The USDA raised its 2026 milk production estimate in this week’s World Agricultural Supply and Demand Estimate report, based on faster growth in milk per cow more than offsetting a lower expected cow inventory.

2026 production and marketings were projected at 234.5 and 233.5 billion pounds, up 200 million pounds on both from a month ago. If realized, both would be up 3 billion pounds or 1.3 percent from 2025.

Fat basis imports were reduced primarily on lower imports of butter. Imports on a skim-solids basis were unchanged. Exports were raised on a fat basis on higher exports of butter and cheese, but reduced on a skim-solids basis on lower casein and lactose. Annual price forecasts for cheese, butter, nonfat dry milk (NDM), and whey were increased for 2026 on recent prices. The Class III and IV milk price forecasts were also raised on the higher predicted product prices.

The 2026 Class III average was raised to $16.65 per hundredweight (cwt.), up 30 cents from last month’s estimate, and compares to $18.01 in 2025 and $18.89 in 2024. The Class IV was raised to $15.70, up $1.25 from a month ago, and compares to $17.38 in 2025 and $20.75 in 2024.

Checking Chicago – as the old saying goes what goes up, must come down; Most CME prices did just that this week. The Cheddar blocks, after closing Friday at $1.4725 per pound, highest CME price since Nov. 25, 2025, saw daily declines and fell to $1.3875 Thursday, 53.25 cents below a year ago. The barrels held all week at $1.44, where they closed last Friday, 37.75 cents below a year ago.

Central region milk output is steady, according to Dairy Market News, and spot volumes were available. Demand was steady and prices ranged from $4-under to $1-under class at mid-week. Some cheesemakers said they were busy working through internal milk supplies and not actively purchasing spot volumes. Plants report production is steady, though some had downtime for maintenance. Food service cheese sales remain light, while retail interest is steady. Domestic cheese prices are competitive so export demand remains strong, says DMN.

Milk volumes covering contractual obligations to cheese manufacturers are stable in the West. Availability of spot milk was mixed. Some milk was shifting from Class II or IV to Class III and ultra-filtered milk production was strong. Spot milk demand from cheese manufacturers and cheese production schedules varied from steady to stronger. Some cheese maker inventories are tight for spot buyers depending on the variety but generally available. Domestic retail demand is flat for the most part. Food service sales are weaker to start 2026 compared to the beginning of 2025. Export demand varies from steady to strong.

Butter, after closing Friday at $1.71 per pound, dropped 8.50 cents Monday, but reversed direction, regained some ground, then shot up 8.25 cents Thursday to $1.7350, highest CME price since Oct. 3, 2025, but still 64.25 below a year ago.

Cream production is strong in the Midwest and spot volumes are plentiful, according to DMN. Demand from Class II processors was steady to higher, while interest from butter makers was steady. Butter production increased in recent weeks amid strengthening demand and increasing prices, says DMN.

Plants are actively churning, primarily using internal cream supplies, rather than purchasing spot volumes. Bulk butter demand is strong. Retail sales are steady, though food service demand is lackluster. Export interest is strong, though some contacts are concerned that rising domestic butter prices will contribute to lighter interest from international purchasers. Spot loads of 80 percent butterfat butter used primarily in domestic markets are available, but 82 percent inventories are tight.

Strong milk production in the West continues to provide plenty of cream. Demand from butter producers was mixed but production is strong. Butter producers continue building inventory, but 80 percent butterfat butter was widely available. 82 percent loads remain tight for spot buyers. Domestic retail demand is lighter to steady. Some buyers were hesitant due to the bullish price movements. Domestic food service demand is moderate. Export demand is steady to strong, says DMN.

A side note on butter – the Feb. 6 Daily Dairy Report says Canada has been the largest buyer of U.S. butterfat, accounting for 37 percent in 2025 and running nearly 50 percent ahead of 2024’s volume. “Highly competitive U.S. pricing also helped capture market share in Mexico, the second largest destination at 11 percent. During 2023-24, the United States supplied 13.5 percent of Mexico’s butterfat imports. Through November 2025, U.S. butterfat exports to Mexico reached 12,200 metric tons and lifted U.S. market share to 35 percent, while New Zealand’s share slipped from 80 percent to 60 percent.”

Grade A nonfat dry milk fell from its lofty perch Friday of $1.64 per pound, highest CME price since July 28, 2022, slipping to $1.5950 Wednesday, but it closed Thursday at $1.5975, 31.75 cents above a year ago.

Dry whey lost a penny Tuesday, slipping to 72 cents per pound. That’s where it was holding Thursday, 16.50 cents above a year ago, following a Friday finish at 73 cents per pound.

The USDA released its November Dairy Supply and Utilization report Thursday, still behind, due to the recent government shutdown.

The report showed cheese utilization totaled 1.27 billion pounds, up 6.5 percent from November 2024, with domestic utilization reaching a record 1.2 billion, up 4.8 percent. Exports, at 111.9 million pounds, were up 28 percent, thanks to low U.S. prices.

Butter usage totaled 202.2 million pounds, down 16.7 percent, with domestic usage at 177.1 million, down 24.8 percent, the smallest November volume since 2012, according to HighGround Dairy, “A significant low during the typical peak demand month. Since domestic consumption accounts for the majority of total use, overall volumes fell year over year despite seeing the second highest export levels of all-time at 25.1 million pounds, up 243.8 percent.”

Nonfat/skim milk powder usage came in at 159.3 million pounds, down 4.5 percent from a year ago. Domestic usage was down 16.8 percent while exports were up 0.2 percent.

Dry whey totaled 59.8 million pounds, up 2.7 percent, thanks to strong exports, which were up 18.1 percent from a year ago. “Exports helped offset the weakest domestic use on a 30-day adjusted basis since March 2014,” says HighGround Dairy. 

This week’s Global Dairy Trade Pulse was the 100th and the first one to offer Fonterra butter and anhydrous milkfat (AMF). HighGround Dairy reports “374 metric tons (MT), or 93.5 percent of the 400MT of AMF on offer, was sold. AMF Premium represented 288MT, or 72 percent of the total Fonterra AMF offer volume, while AMF Regular accounted for 86MT of the total. 285MT, or 95 percent of the 300MT unsalted butter on offer, was sold.

“1,500MT, or 100 percent of the 1,500MT Fonterra whole milk powder (WMP) on offer, was sold at this event, comprising of 382MT of instant WMP (25.6 percent of the total Fonterra WMP offer volume), with the remaining portion being regular WMP, 1,116MT. 750MT of Fonterra skim milk powder (SMP) sold at this event, or 100 percent of the offer volume. 251MT of Arla SMP was sold, down 49MT from the previous auction,” according to HighGround’s report.