What’s next for dairy pricing? What does the road ahead look like? 2026 appears to be a year likely to bring global expansion and a temporary milk surplus, so staying grounded in your long-term purpose becomes even more critical. At the 2026 Pennsylvania Dairy Summit, Sara Dorland, managing partner at Ceres Dairy Risk Management, shared her insights on the global dairy landscape, dairy markets, the recent Federal Milk Marketing Order (FMMO) price reform and what all of this could mean for dairy producers.
Global demand
Dorland reported that “2026 is a year in transition.” So far, there have been several factors perpetuating volatile dairy market conditions in 2026, including accelerated global milk growth, tightened margins, increased export competition, potential surplus, heightened protein demand and more milk volume moved into unreported dairy output.
“What all this means is we’re going to see a lot of volatility, which means markets are going to go up, and they’re going to come down. And while a lot of times we try to manage volatility, this volatility is also that thing that provides a lot of opportunity,” Dorland shared.
Oceania’s milk production grew by 2%-3% as New Zealand added 25,000 to 30,000 head to their milking herd and repealed environmental policies prohibiting growth for dairy farms. Europe’s dairies are seeing relatively high margins as their dairies recover from bluetongue virus, and production numbers are rising at a rapid pace. While the U.S. milk supply has been rebounding after highly pathogenic avian influenza (HPAI) affected numerous dairies across the country, Europe’s dairy producer population is aging, with many farms lacking a next generation to pass the farm onto, as well as facing stringent environmental policies. Globally, most countries are seeing growth, and Dorland said she believes Europe’s milk supply will be the first to contract.
Domestic demand
Domestically, U.S. consumers are in a race to slim down as weight-loss medications and nutrient-dense foods gain traction in the market.
“There is a race to slim down, whether it’s eating better or being more aware of the nutrients that we’re taking in. Whether it’s a whole new class of drugs or the GLP-1s, we’ve got a massive amount of change happening. Food companies are trying to respond as quickly as possible,” Dorland said. “It’s the focus on high-quality nutrients, specifically protein – that is what’s going to drive dairy. And that is what’s throwing our world into a topsy-turvy space that we’ve never seen before.”
The number of people utilizing semaglutides to expedite weight loss has increased over the past three years. The Journal of American Medical Association projects 9% of Americans will be on GLP-1s by 2030. Dorland mentioned protein-dense foods, like cottage cheese and full-fat dairy products, are in demand with more people trying ketogenic diets and weight-loss medications. Also, the updated 2025-30 dietary guidelines underscore the importance of whole-fat milk, yogurt and cheese in diets.
“One of the biggest things we’re doing today is exporting our fat. Our price was so much lower globally, and we shipped a lot of fat overseas. In fact, in November, we shipped about 30 to 35 million pounds overseas. That’s something, if we keep it up. This fat imbalance that you’ve probably been hearing everyone talk about, it cleans it up pretty quickly,” she added.
Dorland shared that domestic commercial disappearance of cheese and butter has been growing at 2.4% and 1.2%, respectively, over the last decade. However, looking back to the first of the year, prices were as low as they were 10 years ago. With the ever-increasing demand for high-protein foods, more cheese is being produced just to get more whey, and cottage cheese and 2% milk production means more butterfat. Dorland said that if the U.S. cannot keep pace with exports, the country could overproduce both commodities, and domestic consumption would not be able to utilize the additional volume in the U.S. market.
Dorland said the U.S. saw a 4% growth in milk volume, which stems from the $10 billion in new dairy investments. Milk, yogurt and cottage cheese retail sales showed significant growth. However, the fastest growing product is ultrafiltered milk, which takes two and a half times the amount of milk to produce a single-serve container.
"The USDA reports how much milk, or in this case the volume of milk, that was sold on a unit basis as higher year over year. What they're not telling you is that the fastest-growing category is the high-protein milk. It takes a lot more milk to make ultrafiltered milk than it does a gallon jug. Our unit of measure is off,” Dorland explained. “It's also not telling you in the yogurt category that 48 percent of that category is Greek yogurt. A significant portion of that is the ultrahigh-protein Greek yogurt – so much milk goes into that.”
Navigating FMMO
Dorland shared the primary driving force behind the recent FMMO reforms: updating the make allowances.
“We had not adjusted those make allowances since 2006. We had gone through massive inflation in 2022. There were people across the country seeing big deductions in their milk checks that averaged $1.50 per hundredweight [cwt] because processors just couldn't keep up,” Dorland explained.
