Aging herds and trade strains

U.S. milk production rose 0.9% year over year in March, driven by herd expansions in Texas and Idaho. (These expansions are due to increased processing capacity.) National milk output growth remains constrained, however. Factors contributing to lower per-cow productivity include reduced dairy cow culling. This has resulted in an aging herd, where extended lactation cycles impact efficiency. High beef-cross dairy calf prices are encouraging producers to focus on crossbred cattle and retain older heifers. California continues to face low per-cow production due to lingering effects of HPAI, five months after the outbreak's peak. Meanwhile, Idaho is reporting rising HPAI cases, which may also impact the state’s milk productivity.

Though profit margins are expected to compress, prices are projected to remain strong enough to ensure profitability for most dairy operations throughout the year. In April, Class III milk averaged in the mid-$17 per cwt range, while Class IV milk hovered in the upper $17 per cwt range.

Trade disputes and growing economic uncertainty may negatively impact dairy markets in the months ahead. As tariffs contribute to economic strain, the risks of lower consumer confidence and economic recession increase. Dairy prices traditionally decline during economic downturns. In addition to general economic impacts, tariffs applied directly to the dairy industry should be closely monitored. Over 15% of U.S. dairy is exported. At this time, Mexico and Canada remain the U.S.’s largest dairy trade partners, with most traded dairy products exempt from tariffs under USMCA. Canada’s retaliatory tariffs on dairy have been minimal, targeting only over-quota categories. Whey markets are likely to face significant challenges, as China is the largest destination for U.S. whey exports.

Profitability

March 12, 2025

Dairy: Slightly profitable - Neutral 12-month outlook

Profitable milk prices and a tight supply of replacement heifers have provided tailwinds to dairy profitability. However, current market volatility will pose challenges.