Alan Bjerga: Hello and welcome to the Dairy Defined Podcast. Dairy prices are down and dairy margin coverage payments are back. When might the picture brighten and what can help in the meantime? Joining us to answer this are two key members of NMPF’s economics team. Will Loux is Senior Vice President for Global Economic Affairs and the head of the joint economics team for NMPF and the US dairy Export Council. Stephen Cain is Vice President for Economic Policy and Market Analysis, and together, they provide insight as to why the dairy economy is what it is and what it could be in the next few months. Thanks for joining us.
Will Loux: Thanks for having us, Alan.
Stephen Cain: Yep.
Alan Bjerga: Let’s start, and I’ll start with you, Will. What’s been causing lower milk prices and to what extent is the cyclical and to what extent is it the product of unique factors?
Will Loux: Yeah, there’s quite a few different pieces causing lower milk prices and why farms I think today are seeing the pinch, especially on the milk side of their business. The number one reason why we’re seeing lower prices today is ultimately that supply is outpacing demand. As you look at milk prices, particularly here in the US, what you’ve seen is over the course of this year, US milk production on a component adjusted basis is running the highest it’s run since 2014. On a global basis, milk production’s up. European milk production is up over 4% in the last five months. The world has a lot of milk now. Collectively, the major exporters of the world have increased their milk supply by almost 5% in the last five months of the year.
And as we put this all together, we have a demand situation that is really good if it’s high proteins, but for a lot of other products, it’s a much more mixed picture. And so as you look at this, what you have is a lot of supply on the market, particularly butterfat, and demand that’s running okay to challenged in some key areas, but Stephen may have some more to add to that too.
Alan Bjerga: Stephen, following on Will’s point on supply and demand, when you’re dealing with a slowdown like this, what’s likely to change the direction of the market, reducing supply or generating demand?
Stephen Cain: Yeah, I mean, the biggest challenge that we’re seeing right now is the supply side. Ideally, we would like to have a really strong demand and maybe supply that hasn’t quite been as onerous as it is right now, but for now we just have a lot of milk in the US and we’re trying to find the right homes for it. And when we look at the demand side, it’s been a little mixed depending on which products you look at. The cheese side, normally we’re growing by 2% a year. Over the last 12 months, we’ve been relatively flat. So on that side it’s just a little challenging on the demand side. Again, the consumer over the last year or two has been challenged. They pulled back from food service and some of those dairy products that are heavily utilized through that sector. We’ve seen a little bit of struggle on the demand side. Retail though, it’s been good. Just in aggregate, we’ve been a little bit challenged there, so ideally we’d like to have both, but in the near-term, supply side is probably the key piece that would have the most dramatic impact on the markets.
Alan Bjerga: You mentioned cheese. We’ve had a lot of discussion of all of the new plant capacity that’s coming online, new processing. Sign of long-term faith in dairy and the market, but is it playing any role in the supply-demand situation we’re seeing right now?
Will Loux: My two cents of this is it’s probably playing a small impact, but it’s not dramatic. It’s not really what’s driving the lower prices today. As Stephen touched on, and I mentioned earlier, right, we just have a lot of milk out in the country. A lot of that is driven much more by beef dynamics than it is necessarily the milk price at the end of the day. But if you look at our cheese supply this year, right in 2025, our US cheese production was up 2.9%. Now, that’s running a lot stronger than it has the last couple of years, but that’s historically pretty normal. Historically, we needed about a new 9 million pound a day cheese plant just to satisfy domestic demand. But as Stephen said, domestic demand now over the last 12 months has been flat. And so as a result of that, we’ve really needed to maintain export competitiveness in the cheese space and continue building global markets for cheese.
We’re going to hit a new record for cheese exports for the third time out of the last four years. We’re finding demand and we are building demand at the end of the day for cheese. The challenge that we face, and I’ll talk specifically on the class three side of things, is the cheese price has been low and has had limited opportunity to really rally past recently $1.50, $1.60. Earlier in ’25, it was a $1.80. We struggled to rally past that in large part because Europe had a lot of milk, had a lot of cheese, and at the point that we started losing export sales, the domestic demand wasn’t quite strong enough to keep us above the international market for long. And so you’d see us at least maintain parity with the Europeans. So as I look at this and I look at this new cheese capacity, I’m like, yes, we got new capacity, state of the art, and a lot of weight coming out of that plant too, particularly for the high proteins, but I don’t think supply is really the issue on the cheese side, at least not our supply.
