The Agriculture Department raised its estimate of 2025 and 2026 milk output in its World Agricultural Supply and Demand Estimates, citing increased cow numbers and a faster rate of growth in output per cow.

2025 production and marketings were projected at 230.0 and 229.0 billion pounds respectively, up 800 million on both from a month ago. If realized, both would be up 4.1 billion pounds or 1.8 percent from 2024.

2026 production and marketings were projected at 231.3 and 230.3 billion pounds respectively, up 900 million pounds from a month ago. If realized, both would be up 1.3 billion pounds or 0.6 percent from 2025.

Price forecasts for cheese, butter and nonfat dry milk (NDM) were lowered for 2025 based on recent price declines and increased milk supplies. The whey price forecast was unchanged. Class III and Class IV price forecasts were reduced on lower dairy product prices.

Look for the 2025 Class III price to average $18.20 per hundredweight, down 30 cents from last month’s estimate, and compares to $18.89 in 2024 and $17.02 in 2023. The 2026 average, at $17.40, is down 45 cents from a month ago.

The Class IV is expected to average $18.15 in 2025, down 80 cents from last month’s estimate, and compares to $20.75 in 2024 and $19.12 in 2023. The 2026 average was projected at $17.25, down $1.60 from a month ago.

Nebraska has confirmed its first case of bird flu in a dairy herd. There are now 1,080 confirmed cases in 18 states. The U.S. milk supply remains safe due to steps taken by the industry as well as the pasteurization process itself.

The latest U.S. Dairy Supply and Utilization report had some interesting take-aways. HighGround Dairy’s Cara Murphy stated in the Sept. 22 Dairy Radio Now broadcast that even though U.S. dairy exports were the secon-highest on record and up over 200 percent from a year ago, cheese utilization totaled 1.2 billion pounds, off 0.4 percent.

Domestic usage, which makes up over 90 percent of cheese usage, was down 2.7 percent and the lowest level since July 2022. She said retail sales were good but food service wasn’t. Cheese exports were up 29.4 percent, thanks to low U.S. prices.

Butter utilization was up 5.4 percent, primarily due to all-time high exports which were up 208.3 percent. Domestic consumption, which also accounts for over 90 percent of total usage according to Murphy, was off 0.8 percent. HighGround says “Limited domestic demand could help to explain the significant price decline on the CME spot market over the past month as strong production keeps butter volumes plentiful.”

Nonfat dry milk (NFDM) and skim milk power (SMP) utilization was down 1.3 percent, thanks to exports being down 15.7 percent. Domestic demand was up 83.1 percent and has supported CME prices, says HGD, “holding above $1.20 per pound since early May, but this dynamic has recently shifted following the decline of global skim milk powder prices as well as rising U.S. milk supplies.”

The tariffs have influenced this market and Murphy said they are paying attention to them, but she cited Oceania pricing being a bigger factor, as well as the strong milk output we’re seeing in the U.S., Europe, South America and New Zealand. If powder prices fall globally, she said the U.S. may recover some market share.

Dry whey usage was up 12.5 percent but was against an extremely weak July 2024 number, according to HGD. Murphy said China stepped back into the market after some trade issues were settled, but pointed to the high protein products, the whole protein concentrates and isolates, and said they are what’s holding up the whey market as “people just can’t get enough protein in their foods.”

As expected, the Fed lowered its benchmark interest rate a quarter point this week, first reduction in nine months, and indicated there’ll be additional cuts ahead. Meanwhile, CME block Cheddar was trading Thursday morning at $1.6825 per pound, as traders were anticipating Monday’s August Milk Production report. The blocks closed Friday at $1.6150. The barrels were at $1.64 per pound Thursday, after finishing Friday at $1.6125.

Contacts in the Central region tell Dairy Market News that mild temperatures are contributing to increasing milk production. Demand from Class I processors is taking up much of the additional production, keeping spot availability somewhat limited. Mid-week prices were trading flat to $2-over Class. Cheese production is steady in the Central region. Demand from food service and retail customers is steady. Export interest is strong, though some contacts said export demand was softer this week but remains above a year ago.

Cheese manufacturers in the West indicate ease in securing milk. Production is steady. Domestic retail demand is steady. Food service demand continues to be weaker. Export demand is mixed as U.S. prices remain competitive but price points are generally weakening for cheese produced outside of the US as well.

The meltdown continued in the butter, dripping to $1.77 per pound Wednesday, lowest CME price since Oct. 11, 2021, but it rallied Wednesday and was trading Thursday morning at $1.8050, following a Friday close at $1.86.

Central milk production and component levels were strong throughout the summer months, keeping churns active, says DMN, and that has contributed to the current bearishness. Cream is plentiful in the Central region and demand is softening. Declining prices were causing some bulk purchasers to hold off.

Cream is also widely available in the West and demand from butter producers is somewhat stronger as cream has become more affordable. Butter production is stronger but remains below 100 percent capacity. Churn equipment projects are closer to completion and expected to bring more churning back online in fourth quarter. Retail production continues to be more of a priority than bulk production. Demand from domestic and international buyers is steady to stronger, says DMN.

Grade A nonfat dry milk fell to $1.14 per pound Wednesday, lowest since March 25, 2025, but closed Thursday at $1.1450, after finishing Friday at $1.1650.

Dry whey was trading Thursday at 63 cents per pound, highest CME price since January 31, 2025. Its Friday finish was at 59.25 cents per pound.

The October Federal order Class I base milk price was announced by the USDA at $18.04 per hundredweight, down 66 cents from September, $5.13 below a year ago, and the lowest Class I since June. It equates to $1.55 per gallon, down from $1.99 a year ago. The Class I average stands at $19.24, down from $20.02 a year ago, and compares to $19.09 in 2023.

Dairy margins continued to weaken the first half of September as milk prices succumbed to further losses while feed costs remained steady, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. “A sharp drop in both butter and cheese has pressured milk futures as growing supplies begin to overcome strong demand,” the MW stated.

The MW warned “The combination of increasing milk output and rising component levels, with the July fat test of 4.13 percent up 0.06 points from last year has caused butter production to rise 9.8 percent from July 2024 to 180.1 million pounds, the highest volume since 1942.”