.5 million on fresh fluid milk, and $10 million on ultra-high temperature milk.

“USDA released the Milk Production Report and indicated January production was up 3.4 percent from last January, lower than analysts’ estimates. U.S. herd expansion continues, particularly in South Dakota and Kansas to fill demand from new processing plants. Despite elevated production, days of available supply for both butter and cheese remain relatively low,” the MW stated.

“Cheese in cold storage came in nearly identical to January 2025 inventories at 1.38 billion pounds, near a 10-year low. This was up 0.2 percent from December; a slightly smaller build than is typically seen. Butter in cold storage was reported at a 10-year low of 215.4 million pounds, up 14.8 percent from December compared to a seasonal increase of 19.3 percent on average. Both figures imply strong demand in the face of increased production domestically and globally,” the MW concluded.

Another drop in the All-Milk Price pulled the January feed price ratio lower for the fourth consecutive month. The USDA’s Ag Prices report showed January at 2.09, down from 2.26 in December, and compares to 2.82 in January 2025.

The All-Milk Price dropped to $17.50 per cwt., with a 4.48 percent butterfat test, down $1.50 from December’s $19.00 on a 4.51 percent test. It was $6.60 below a year ago which had a 4.46 percent test. January’s price is the lowest since July 2023’s $17.30.

The December average cull price for beef and dairy combined inched up to $158 per cwt., up $1 from December, $32 above January 2025, and $86.40 above the 2011 base average.

Milk production margins decreased for the fifth month in a row to the lowest level since August 2023’s $7.79 per cwt., with a $1.47 per cwt. loss from December to $9.11 per cwt., according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo.

“Income over feed costs in January were above the $8 per cwt. level needed for steady to higher milk production for the 27th month in a row,” says Brooks. “Input prices were steady to lower in January with one of the three input commodities inside of the top ten for January all-time. Feed costs were the 10th highest ever for the month of January and decreased 3 cents per cwt. from December.

“Milk income over feed costs for 2025 were $12.44 per cwt. Income over feed costs in 2025 would be above the level needed to maintain or grow milk production, down 96 cents per cwt. from 2024’s level, and $2.17 higher than the 2020-24 average.”

He added, “Milk income over feed costs for 2026 (using Feb. 27 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 cwt., a loss of $1.81 per cwt. versus 2025. Income over feed costs in 2026 would be above the level needed to maintain or grow milk production and up 49 cents per cwt. versus the previous estimate.”

Block Cheddar was trading Thursday morning at $1.61 per pound, as traders awaited the afternoon’s January Dairy Products Report. That is the highest CME block price since Nov. 11, 2025, and only 1.25 cents below a year ago. They closed Friday at $1.5225. The barrels were at $1.57 Thursday, highest since Nov. 26, 2025, and 6 cents below a year ago, after closing Friday at $1.56.

Dairy Market News reports that milk production is trending higher in the Central region. Some cheesemakers were receiving more offers for milk this week however prices mid-week were unchanged from last week and ranged $1-under to $2-over Class. Cheese output is strong and plants are running full schedules. Demand for barrels remains strong. Retail cheese sales increased slightly, but food service demand is unchanged. Global interest continues.

Milk production is seasonally increasing in the West. Cheese maker intakes varied from stable to increasing but plants reported heavily active cheese production. A few manufacturers report their spot load inventories are extremely tight through second quarter. Domestic demand is strengthening. Manufacturers and distributors indicate traders are more actively looking to make purchases. Some sellers are prioritizing export sales over domestic sales, which is decreasing availability of cheese for domestic buyers. Demand from international buyers varies from stable to stronger, according to DMN.

CME butter skyrocketed 26.50 cents Monday, topping $2 per pound for the first time since Sept. 9, 2025, and the highest single day gain since June 4, 2020, when it pole-vaulted 29 cents. It hit $2.1375 Tuesday, highest since Aug. 26, 2025, but then gave back 11.75 cents Wednesday, and regained 2 cents Thursday, hitting $2.04, 27 cents below a year ago. It closed Friday at 1.84. 45 loads had traded hands so far this week.

Cream output remains strong in the Central region. Spot Class II demand is strengthening as processors prepare for spring holidays. Demand for cream from churns is light, as butter makers are using available cream from within their network. Contacts report strong demand for bulk butter. Retail sales are steady to higher, but food service demand is down from last year. Spot interest from international purchasers is strong as US prices remain competitive. Inventories of 82 percent butterfat butter are tight and 80 percent stocks are somewhat snug, says DMN.

Strengthening milk production and strong fat components continue to provide more than sufficient cream in the West. Cream demand from Class II and III manufacturers, such as ice cream and cream cheese producers, is seasonally increasing but butter manufacturers have plenty.