The latest Livestock, Dairy, and Poultry Outlook from USDA’s Economic Research Service paints a mixed picture for the U.S. dairy sector. Milk production is climbing, but prices are expected to soften as supply outpaces demand. The full report is available here (PDF).
Rising Milk Production
USDA forecasts U.S. milk production at 230 billion pounds in 2025, with output increasing again in 2026 to 231.3 billion pounds. Growth comes from both a larger herd — an additional 10,000 cows — and higher yields per animal.
Pressure on Prices
Despite more milk moving through the system, prices are set to fall.
-
Class III milk is forecast at $18.20 per cwt in 2025.
-
Class IV milk is projected at $18.15 per cwt.
-
The all-milk average price is expected to reach $21.35 per cwt, down from earlier forecasts.
By 2026, USDA anticipates the all-milk price will dip further, averaging $20.40 per cwt. Lower wholesale prices for butter, cheese, and nonfat dry milk are the primary drivers.
Trade Outlook
On the global stage, dairy exports are expected to remain a bright spot. Shipments of butter and cheese continue to show strength, helping offset domestic softness. Meanwhile, imports are projected to decline for both 2025 and 2026 across most categories.
What It Means for the Industry
The outlook suggests tighter margins ahead for U.S. dairy farmers. Larger herds and stronger yields should support production, but the resulting supply surge is weighing down prices. Operations heavily invested in skim milk powder or nonfat dry milk may face the greatest pressure, while those targeting butter and cheese exports are better positioned.
Feed costs are expected to ease, offering some relief, but producers will need to focus on efficiency, herd health, and marketing strategies to stay competitive. Risk management tools — including forward contracts and futures — may also play a greater role in protecting margins.
Bottom Line
The USDA outlook points to a sector balancing growth with uncertainty. Strong exports provide opportunity, but expanding production without matching demand will continue to pressure farmgate prices. Producers who adapt through efficiency, product diversification, and smart market positioning will be best prepared for the year ahead.
For the full report, visit the USDA ERS website: Livestock, Dairy, and Poultry Outlook, September 2025 (PDF).
Dairy forecasts: Download XLSX
