The dairy market is experiencing mixed signals. Bullish factors include market price stabilization, a smaller national herd, and lower production per cow due to highly pathogenic avian influenza (HPAI). Bearish factors including the threat of tariffs, rapid growth of cheese in cold storage, and less competitive U.S. prices on the global market.
December's milk production fell for the second month, reaching 18 billion lbs, down 0.4% from the previous year. National milk production per cow fell, with California experiencing the largest declines, down 6.8% year-over-year due to more than half of the state’s herds having HPAI cases. The drop in California's milk production was expected and less severe than many analysts anticipated. The number of active HPAI cases in California has been decreasing, and herd numbers have remained relatively stable, indicating that many culled cows have been replaced.
Lower milk production and fewer cows have helped to support and stabilize milk prices; however, the market remains a mixed bag. The impacts of lower production from HPAI are offset by bearish market factors including the threat of tariffs, the rapid growth of cheese in cold storage, and U.S. prices being less competitive on the global landscape. Dairies can use risk management programs like Dairy Margin Coverage (DMC) to help navigate these challenges. The 2025 enrollment period for DMC is open until March 31, 2025.
USDA announced a final rule amending the uniform pricing formulas for the Federal Milk Marketing Orders (FMMOs). This final ruling, published on Jan. 17, will be implemented on June 1, 2025. The estimated impact on FMMOs will vary depending on each marketing order. Those FMMOs that are less dependent on Class I milk (which includes Arizona, California, and Pacific Northwest FMMOs) will likely not receive as much benefit as other FMMOs from these updated guidelines.
Profitability
Dairy: Slightly profitable - Neutral 12-month outlook
While cheese plant capacity and strong consumer demand for dairy products support prices, global competition and potential market volatility pose headwinds to profitability. The ongoing pull of dairy and dairy-cross cattle to feedlots is slowing the expansion of dairy herds.