I think it’s European supply, and I really think it’s domestic demand. And maybe to kind of provide a counterpoint to Stephen, I think in the near term, yeah, maybe supply is the one that’s most likely to slow, but when I kind of look at 2026 and I say, “What’s going to change these market dynamics?” I think there are three big things. It’s either going to be our milk production slows down, which I think a lot of folks, including Stephen and I, don’t think is particularly likely in the near term. I think European milk production slows down, which that one I could buy. They don’t have the benefits of beef on dairy nearly to the extent that we do. Their cull cow prices are high, but they’re not breeding for cross-bred heifers or cross-bred black calves, and they have a much higher cost of production of the US, and right now they’ve been pumping out a lot of milk.
I think that slows first. The other one is that we see an increase in domestic demand, and I’ll be the optimist in the room and I say, you know what? Stabilization or even a small bump up in domestic demand, particularly for food service, particularly for cheese, as you see value menus continue to populate and the US consumers look for bargains, I think this market is going to come back around in time. It’s not going to be overnight. There’s no silver bullet here, but I kind of look at European milk production slowing down in the second half of the year, US domestic consumption picking up in the second half of the year, and I have a little bit more optimism this market will find some balance as we go. I just think the US will have a lot of milk between now and then.
Alan Bjerga: Of course, for a lot of dairy farmers looking at their budgets, they’re wondering when then is going to be. These situations always create some sort of a shakeout in the industry. People don’t want to be on the wrong side of the shakeout, and we are the National Milk Producers Federation. We’re the advocacy organization as well as the providers of best-in-class economic analysis. So when we’re looking at this situation, what are some of the things that NMPF has been doing and advocating for that could provide some effective leverage toward relief?
Will Loux: We’ve spent a lot of time actually talking about the cheese market and how we’ve seen softer prices on the class three side as a result of cheese. The big thing that’s actually different this year, or going back to ’25 and here in ’26, is actually been the collapse in the butter market. That’s really where we’ve seen this big shift, and a lot of that goes back to the fat to protein ratio in the milk, the fact that farmers and dairy cows are really good at what they do, and you’ve seen this almost exponential increase in fat tests. So when we think about policy activity that we can do, some of this is looking at what can we do to grow demand for us milk fat at the end of the day, and I think there’s a few different ways that you’ve seen National Milk already be successful.
You look at the whole Milk for Healthy Kids Act. By our math, that’s going to move more milk fat and utilize more butter fat at the end of the day by seeing whole milk tastes really good, you increase lifetime dairy consumers through that as well. But by our math, it’s going to be absorbed the equivalent of around, let’s say 30 million pounds of butter is where our math comes out to. That’s 1.3% of US butter production. That’s not huge amounts by any means, but it’s also quite a bit. I mean, it would move markets if that got absorbed tomorrow. Now, as you’ll hear all economists say, we’ll catch everything with a dose of hesitation and realism that it’s not going to be adopted overnight, and this is something that it’s going to be a long process, but this is a win, I think for dairy farmers that you’re seeing whole milk go back in schools, not just for the nutritional aspects, but it will also help the market.
The other things that National Milk is doing here too is looking at other policy avenues to really try and boost demand for fat. I think as the economic policy committee at National Milk is taking a look at what would be the impact if we move the butter standard from a minimum 80% fat to an 82% fat, what are the implications of that? Same thing that we’re looking at whole milk, what would happen if we moved that from three and a quarter percent to three and a half percent? These are things that make better products in a lot of ways, and also I think are ways that would certainly support dairy farmers at the end of the day, but we also have to take a look and see what are the implications that we maybe haven’t thought through beyond just here’s the math behind it.
There’s also the National Milk Exports and Trade program. That’s a program that had great success in the first six months of the program. We moved close to 50 million pounds equivalent of butter through the program in the form of butter, anhydrous milk fat, whole milk powder and cheese and cream cheese. We moved a lot of fat through that program into overseas markets as we built long-term sustainable markets. So when I think about this as to what are the ways that NMPF can provide relief, I think those are really actionable clear policy objectives or clear export commercial objectives, and there’s ways to manage risk too, whether it’s DMC or DRP and what enhancements we can make to those two programs as well. But all that to say, in a market that has a lot of supply and right now demand is soft, there’s not going to be one silver bullet, but it’s going to be how National Milk takes lots of different cracks of the apple in order to get positive momentum for dairy farmers.
Alan Bjerga: So with action steps and with market dynamics working toward recovery, are there any bright spots now? And what would be the biggest lights at the end of the tunnel? Stephen.
Stephen Cain: Investment in the industry is good to the point we’ve added 11 billion pounds of investment in new capacity. At the end of the day, that is very good that our industry is growing. Whenever it comes online all at the same time, that creates some challenges for sure in the near term that we’ll need to work our way through. But long-term, that sets us up for long-term success. Today though, we’ve talked a little bit about cheese, a little bit about butter. Some of the areas that we are seeing some really strong demand in is high protein whey.
