U.S. Dairy Farmers Struggle with Oversupply and Weak Demand
Nate Donnay, StoneX Director of Dairy Market Insight, analyzes the challenges facing the U.S. dairy industry in 2025 and the outlook for 2026.
Key Takeaways
Herd expansion and new cheese plants drive oversupply
Domestic demand for cheese and butter remains weak
Disease risks and trade uncertainty add to farmer pressures
Oversupply Surges as Herds and Cheese Plants Expand
Donnay explained that strong farm margins in 2024 and record cheese processing capacity expansion in 2025 drove herd growth of about 200,000 cows, creating an oversupply of milk. “Over the last couple of months here, U.S. milk production has been growing over 3%”, a level far above trend demand growth, leading to weaker prices.
Why U.S. Consumers Are Pulling Back on Dairy
While demand for high protein whey products remains strong, traditional categories like cheese and butter are facing slower sales, especially in foodservice. Consumers are cutting back on restaurant spending, though value promotions may help bring some demand back later in the year.
Animal Health Threats Put Production at Risk
The industry is also watching animal health threats. Donnay highlighted concerns about screw worm, which has resurfaced in Latin America and may re-enter the U.S., which could disrupt cattle movements and production if not contained.
Trade Volatility and the Outlook for 2026
Despite volatility from tariffs, U.S. dairy exports remain strong, with cheese and butter exports at or near record levels. Still, Donnay cautioned that until milk production growth slows significantly, “it’s hard to get real bullish on dairy prices”. That slowdown may not arrive until mid to late 2026, leaving farmers facing tighter margins in the year ahead.
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--- Written by Frederic Guetin, StoneX TV Producer
--- Expert: Nate Donnay, StoneX Director of Dairy Market Insight
Dairy
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