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Dairy updates
Dairy herd growth moderates.
U.S. dairy herds continue to expand, though growth has moderated from last year. Through the first quarter of 2026, the national dairy herd increased by 55,000 head (0.6%), supporting stronger milk production. U.S. milk output rose 4.4% in the first quarter, with March production up 2.3% from a year earlier, driven by both additional cows and improved productivity per cow.
Across the Western U.S., all states posted increases in milk cow numbers during the first quarter except California. California’s herd declined by 5,000 head (-0.2%) during the period, reflecting a combination of low milk prices and processing capacity constraints. The closure of a cheese processing facility, which has since relocated to Texas, reduced in‑state capacity, while over‑base milk penalties imposed by at least one processor have sharply discounted milk shipped above monthly base volumes. For some producers, limited milk dumping has occurred to avoid these over-base charges which can be quite substantial.
In contrast, Idaho continues to post strong herd growth, supported by expanding processing capacity. The first confirmed case of highly pathogenic avian influenza (HPAI) in 2026 was identified in a dairy herd in Idaho. After causing meaningful production losses and revenue impacts in 2024, HPAI activity has remained largely muted since mid‑2025, making this the first confirmed case since December 2025. USDA officials have indicated that this case likely reflects localized circulation rather than a broader outbreak. There is cautious optimism that it remains contained.
In Washington, the milk cow herd increased by 1,000 head during the first quarter of 2026, following a significant contraction in 2025 when herd size declined by 19,000 head (-7.5%). Last year’s culling was tied to tightening margins and processor disruptions that weighed heavily on milk checks. The recent return to modest herd growth signals improving financial conditions for producers in the state.
Ample milk supplies are keeping U.S. processors highly competitive in global markets. On a total solids basis, U.S. dairy product exports increased 8% in March compared to the previous year. U.S. cheese and butter prices have enhanced competitiveness abroad, with cheese exports up 28.7% and butter exports surging 109.9% year over year. Nonfat dry milk (NDM) monthly exports fell in March due to reduced shipments to Mexico and Southeast Asia. Despite the March pullback, NDM exports remain more than 5% higher year-to-date, and spot prices reached record highs amid tight domestic inventories and ongoing strength in both domestic and export demand.
Profitability
March 11, 2026Dairy: Breakeven profitability - Neutral 12-month outlook
Slowing herd expansion and steady demand are balancing dairy markets, while elevated costs and ample milk supplies continue to limit upside. The neutral outlook favors disciplined cost management and cautious growth rather than expansion.
The U.S. ranks as the second-largest exporter of dairy products, following the European Union. Over 15% of U.S. dairy production is exported. Mexico and Canada are the top destinations, accounting for more than 40% of total exports. Key U.S. dairy exports include nonfat dried milk, skim milk powder, cheese, whey, lactose, butter and other products. For cheese, major export markets include Mexico, South Korea, Japan and Canada.
The U.S. also imports a significant amount of cheese, primarily from the European Union. Many of these imported cheeses carry geographic indicators, signifying they originate from specific regions and are uniquely tied to those areas. This designation prevents others from replicating such cheeses outside their original region, ensuring their distinctiveness.
Cheese production, exports and imports
Source: USDA National Agriculture Statistics Service. U.S. Census Bureau.
Tariff tracker - Tariff rates applied to U.S. trade partners are consistenly updated to reflect policy changes. The World Trade Organization (WTO) tracks duties and tariffs on dairy products. For your convenience, the following links will take you to tariff data on cheddar cheese (a leading U.S. export for the dairy industry) for top markets including South Korea and Japan. Dairy products are currently exempt from tariffs for Mexico and Canada under the United States-Mexico-Canada Agreement (USMCA), but please refer to the U.S. Trade Representative website for up-to-date information. WTO also tracks rates for dairy imports to the U.S. Please consult with a trade lawyer or professional for detailed and up-to-date insights on tariff rates and their application to dairy products.
For guidance on interpreting duty and tariff rates, please refer to our Tariff Guide.
