Growth pursued, markets cleared, products moved; but trust, transparency, farm-level returns fall short into 2026

EAST EARL, Pa. — 2025 was a year of reckoning — a turning point for an optimistic dairy industry as assumptions collided with realities, exposing widening fault lines between markets and milk checks, growth strategies and farm risk, feast and famine. As 2026 begins, dairy stands at a crossroads.

At its core, 2025 revealed a trust and transparency gap in dairy markets, data collection, and reporting. Farmers are not questioning demand, productivity, tools for managing or improving their own efficiency.

They are questioning whether the numbers they see — product prices, cattle counts, production totals, class and component values, make-allowances, deductions, and adjustments — reflect the full picture of how value moves through the system, and whether decision-makers are even listening.

When pricing grows more complex, data less reliable, and explanations thinner, confidence erodes. Rebuilding trust will be one of dairy’s defining challenges for 2026.

From a market-observation perspective, what stands out most from 2025 — aside from the butterfat crash — is growing unease among dairy farmers about where the industry is headed and their place in it.

Expectations for milk prices faded faster and deeper than many anticipated, even as official narratives continued to emphasize demand-fueled growth and warn of “tightening heifer inventories.”

This disconnect matters, because the industry has already lost too many dairy farms.

What is at stake is the fabric of the dairy sector — the people, the communities, and the generational continuity that cannot be rebuilt once it is gone. No industrial milk-production complex can replace the network of dairy farm families that anchor rural economies.

Beyond milk, money, and markets, human capital is at risk.

Against this backdrop, 2025 was a year when the dairy industry doubled-down on growth.

As documented in Farmshine, an estimated $8 to $10 billion was touted as flowing into new and expanded processing capacity. Checkoff-funded strategies leaned into value-added innovation, new product platforms, and partnerships. Policymakers and analysts spoke confidently about efficiency, demand, trade, and the long-term need to grow.

Farmers were asked to grow milk to fill new capacity coming online in 2025–26, absorb pricing “reforms” that increased processor make-allowance credits under new Federal Milk Marketing Order changes, and trust that innovation and demand-building would translate back to milk checks. While the industry invested, branded, and expanded, the risk of that growth landed disproportionately on dairy farms.

On paper, 2025 closed with markets clearing, products moving, exports setting records in some categories, and Dairy Margin Coverage margins staying above trigger levels (although December is still a question). In reality, mailbox milk checks weakened even as input costs stayed high, and the gap between industry benchmarks and farm reality widened.

As risk accumulated — from component volatility to murky deductions — it became increasingly clear that industry growth is being financed at the farm gate, while returns are realized elsewhere in the supply chain. That tension defined 2025.

Protein led

The year began with protein trending higher, climbing above $3.00 per pound before reversing sharply.

Whey was the bright spot, supported by strong domestic demand in food, nutrition, and functional ingredient markets where dairy protein continues to gain favor. But whey impacts “other solids,” not the protein price paid to farms.

By December, the farm-level protein price dropped more than 50 cents/lb in a single month, reinforcing a central lesson of 2025: strong consumer demand does not guarantee farm-level price strength.

Butterfat fell from $3.61 per pound in October 2024 to $1.58 by December 2025. Farms produced 2.8% more milk from January through November, including 4.3% more pounds of butterfat. Processors made 6.5% more butter — yet the industry stored less of it.

Under normal market logic, that combination should have supported butterfat prices against a severe decline. Instead, values plunged 57% year on year. By December, Class II and IV prices were $6 to $8 per cwt below year-prior levels, with Class I and III down over $3, dragging the all-milk price down $5 to $6.

As the year closed, protein and fat declined simultaneously, harder and faster than demand signals suggested they should. What mattered most was the growing gap between reported product values, announced prices, and what actually landed in milk checks.

Margin capture

2025 will be remembered as a year of margin capture through arbitrage in the middle of the supply chain. Dairy markets worked — just not for dairy farmers.

This, in practice, is what the industry’s growth plan looks like: Cheese and butter traded record global volumes, with U.S. products discounted all year by 25% to 35% on cheese and more than 50% on butter compared to global indexes.

Value was preserved midstream, supported by a larger processor make-allowance cushion, while farm-level prices absorbed the adjustment to win export sales.

