Key Takeaways:
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Cheese and butter prices are historically low, while dry whey and NFDM values remain historically strong, reflecting diverging supply and demand dynamics across the dairy complex. Plentiful milk is driving higher cheese and butter production, keeping supplies ample and prices under pressure, while growing consumer demand for protein-rich foods is supporting whey and NFDM values. Manufacturers are producing more cheese to capture more of the high-value whey stream, while demand for UF milk, yogurt, and cottage cheese is pulling skim solids away from NFDM dryers. As a result, weak cheese prices are pulling Class III values lower, while elevated NFDM prices are keeping Class IV values high. A penny increase in NFDM adds nearly $0.09/cwt to Class IV, so if (and when) NFDM values retreat, Class IV could fall sharply, particularly if butter prices remain weak.
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Input costs remain a major concern heading into the end of the year. Unfavorable summer weather conditions have contributed to higher feed costs for the upcoming crop year, while geopolitical tensions are driving volatility in energy costs, with diesel prices reaching record highs. Inflation remains a concern heading into harvest, as higher costs across key inputs may add further pressure to dairy margins.
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Margins are starting to feel the pressure, with HighGround’s margin outlook eroding from our forecast three months ago. Higher feed costs and lower beef prices have trimmed projected margins from their lofty levels in the months ahead. While fundamentals still point to tight cattle supplies, changing federal policies have added uncertainty to the market. Strong returns from beef-on-dairy calves and cull cows are helping keep margins positive, but further declines in beef prices could create additional downside. With so many moving pieces heading into Q4 2026, HighGround encourages producers to take advantage of positive margin opportunities as they arise, particularly as milk, beef, and feed markets remain highly volatile.
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