NASHVILLE, TENN. (RFD NEWS) — Dairy markets are showing signs of recovery in early 2026, with improving product prices despite continued growth in milk production. Strong domestic demand for high-protein dairy products and tighter inventories are helping support prices for butter, cheese, and nonfat dry milk, signaling a shift back toward market balance.
Milk production increased 3.4 percent year-over-year in January, according to the National Milk Producers Federation (NMPF), driven by a larger herd and steady output per cow. However, component growth has slowed, particularly in milkfat, as lower butter prices earlier this year reduced incentives to maximize fat production. At the same time, supplies of key products remain manageable, with butter inventories down and nonfat dry milk supplies tightening.
Demand continues to be driven by consumer interest in protein-rich foods such as Greek yogurt, cottage cheese, and high-protein beverages, thereby reducing the amount of milk available for powder production. Exports have also played a key role, particularly in butter and cheese, helping offset strong production levels.
Margins under the Dairy Margin Coverage program dropped to $7.81 per hundredweight in January but are expected to improve as commodity prices rise in the coming months.
