Butter Inventories Rise While Milk Output Decreases
Published: Friday, October 9, 2026
The September federal order Class III milk price was announced by the USDA at $16.04 per hundredweight, down 60 cents from August and $1.55 below September 2025. The nine-month average stands at $15.96, down from $18.46 at this time a year ago, and compares to $18.37 in 2024. Last Thursday's Class III futures settlements portended an October price at $15.13; November, $15.96; December, $16.30; January, $16.50; February, $16.85; and March at $17.06.
The September Class IV price is $18.94, up $1.58 from August and $2.77 above a year ago. Its nine-month average stands at $18.55, up from $18.53 a year ago, and compares to $20.69 in 2024.
Checking the cupboard, U.S. butter stocks fell in August but were up from a year ago, according to the Agriculture Department's latest Cold Storage report. The Aug. 31 butter inventory slipped to 315.7 million pounds, down 16.7 million pounds or 5%, from July, but were up 29.5 million, or 10.3%, from August 2025. July's total was revised up 11 million pounds.
With milk production growth slowing in August, StoneX believes the larger butter inventories were driven by weaker demand. "Exports might have slipped a little more than forecast, but this probably represents weak domestic demand more than weak exports."
American type cheese stocks grew to 815.5 million pounds, up 2.4 million, or .3%, from the July level, which was revised up 1.6 million pounds, and were up 4 million pounds or .5% from a year ago.
The "other" cheese category inventory climbed to 604.4 million pounds, up 2.8 million pounds or .5%, from July's mark, which was revised up 3.6 million pounds, and up 26.3 million, or 4.5%, from a year ago.
Total cheese stocks came in at 1.443 billion pounds, up 4.4 million or .3%, from July, and up 32.4 million, or 2.3%, from a year ago. Revisions added 5.2 million pounds to the July total. The gains came despite record-breaking exports.
Cheesemakers, wanting to capture the high returns from the whey stream, are keeping their vats busy. StoneX says the Cold Storage data explains the weakness in prices.
The Cheddar blocks fell to $1.27 per pound Wednesday, lowest CME price since May 5, 2020 when COVID captured the headlines. But it rallied and closed the first Friday of October at $1.3150, up .75 cents on the week, ending six consecutive weeks of decline, though still 47.50 cents below a year ago.
The barrels held all week at $1.4525, where they have been since September 16, and 31.75 cents below a year ago. Sales totaled 20 loads of block for the week and 113 for the month of September, up from 85 in August.
The Sept. 30 Daily Dairy Report pointed out: "Over the past five Septembers, Cheddar blocks have averaged about $1.90 per pound, illustrating the weakness of September 2026's average price of $1.3990. Cheese futures through first quarter 2027 are now under $1.60 per pound, and Class III contracts are below $17 per hundredweight.
A 10 cent move in cheese prices equates to a move of a little over $1 per hundredweight in Class III prices," according to the DDR.
The DDR's Sarina Sharp wrote in the Sept. 25 Milk Producers Council newsletter: "Buyers are wary of bidding on cheese in Chicago, lest they unwittingly commit to hauling cheese from destinations far from the heartland. CME spot market specifications require buyers to pay the freight, less a hauling adjustment. That adjustment is set on a sliding scale based on the sellers' distance from Green Bay, Wis. But the maximum freight allowance of 4.93 cents per pound is far higher than the cost to haul cheese from the West Coast. With diesel prices at all-time highs, would-be buyers at the CME spot market assume that they're going to be on the hook for at least 10 cents of additional freight, so they back their bids down accordingly."
Milk supply in the Central region loosened slightly this week, according to Dairy Market News. Contacts reported minimal changes in overall milk movement and continue to point to ongoing distribution challenges attributed to elevated fuel prices. Midwest spot load availability remains limited. Similar conditions are reported in the Southwest. Class III spot prices at mid-week ranged 50 cents-over to $3.50-over. Cheese makers in the region note steady production, supported by strong orders. Retail cheese demand remains firm, though food service interest continues to trend below anticipated levels.
Overall milk and cheese supply in the West is heavy, says DMN. Cheese manufacturers continue to receive contracted milk, although spot milk is tighter. Cheese production remains active with many plants running seven days a week. Plenty of cheese is available, including an abundant supply of color Cheddar, says DMN. Export demand is strong while domestic markets continue to feel "weak and sloppy." Freight challenges continue to affect cheese distribution. Rates have increased roughly 50% year over year, complicating long distance hauling and influencing regional market spreads, according to DMN.
Cash butter fell to $1.3175 per pound last Tuesday, lowest since Jan. 15, but it closed last Friday at $1.34, 6 cents lower on the week, 5.25 cents lower on the month, and 41 cents below a year ago. CME sales totaled 99 loads and 347 for all of September, down from 386 in August.
Cream supplies remain steady in the Midwest, says DMN. Butter manufacturers note active churning. Retail butter demand continues to improve. Inventories of 80% butterfat butter remain ample, with tight availability for 82% product.
Grade A nonfat dry milk finished last Friday at $2.22 per pound, up 5 cents on the week, 32 cents higher than its September 1 post, and $1.06 above a year ago. Sales totaled 16 for the week and 92 for September, down from 132 in August.
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