MADISON, Wis. — Dairy markets, policy math and milk-check trust took center stage on October 2nd at the American Dairy Coalition’s Dairy Hot Topics session during World Dairy Expo, where American Farm Bureau Federation (AFBF) economist Danny Munch gave what ADC CEO Laurie Fischer called “a straight-talk update from someone who really cares what’s happening on your milk check.”

The Your Milk Check – Your Future learning session followed the Our Workforce – Our Future press conference that drew 57 members of media, industry, and dairy farmers. Another 35 stayed on for Munch’s session, bringing a total of nearly 100 engaged participants.

Munch’s message blended markets, policy, and transparency into one takeaway: Get engaged, simplify the story for policymakers, and insist on transparency that builds trust in the numbers.

A ‘tale of two farm economies’

USDA’s September 4 forecast pegs 2025 net farm income at $180 billion, near the 2022 record, but Munch said the number is misleading.

“The problem,” he said, “is that about a quarter of this comes from government payments—roughly $50 billion for previous losses, including storm disasters.”

That sets up the two farm economies: livestock holding steady while row-crop farmers face “massive losses per acre.”

Dairy sits in the middle as feed costs have eased, margins look better (simplified on paper), but new pressures are mounting and the true margins are more nuanced.

High beef prices and the lowest cattle inventory in 75 years pushed more dairies to breed beef on dairy. “Farmers are diversifying their risk,” said Munch, noting beef semen sales and calf numbers “growing exponentially.”

However, production didn’t slow, he said. “Added processing capacity and better genetics have ticked milk output back up.”

Cheese steady, butter puzzling and class prices are volatile

Munch’s three demand-gauges – cheese exports, domestic disappearance, and cold storage — all look healthy, with “fairly good metrics in terms of price.”

Butter, however, defies logic. Exports “skyrocketed,” stocks fell, and consumption stayed strong; however the price collapsed from $3.17 to under $2 per pound. “Some of the conditions are more nuanced,” he said.

Since 2020, milk prices have swung from pandemic chaos and negative PPDs to 2022 highs, steadier levels in 2023/2024, and now a slide again.

“That’s why I’m starting to get more calls about dairy,” Munch said.

FMMO changes: higher make allowances and a trust gap

June 1 brought the biggest Federal Milk Marketing Order shake-up in years: higher make allowances, the return to the “higher-of” Class I formula, an ESL (add-on), and delayed component updates.

Munch re-explained the basics: USDA surveys end-product prices for cheese, whey, butter, and nonfat dry milk, then subtracts processing costs, called make allowances, to back-calculate minimum class and component values based off those end-product price surveys.

The issue isn’t whether allowances are needed, he said, but how they were set.

“USDA relied on surveys where 76% of cheddar plants, 80% of butter plants, and most NFDM and whey plants did not participate,” Munch said. “That can potentially skew the numbers.”

Applying the new make allowances to June through August data, he found the following negatives: –89¢/cwt Class I, –85¢ Class II, –92¢ Class III, –85¢ Class IV. These embedded debits totaled a $337 million pool value loss in just three months.

Higher Class I differentials and an ESL bonus (worth 85¢ to $1/cwt on just the extended shelf-life portion of Class I sales) claw back part of that, “but we still see a $231 million drag after those offsets.”

Munch noted USDA also raised skim-component factors to reflect higher protein and other solids in the Class I price and the manufacturing class prices in the fat-skim orders, which should add roughly $200 million a year to farm income; yet implementation was delayed to Dec. 1 while make allowances took effect immediately. “That’s something farmers were confused about,” he said.

Why the trust gap matters

AFBF and others backed a new mandatory biannual processor cost survey, authorized in the portion of the farm bill that was included in the One Big Beautiful Bill Act (OBBBA). “We don’t have a timeline,” Munch said, “and USDA will still need another hearing to use those numbers.”

AFBF’s position is that make allowances should mirror efficient, modern plants so that the minimum processor costs match the fact that USDA is announcing monthly benchmark minimum farm milk prices. This way both sides are looking at ‘minimums.’

“Our farmers want transparency,” he said. “They want to know how much it really costs to convert their milk into the cheese, butter, and powder” that the USDA is actually price-surveying.

The same legislation also updated DMC, allowing farms to use 2021-23 production history, raised Tier I coverage to 6 million pounds, and offers a 25% premium discount for enrolling through 2031.

But with lower feed prices, “DMC hasn’t triggered in 17 months,” Munch said, and farms that grow their own feed may not see true margins being reflected.

 In fact, dairy farmers raising their feed are dealing with the same crop input cost increases vs. deteriorating milk prices that the crop growers face vs. their deteriorated grain market prices.

“Please engage and tell your state Farm Bureau leaders what you’d like to see changed,” Munch urged.