Higher Feed Costs Are Squeezing US Dairy Margins
United States dairy producers faced narrower margins through the latter part of August as feed markets strengthened and milk-price gains remained limited. The federal-order Class III price rose by $1.12 from July to $16.64 per hundredweight, but was still 60 cents below its level a year earlier. That was the lowest August settlement for the benchmark since 2021. Class IV milk declined by 98 cents to $17.36 per hundredweight.
Feed markets responded sharply to revised crop-yield expectations in the central Corn Belt. Summer crop tours indicated that corn and soybean yields could fall below official government baseline forecasts, while weather concerns persisted in important growing areas. Corn and soybean-meal prices consequently increased in both cash and futures markets. Alfalfa hay reached an average of $203 a ton, contributing to feed costs that ranked as the ninth-highest for July in the available record.
The national milk-feed price ratio decreased from 2.23 in June to 2.12 in July, compared with 2.35 a year earlier. The measure uses a standard ration composed of 51% corn, 8% soybeans and 41% alfalfa hay to compare milk revenue with feed expenses. The July decline also reflected an 80-cent monthly fall in the national All Milk price, to $20.30 per hundredweight. Average soybean costs increased by 30 cents to $11.60 a bushel.
Farm returns were also affected by weaker byproduct proceeds from beef-on-dairy calves and cull cows. Modeling puts average milk income over feed costs for calendar 2026 at about $10.63 per hundredweight, 56 cents below the previous monthly estimate. The projected figure remains above the historical $8 threshold associated with maintaining herd expansion, but is $1.78 below the 2025 level.
For 2027, preliminary modeling places income over feed costs at $9.79 per hundredweight. That estimate is 91 cents below the average recorded over the most recent five-year period. The figures describe projected margins rather than settled annual results.
Manufacturing and trade data showed mixed developments. Production of Italian-style cheese increased by 4.1% year on year to 551.1m pounds, while Cheddar output fell by 1.7% to 328.6m pounds. Nonfat dry milk production rose 26.6% to 165.1m pounds. Overall dairy exports decreased by 0.4% from a year earlier, with purchasing weaker in Southeast Asia and China. Commercial producers are responding to the margin pressure by hedging feed purchases and seeking more efficient conversion of feed into milk.
