Butter and nonfat dry milk started 2026 in a slump and dragged dairy milk checks lower, but a recent rebound pushed Class IV milk prices higher.
According to Corey Geiger, lead dairy economist at CoBank, June Class IV futures climbed nearly $7 per cwt to reach more than $22 in May trading activity on the Chicago Mercantile Exchange.
USDA economists also raised the 2026 outlook.
“That’s an unprecedented movement in just five months,” Geiger said, noting the higher forecasts also lifted expectations for producer milk checks this year.
What’s prompting the turnaround is butter and nonfat dry milk (NFDM) — two of the four dairy products that drive Federal Milk Marketing Order pricing formulas and serve as the foundation for dairy producers’ milk checks.
Geiger said both products began the year down but have seen prices recover for two very different reasons:
- Record butterfat exports in recent months kept butter inventories in balance.
- Strong protein demand shrank NFDM supplies.
Of the two products, NFDM saw the most dramatic rally.
Nonfat dairy milk record prices
CME spot NFDM prices climbed to a record $2.30 per pound this spring, surpassing prices in both the European Union and New Zealand. Why? Tightening NFDM supplies.
“It’s not necessarily stronger demand for NFDM,” Geiger said, “but dairy protein is pulling more farm-gate milk into different product directions such as yogurt, cottage cheese and high-protein dairy shakes.”
The result: Less milk is flowing to balancing plants and dryers that produce NFDM, helping support prices.
NFDM production has been declining for years. In 2021, the U.S. produced 2 billion pounds. By 2025, U.S. dryers reduced production by 19% to 1.66 billion pounds.
Geiger said that in January, production fell an additional 3.5% compared to this same time last year. “That triggered the slow price improvement that has become the talk of town,” he explained.
By early March, CME spot NFDM prices gained 49 cents to reach $1.67 per pound.
“Even as production began to grow by 9% to 10% in February and March, product recalls countered to limit inventory,” Geiger added.
Butter exports changed everything
The butter story is less dramatic but equally important. According to Geiger, the U.S. continues to produce record volumes of butter with each passing month due to record butterfat production. As a result, butter and anhydrous milkfat inventories began to build last August, causing butter prices to tank.
“To rebalance markets, exporters moved a record 269 million pounds of butterfat in 2025,” Geiger said. “That was up a whopping 171% over the prior year, with 60% of those exports coming in the final five months of the year.”
The momentum carried into 2026. March butterfat exports posted a record high of 37.6 million pounds, bringing the year-to-date total to 102 million pounds, or 93% ahead of one year ago. Through the first three months of 2026, U.S. butterfat exports have already outpaced the entire calendar year of 2024.
The export demand helped lift CME spot butter prices to $1.64 per pound in mid-May, up nearly 30 cents from early January, helping stabilize milk check prospects.
“Butter markets are largely balanced due to exports,” Geiger said. “NFDM will not keep up this record pace when lower prices prevail in the EU and New Zealand.”
The catch
While the all-milk price forecast now stands at $21.25, markets remain volatile.
Geiger’s takeaway: It’s important for farmers to consider risk mitigation strategies such as Dairy Revenue Protection, Livestock Gross Margin and other futures contracts to help protect milk check revenue.