U.S. dairy margins are forecasted to rebound in the second half of the year. That wasn’t the case earlier this year as margins fell steadily during the first quarter of 2025. Between falling milk prices and feed prices slowly ticking back up, margins through the Dairy Margin Coverage (DMC) program have declined nearly every month since peaking last year in September.

The DMC measures margins using the Income Over Feed Cost (IOFC) method, which takes the All-Milk price less corn, soybean, and alfalfa feed costs, and does not include other expenses or revenues on farm. In March, corn averaged $4.57 per bushel, premium alfalfa hay stood at $242 per ton, and soybean meal was $303.80 per ton, with an All-Milk price of $22 per hundredweight (cwt.). The combined feed costs of $10.45 per cwt. less the All-Milk price gave the $11.55 per cwt. margin for the month.

As for April milk margins, the IOFC is forecasted at $10.31 per cwt. This would be the lowest for the year and less than $1 from the minimum threshold for indemnity payments. After that, IOFC margins are expected to climb back up over $13 per cwt. by year’s end.

Given this situation, DMC is forecasting an 85% probability that no indemnity payments will be sent out in 2025, as the margin threshold will likely remain above $9.50 per cwt. It has been more than a year since the most recent indemnity payment was sent to producers who participated in this program.

Futures prices changed significantly

According to the May World Agricultural Supply and Demand Estimates (WASDE) report, the All-Milk price in mid-2025 was forecasted at $21.60 per cwt. Corn and soybean meal futures in July 2025 are trading near $4.47 per bushel and $291 per ton, respectively, on the CME. These grain prices came down extensively over the past two years and have stabilized since the fourth quarter of 2024.

Throughout most of 2024 and early into 2025, the Class IV milk price was the “higher-of” over the Class III milk price. The price relationship flip-flopped in February and March to move Class III futures into the pole position, averaging $19.40 per cwt. compared to $19.06 per cwt. for Class IV. By September, the CME futures expect another switch yet again, with Class IV leading at $19.37 per cwt., leaving Class III behind, averaging $18.91 per cwt. through December. Some of this relationship movement is due to additional cheese processing capacity coming online.

To comment, email your remarks to intel@hoards.com.