Missing data amplified the effect. During a nearly four-month absence of USDA Cold Storage reporting, following the government shutdown and coinciding with the ramp-up in milk, cheese and butter production, analysts talked of “inventories needing to clear,” which no one could see (and didn’t really exist), and then warned of “lost global competitiveness” at the slightest price uptick in CME cheese and butter markets. Yes, butter production ran well above year-ago levels, but inventories, we now see, remained tight, but without timely reporting from August through December, price discovery weakened and arbitrage opportunities expanded. By the time reporting resumed two days before Christmas, market psychology was already entrenched.

Big bets

Whey illustrates the industry’s big bets. In fact, analysts and economists have said whey drives some of the new processing capacity to the point where cheese is practically the byproduct. This turns pricing paradigms upside-down, in a sense, feeding further into the emerging growth-market dynamic.

Years of dairy checkoff investment helped transform whey from a byproduct into a broad portfolio of high-value products and applications. In 2025, whey demand and prices held firm even as other dairy markets weakened. But the benefit barely reached milk checks.

Whey value flows through “other solids” and only via commodity dry whey prices, while the largest make-allowance increase implemented in June 2025 applied to whey processing. All value-added whey products, including commodity whey protein concentrates, fall outside USDA mandatory price surveys used in milk-pricing formulas.

The takeaway for many farmers is not that innovation failed, but that the pricing system is not structured to share the upside when innovation succeeds — even when farmer-funded checkoff dollars help drive it. But it surely capitalizes on sharing the slightest downside.

This reality sharpens scrutiny of dairy checkoff strategies. In 2025, Dairy Management Inc. (DMI) rolled out its Milk Molecules Initiative (MMI) that has been in the works for at least three years. It centers on the extended shelf-life beverage platform, uses AI-driven identification of milk’s thousands of molecules, how to strip them out and recombine them, and builds partnerships aimed at higher-margin wellness markets.

If the upside accrues value to brands, processors, and retailers while farmers are still paid off minimum formulas or cooperative re-blends with deductions they can’t see and line items they do see, then it’s not enough to simply say: “we’re building demand.”

Farmers need to see value translate to milk checks with mechanisms to ensure it.

The industry bet is clear. So is the farmers’ question: How does a mandatory, farmer-funded checkoff demonstrate farm-level return when its program revenue grows by milk volume — not milk price — and the value-added gains bypass price discovery while shifting disproportionate risk to the farm-gate funding that growth?

Beef-on-dairy

2025 will also be remembered as the year beef-on-dairy became structural risk management rather than a supplemental strategy for many dairies. With the U.S. cattle herd at a 75-year low and beef demand strong, dairy farms relied heavily on beef-cross calves and cull-cow income to offset weak milk checks. The combination now supplies about 30% of U.S. commercial beef.

Some cite drought as the reason for the historically small beef cattle herd, but let’s be clear: Years of targeting cows in climate and sustainability frameworks and propaganda — a narrative often accommodated at some level within the beef and dairy industries, themselves — played a major role. Land was taken out of production, consolidation accelerated and producer resilience eroded. When cows are targeted as liabilities, volatility follows, and family-scale farms bear the brunt.

Persistence pays

As 2025 closed, dairy farmers notched a big win few believed would ever come, proving persistence pays, grassroots advocacy works, and staying engaged matters.

Just ahead of the December recess, Congress finally passed the Whole Milk for Healthy Kids Act, ending the 15-year ban on whole and 2% milk in school meals. President Trump is expected to sign the bill in early January, capping a decade-plus grassroots effort once dismissed as unrealistic. The bill does not fix dairy pricing or resolve margin capture. But it matters because it proves change is possible, and it restores whole milk to the daily diets of millions of students, dairy’s future consumers.

2025 was a year of reckoning, setting the stage for the crossroads ahead in 2026. Growth was pursued, markets cleared, products moved, but issues around trust, transparency, and farm-level returns are now front-burner. How these issues are resolved will shape what the dairy industry looks like in the future.

What comes next will determine whether the industry rebuilds trust with its farmers, shares risk more equitably, and sustains the people who produce the milk, or continues to pursue growth without regard for the consequences of leaving farmers to absorb the cost, carry the risk, and wait for the reward.