The global dairy industry has entered 2026 on weak footing, with U.S. milk prices falling to their lowest levels in five years, raising fresh concerns over farm profitability and processor margins.
The Federal Milk Marketing Order (FMMO) advanced Class I base milk price has been set at $16.35 per hundredweight (cwt) for January 2026, marking a $1.86 decline from December 2025 and a sharp $4.03 year-on-year drop. Industry analysts note this is the lowest Class I base price since April 2021, effectively wiping out post-pandemic price recovery gains.
Regional prices show wide divergence
After accounting for Class I zone differentials, the national average Class I price across all FMMOs is projected at $20.47 per cwt for January. However, regional variation remains pronounced:
- Florida records the highest price at $23.15 per cwt
- Arizona sits at the bottom of the range with $18.95 per cwt
Such disparities are expected to put immediate pressure on regional cooperatives and processors, particularly in low-price zones where input costs remain elevated.
Read More: India’s Dairy Reset: Rise of Lactose-Free Milk
Skim and butterfat values also weaken
The downturn is not limited to base prices. Core milk components are also under strain:
- Class I skim milk price fell to $11.17 per cwt, down $1.57 month-on-month
- Advanced butterfat price declined by 10 cents to $1.59 per pound
The simultaneous erosion of skim and fat values suggests a broad-based softening in demand or persistent oversupply entering the new year.
Pricing mechanics offer little relief
Under the FMMO “higher-of” pricing formula, Class III milk at $11.17 per cwt exceeded Class IV at $8.43 per cwt by $2.74, making Class III the price mover for January. While this prevented even lower Class I pricing, it did little to alter the overall bearish outlook.
Final uniform milk prices for January are scheduled to be announced between February 11 and 14, but expectations across the sector remain subdued.
A tightening year ahead
The warning signs were already visible in 2025, when the annual average milk price fell to $18.94 per cwt, down $1.41 from 2024. With January 2026 opening well below that average, the industry now faces its most restrictive pricing environment since 2021.
For dairy producers, processors and cooperatives, the message is blunt: 2026 will be a year of margin compression, efficiency battles and heightened risk management. Cost control, hedging strategies and operational discipline will be critical as the sector navigates one of its weakest pricing cycles in half a decade.
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Disclaimer
I do my best to share reliable and well-researched market insights but occasional errors or omissions may slip through. Please view all content as informational.
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