The margin winds are shifting

Terrain^® is our service for timely insights on topics and trends impacting agriculture, delivered by a team of specialized economic and agriculture analysts. Additional Terrain articles can be found at TerrainAg.com. Article Originally Published in the September 21, 2026, Issue of Hoard’s Dairyman Intel.

Authors: Ben Laine

Over the past few years, dairy producers have enjoyed a favorable combination of strong milk prices, reasonably low feed costs, and exceptionally high beef-cross calf values. While I don’t expect any of these to completely reverse, the tailwinds supporting healthy margins are weakening as we look ahead.

The beef-on-dairy phenomenon has been an incredible side revenue stream for dairy producers. A historically low beef cattle inventory drove cattle prices higher, and dairy producers found an opportunity to step in and help fill the need. For many dairies, sales of beef-cross calves have added the equivalent of around $5 per hundredweight (cwt) to milk revenue.

Recently, however, the day-old prices have been falling rapidly. Given how high prices have climbed over the past few years, they are still above the historical norm for calf values but have come down about 25% from their peak. On its own, this decline isn’t devastating, but it’s not the only source of pressure.

Milk prices have also come under pressure due to heavy supply growth. The all-milk price average for the first half of 2026, according to the USDA, is $19.78/cwt—the lowest first-half average since 2021 and down $2.46/cwt from last year. 

Milk production in the U.S. increased about 3.2% year over year through July, enabled by several new processing plants. The U.S. milk cow herd has been trending around 200,000 head larger than a year ago. This additional supply has weighed on markets, and I expect it will continue to do so into 2027.

The cost side of the margin is adding pressure as well.

After several years of favorable feed costs, feed markets are beginning to show signs of tightening supplies. Evidence from August’s Pro Farmer Crop Tour and downward revisions in the recent World Agricultural Supply and Demand Estimates (WASDE) report suggest below-trend yields for corn. Heat and drought in Europe along with trade-interfering flare-ups in the Black Sea could heighten global need for U.S. crops. Corn and soybean meal futures prices for December have climbed around 15% from their summertime lows.

The Dairy Margin Coverage program, which allows producers to insure a milk-minus-feed margin above a chosen level up to $9.50/cwt, is currently projected to fall within insurable levels from August through the end of the year. 

While milk revenue less the cost of feed is the heart of the profitability on dairies, several peripheral costs, including fuel and interest expense, are seeing upward pressure as well. Interest rate relief seems less certain than it did earlier in the year. Now expectations are that the Federal Reserve will move short-term rates higher. Fuel prices likewise remain elevated because of several ongoing global conflicts.

None of these developments in milk price, feed costs, fuel prices, interest rates or beef revenues are anything extraordinary on their own, but together they point toward more margin pressure than has been the norm in recent years.

When milk prices are good, feed is reasonably cheap, and beef revenues are providing a comfortable buffer for profitability, attention can drift. As these margins compress and not everything is moving in your favor, focus will need to be regained and margins will need to be more actively managed.