Dairy updates
Dairy herd growth moderates.
U.S. dairy herds continue to expand, though growth has moderated from last year. Through the first quarter of 2026, the national dairy herd increased by 55,000 head (0.6%), supporting stronger milk production. U.S. milk output rose 4.4% in the first quarter, with March production up 2.3% from a year earlier, driven by both additional cows and improved productivity per cow.
Across the Western U.S., all states posted increases in milk cow numbers during the first quarter except California. California’s herd declined by 5,000 head (-0.2%) during the period, reflecting a combination of low milk prices and processing capacity constraints. The closure of a cheese processing facility, which has since relocated to Texas, reduced in‑state capacity, while over‑base milk penalties imposed by at least one processor have sharply discounted milk shipped above monthly base volumes. For some producers, limited milk dumping has occurred to avoid these over-base charges which can be quite substantial.
In contrast, Idaho continues to post strong herd growth, supported by expanding processing capacity. The first confirmed case of highly pathogenic avian influenza (HPAI) in 2026 was identified in a dairy herd in Idaho. After causing meaningful production losses and revenue impacts in 2024, HPAI activity has remained largely muted since mid‑2025, making this the first confirmed case since December 2025. USDA officials have indicated that this case likely reflects localized circulation rather than a broader outbreak. There is cautious optimism that it remains contained.
In Washington, the milk cow herd increased by 1,000 head during the first quarter of 2026, following a significant contraction in 2025 when herd size declined by 19,000 head (-7.5%). Last year’s culling was tied to tightening margins and processor disruptions that weighed heavily on milk checks. The recent return to modest herd growth signals improving financial conditions for producers in the state.
Ample milk supplies are keeping U.S. processors highly competitive in global markets. On a total solids basis, U.S. dairy product exports increased 8% in March compared to the previous year. U.S. cheese and butter prices have enhanced competitiveness abroad, with cheese exports up 28.7% and butter exports surging 109.9% year over year. Nonfat dry milk (NDM) monthly exports fell in March due to reduced shipments to Mexico and Southeast Asia. Despite the March pullback, NDM exports remain more than 5% higher year-to-date, and spot prices reached record highs amid tight domestic inventories and ongoing strength in both domestic and export demand.
Profitability
March 11, 2026Dairy: Breakeven profitability - Neutral 12-month outlook
Slowing herd expansion and steady demand are balancing dairy markets, while elevated costs and ample milk supplies continue to limit upside. The neutral outlook favors disciplined cost management and cautious growth rather than expansion.
The U.S. ranks as the second-largest exporter of dairy products, following the European Union. Over 15% of U.S. dairy production is exported. Mexico and Canada are the top destinations, accounting for more than 40% of total exports. Key U.S. dairy exports include nonfat dried milk, skim milk powder, cheese, whey, lactose, butter and other products. For cheese, major export markets include Mexico, South Korea, Japan and Canada.
The U.S. also imports a significant amount of cheese, primarily from the European Union. Many of these imported cheeses carry geographic indicators, signifying they originate from specific regions and are uniquely tied to those areas. This designation prevents others from replicating such cheeses outside their original region, ensuring their distinctiveness.
Cheese production, exports and imports
Source: USDA National Agriculture Statistics Service. U.S. Census Bureau.
Tariff tracker - Tariff rates applied to U.S. trade partners are consistenly updated to reflect policy changes. The World Trade Organization (WTO) tracks duties and tariffs on dairy products. For your convenience, the following links will take you to tariff data on cheddar cheese (a leading U.S. export for the dairy industry) for top markets including South Korea and Japan. Dairy products are currently exempt from tariffs for Mexico and Canada under the United States-Mexico-Canada Agreement (USMCA), but please refer to the U.S. Trade Representative website for up-to-date information. WTO also tracks rates for dairy imports to the U.S. Please consult with a trade lawyer or professional for detailed and up-to-date insights on tariff rates and their application to dairy products.
For guidance on interpreting duty and tariff rates, please refer to our Tariff Guide.
