Margins for dairy producers have improved due to lower feed costs. Corn prices fell below $4 per bushel for most of August, September, and October. Other feed costs, including soybean meal, hay, and almond hulls, have also decreased. Milk prices have steadily increased since April, helping dairies pay down debts or reinvest, though expansion is minimal. Many dairies have increased crossbreeding with beef breeds, boosting income but reducing dairy replacement heifers. With the U.S. heifer inventory at historic lows, it will take time for herds and milk production to grow, even with better margins.
In 2025, milk production is expected to rise slightly. Dairy prices, including Class III and IV milk, are expected to fall below 2024 levels. However, futures markets suggest margins will remain positive, with the USDA forecasting a 2025 All-Milk price of $22.75 and stable feed costs. This will offer producers the chance to use risk management tools to lock in profitable margins.
Highly Pathogenic Avian Influenza (HPAI) has rapidly spread through California, affecting over 278 herds in two months. Analysts suggest HPAI could infect more than half of California's herds, similar to the 59% of herds impacted in Colorado. Milk production in affected states fell between 1% and 2.6% during the worst of the outbreak. Despite those production losses, milk prices have remained stable, likely due to ample butter and cheese inventories. If the infection rate in California affects 50% of state herds, national milk production could drop by 0.5%, potentially boosting prices temporarily.
A large national coffee chain has removed the upcharge for non-dairy milk alternatives, saving customers 70 to 90 cents per order. As non-dairy milk alternatives become more accessible and affordable, demand for traditional dairy products may decrease. Sales of plant-based milk alternatives have grown to $2.9 billion annually, with plant-based creamers also growing, grossing over $700 million annually. The removal of the upcharge could accelerate this trend, leading to a further decline in fluid milk sales.
Dairy: Breakeven profitability - Bullish 12-month outlook
Increasing milk prices and reduced feed costs will enhance profitability, however, HPAI could pose headwinds.