In addition to updating the make allowances, cheddar cheese barrels were excluded from the National Dairy Products Sales report. Dorland said barrels account for an estimated 25%-30% of total cheddar cheese output and were a way to balance the export market. She reported that barrel spot trading dropped significantly after the announcement, and the attention shifted to 40- and 640-pound blocks. In the FMMO reform final rule, the nonfat solids components test was raised from 9% to 9.3%.
“We changed the nonfat solids composition. This one was a bit of a tough one because butterfat is actually the fastest growing component, and we didn’t make any adjustments to the milk check for that. The risk management and trading in that standard milk was actually undervalued because we don't reflect the actual value,” she said. “We're running probably nationwide closer to 4.4 percent butterfat than the 3 to 5 percent that we have assumed here, so it did throw our ratios off. It actually says we're growing protein and other solids faster than we are butterfat, which I think anybody on a dairy would know that's probably not the case.”
Even though this was presented as only impacting Class I, Dorland expressed that the change to the nonfat solids will affect all milk at “standard” components, including hedging, futures, options, Livestock Gross Margin and Dairy Revenue Protection. Based on her calculations, the implementation of this rule only conveyed an impact of 5.7 cents per gallon or 60 to 70 cents per cwt (of Class I milk) on producers’ milk checks in federal order one for December 2025. Dorland mentioned that the high-temperature short-time Class I pricing formula was shifted from the average of Class III and Class IV prices to the higher of the two.
“When we went with the average pricing, it wasn't recognizing that one of those prices would at times spike. And as a result, the market price or the blend price to dairy producers was not recalibrating fast enough, and we would mute price signals,” Dorland shared. “It also created problems with prolonged periods of depooling, where basically the commodity prices are higher, and people would pull that out of the pool.”
Producer-level impacts
Under the final rule, another piece to FMMO reform was increasing Class I differentials to reflect the increased costs associated with hauling milk. Class I differentials increased to bottling plants. For the Northeast, the differentials increased between $1.35 and $1.50 per cwt, depending on what region the plant is located in. Dorland reported that when comparing May and June 2025, these bottlers are contributing more into that milk price. However, there’s a catch.
“What ended up happening was, if you happen to be in a lower price county than that plant, we're going to take money out of your milk check because you're in a county that gets a lower Class I differential than the plant that you're delivering to. And this isn't just Class I plants; it's every plant,” she said.
Dorland gave the example of a Potter County, Pennsylvania, dairy farm in a region with a $3.90-per-cwt differential whose milk is shipped to Swiss Premium Dairy in a $4.20 county. The result is a negative 30-cent location adjustment. This change has no effect on farms delivering to plants in the same county or differential values. It boils down to money between farms.
Dorland mentioned the long-term effects on producer milk checks are difficult to tell but could include different monthly swings in the markets, pooling impacts, shifting utilization, extended shelf-life utilization and changes to location adjustments.
For dairy farms navigating the uncertainty of the dairy industry, Dorland emphasized the importance of setting and defining clear operational goals, understanding the current pricing formulas, monitoring margins and markets on a regular basis, and participating in risk management programs.
“All that matters is these are your rules that you’re going to operate under for the foreseeable future. Make your decisions accordingly. Understand the rules and understand how they impact your milk checks and margins,” she said.
Down the road
Dorland said 2026 will continue to bring challenges, which was already evident with the market volatility seen in January. The dairy markets could experience both ends of the spectrum – high and low. Dorland attributed the increased U.S. and global dairy demand to dairy’s long-term, science-backed nutritional value.
“It is a really, really good time to be a U.S. dairy producer. I think we’re in an excellent competitive position to not only service unbelievable demand that we have domestically but also internationally.” Dorland added, “Not only that, people are actually understanding the story that dairy producers and the industry have been telling for years.”
Dorland encouraged dairy farmers to take a disciplined approach when making risk management decisions and to avoid jumping in and out of markets.
“As long as you know what your position is, what your plan is, what your farm’s going to look like, how you make money, and your milk quality and herd health goals, that is what will keep you grounded. That will keep you moving forward,” she shared. “Generally, life is going to get better, but we are always going to have these periods where markets slip lower, or we suddenly upend and change the rules of the game. Understanding where you’re headed in your business is the key to success.”