The whey market’s been extremely strong. The demand for protein not only here domestically but overseas is incredibly strong, and that’s helped rally prices on the whey side. Or whey protein concentrate, the 80% level, those prices are over $8 a pound now. That’s doubled in the last, what, effectively 12 months? No, 18 months. Same on the WPI side. We’re up over $12 a pound now, so we’re just driving some incredibly high prices from the demand side. So we’ve got some challenges for sure here in the near term, but it’s not all doom and gloom on the dairy sector right now.
Will Loux: And it’s not just whey either. If you look at the proteins that are going into things like yogurt, ready-to-drink beverages, cottage cheese, what we’re seeing right now is there is a protein pull happening within the US marketplace, that consumers at the end of the day really value US dairy protein, and I think that is really pulling a lot of milk that would have otherwise gone to the dryer either in the form of dry whey, which influences the class three price, or nonfat dry milk, which influences the class four price. What you’re seeing is this protein pull both at home and abroad, is basically helping limit the supply of commodities, of commodity milk powders, of commodity whey powders, and that is actually boosting farmer milk prices right now. You’ve seen a rally in nonfat dry milk over the last several weeks. You’ve seen dry whey prices be actually pretty strong throughout this whole period, even as butter and cheese prices have been weaker.
I mean, I think there are real bright spots right now. I think as I look out again to the 2026, what are we in for? I see real opportunities in seeing demand improvement, not just here, but abroad. We’re going to have growth in exports. We’re still missing one month of data for export data, but US cheese is going to surpass 600,000 metric tons this year. We never surpassed 450,000 metric tons before last year. We’re up 20% this year. We are capturing markets. We’re the fastest growing cheese exporter in the world over the last five years, and the world is looking to the US. And I think it’s starting to look to the US beyond just powders and cheese. I think you’re also starting to see fat demands for butter, AMF, whole milk powder. Those things are growing too, and so to me, I look at this as what are the commercial ways to help boost demand, and what are the policy actions that we can do to help mitigate the pain in the near term?
Alan Bjerga: We’ve been speaking with NMPF economists Will Loux and Stephen Cain. Before we let you go, any final thoughts?
Stephen Cain: Yeah, I think one of the things that we’re focusing on, we’ve focused on so far is the fact that we just have a lot of milk in the market right now. It’s going to take us some time to get into a little better supply and demand balance here domestically, and until we do so, I think we’re going to be a little challenged here in the near term. On the broad side, though, we have seen beef on dairy provide provides much needed revenue and support on the dairy farm side. I think that’s likely going to continue for the next 12 to 24 months, which is going to be a positive piece there for dairy farms. But we are in a high milk supply environment, which is going to create some challenges here in the near term.
Will Loux: I think when I look at this market today, there really is no quick fix to get back into balance. I think even if the US milk production dramatically slowed, you still have Europe growing at 4.5% right now. I think what we’re going to need to see as we go forward is a multitude of factors, but I do think there are real ways that from Whole Milk to Healthy Kids Act, to the National Milk Exports and trade program, to opportunities to beef up dairy revenue protection, to making sure folks are utilizing that program or dairy margin coverage. There are ways to help, I think, mitigate the pain that we see dairy farmers feeling today from a policy perspective. It’s not going to solve the market overnight, but I do think folks here in Washington or here in Arlington, Virginia are looking at new ideas, innovative ideas like things on butter, whole milk. How do we beef up those standards and make them really attractive to consumers to grow demand both here in the United States, but also make us really competitive abroad in the long run?
So as Stephen said, I think right now we’re in a supply and demand imbalance, but I look at the year ahead and I say, I think we’ll get closer to balance as we move through the year, but there’s no one silver bullet that’s probably going to bring us back right away.
Alan Bjerga: Just a reminder to our farmer listeners, sign up for the Dairy Margin Coverage Program is underway. It includes a premium benefit for folks who elect multi-year coverage. It expands coverage from 5 million pounds to 6 million pounds at the top coverage level. Again, that lasts until February 26th. You can find out more details at your farm service agency office. To learn more about dairy markets via NMPF analysis, we’d highly recommend our monthly Dairy Market Report, which has some improvements coming up, but remains awesome even in its current form. You can subscribe to that at nmpf.org/subscribe. For more of the Dairy Defined Podcast, all you have to do is go to our website or go to Apple Podcasts, Spotify and Amazon Music and search under the podcast name Dairy Defined. We’ll talk again soon.
