U.S. Dairy Industry Faces Declining Prices and Rising Costs

The U.S. dairy industry continues to face challenges, with the September Federal order Class III milk price dropping to $16.04 per hundredweight, marking a decline of 60 cents from August and $1.55 from September 2025. The nine-month average now stands at $15.96, significantly lower than the $18.46 recorded a year ago. Class III futures suggest a continued downward trend, with prices expected to hover around $15.13 in October and gradually rise to $17.06 by March 2027.

Butter stocks saw a slight decrease in August but remain higher than the previous year, according to the USDA’s Cold Storage report. StoneX attributes the larger inventories to weaker domestic demand rather than export issues. Cheese stocks, including American type and other categories, have increased despite record-breaking exports, with cheesemakers focusing on high returns from whey production.

Cheese prices have also taken a hit, with cheddar blocks falling to $1.27 per pound in late September, the lowest since May 2020. Prices have since rallied slightly but remain significantly lower than the $1.90 average seen over the past five Septembers. High freight costs and diesel prices are further complicating the market, discouraging buyers from bidding on cheese in Chicago.

Milk production growth has slowed, and the all-milk price has dropped for the third consecutive month, averaging $19.8 per hundredweight in August. This decline, combined with rising feed prices, has pulled the milk-feed ratio lower to 2.00, its lowest point in recent years. The national corn price has risen to $4.45 per bushel, while soybean and alfalfa hay prices have also increased, further squeezing dairy margins.