The U.S. benchmark milk price headed higher in August but is facing some headwinds as feed prices climb and strengthened beef prices are in question. The Agriculture Department announced the August Federal order Class III price at $16.64 per hundredweight (cwt.), up $1.12 from July, but is still 60 cents below August 2025, and the lowest August Class III since 2021. It put the 2026 average at $15.95, down from $18.47 a year ago, and compares to $17.75 in 2024. Wednesday’s Class III futures settlements portend a September price at $16.33; October, $16.59; November, $16.87; and December at $16.94.

The August Class IV price is $17.36 per cwt., down 98 cents from July, and $1.14 below a year ago. Its eight-month average stands at $18.50, down from $18.82 a year ago, and compares to $18.82 in 2025.

The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC says “Dairy margins deteriorated sharply over the last half of August on a combination of lower milk prices and a significant surge in feed costs. Both the corn and soybean meal markets rose sharply as the Pro Farmer crop tour results revealed a yield forecast well below USDA’s, with adverse weather continuing across the Corn Belt causing market participants to reprice risk in both the soybean complex and corn. Furthermore, ongoing attacks between Russia and Ukraine have sharply curtailed grain export shipments out of the Black Sea, while escalating conflict between the U.S. and Iran has caused oil prices to surge and raise concerns about fertilizer availability from the Gulf.

“Continued growth in milk production is weighing on the market while a correction in the cattle market is beginning to lower revenue dairies receive from cull cows and day-old cross calves,” the MW warned, and it detailed the July Milk Production and Cold Storage reports, which I have previously reported.

Higher hay and soybean prices, plus another drop in the All Milk price, pulled the July milk-feed ratio lower. The USDA’s latest Ag Prices report showed July at 2.12, down from June’s 2.23, and down from 2.35 in July 2025.

The All Milk Price averaged $20.30 per cwt., with a 4.19 percent butterfat test, down 80 cents from June’s $21.10, which had a 4.23 percent test. It compares to $20.80 a year ago, with a 4.13 percent test.

The national corn price averaged $4.28 per bushel, down 2 cents from June, and 3 cents below July 2025. Soybeans averaged $11.60 per bushel, up 30 cents from June, and $1.40 per bushel above a year ago. Alfalfa hay averaged $203 per ton, up $5 from June, and $28 above a year ago.

The July cull price for beef and dairy combined averaged $175 per cwt., unchanged from June, $18 above July 2025, and $103.40 above the 2011 base.

Milk production margins decreased for the second month running by losing 93 cents per cwt. and were below $11 per cwt. for the first time since March at $10.71, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo. “Income over feed costs in July were above the $8 per cwt. level needed for steady to higher milk production for the 35th month in a row,” Brooks said. “Input prices were mostly higher in July with all three input commodities inside of the top ten for July all-time. Feed costs were the ninth highest ever for the month of July and increased 13 cents per cwt. from June.”

Brooks said milk income over feed costs for 2025 (using Aug. 31 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 56 cents versus last month’s estimate. Income over feed costs in 2026 would be above the level needed to maintain or grow milk production, down $1.78 per cwt. from 2025’s level, and 7 cents lower than the 2021-25 average.

Milk income over feed costs for 2027 are expected to be $9.79 per cwt., a loss of 84 cents per cwt. versus 2025, according to Brooks. Income over feed costs in 2027 would be above the level needed to maintain or grow milk production, 91 cents per cwt. less than the 2021-25 average, and down $1.33 from the previous month.

As I reported last week, concerns over high beef prices have prompted the administration to open the doors to more imports to the chagrin of beef and dairy producers relying on those higher prices. Agriculture Secretary Brooke Rollins this week announced the “Ranchers First Initiative” to “rebuild the American beef herd and put America’s ranchers back at the center of our nation’s food supply,” according to a USDA press release.

Highlights of the initiative include “The new Beef Retention and National Development (BRAND) endorsement for Livestock Risk Protection. The BRAND endorsement will allow producers to ensure the economic value of retaining a heifer for breeding over a two-year period.”

USDA will allow producers to use the Emergency Conservation Program on Grassland Conservation Reserve Program acres to speed recovery after wildfires and other natural disasters and will “Continue to revitalize American local processing by supporting small and regional beef slaughter facilities,” in view of recent processing closure announcements.

USDA will also “Prioritize federal procurement of locally processed American beef by encouraging purchasing across federal and state institutions and expand support for beginning farmers and ranchers.”

The USDA’s weekly slaughter data showed 53,400 dairy cows sent to slaughter the week ending Aug. 15, up 1,800 or 3.5 percent from a year ago. Year to date, 1,705,000 head had been culled, up 70,900 or 4.3 percent from a year ago.

Price checking Chicago, block Cheddar fell to $1.4750 per pound Tuesday, lowest CME price since July 6, but was trading Thursday morning at $1.4775, as traders awaited the afternoon’s July Dairy Products report and Monday’s Labor Day holiday. The blocks are 21.25 cents below a year ago and closed Friday at $1.4825. The barrels were trading Thursday at $1.5325, lowest since July 8, 16.75 cents below a year ago, following a Friday finish at $1.5650.

Milk in the Central region has become more available due to mild weather, according to Dairy Market News, and the approaching holiday weekend. Spot milk was available, however, hauling constraints were limiting some buyers’ ability to secure additional loads. Prices at mid-week were flat-Class to $4 over. Cheesemakers say demand is strong for mozzarella and Cheddar. 

Regional cheese inventories remain ample. Retail cheese demand remains strong while food service sales are below expectations.

Cheese manufacturers in the West report they can easily secure spot milk and production remains steady. Domestic retail demand is soft to flat, but contacts note growing interest in artisanal and private label cheeses. Western producers are actively developing new flavors and high protein options to capture that demand. Food service demand continues to be weak and export demand is mixed. Contacts are closely monitoring evolving international conditions for potential disruptions to packaging requirements for parmesan, feta, and asiago.

Cash butter fell to $1.3925 per pound Tuesday, lowest price in five weeks, but it reversed Wednesday and was trading Thursday at $1.44, 58.25 cents below a year ago.