U.S. milk production increased for the fifth consecutive month in May, rising 1.6% year over year. In the West, producers saw mixed results. Idaho saw strong milk production growth as improved margins and increased processing capacity supported herd expansion. In contrast, lower milk revenues in Washington contributed to a shrinking dairy herd. However, the recent opening of a major butter and powder plant for the state’s largest dairy cooperative should offer some relief, as milk check retains are likely to lessen as the facility gets online. Meanwhile, California and Arizona experienced above-average temperatures in May and June, resulting in reduced milk output, which is typical for the region. (Summer heat puts stress on cows, negatively impacting milk production.)
The dairy industry is experiencing a notable shift in revenue, with dairy cattle marketed into the beef sector forecast to account for nearly 20% of total dairy income in 2025. Dairies are significantly benefiting from tight beef cattle supplies and corresponding record-high prices for calves and cull cows. Advances in genetics and increased crossbreeding have positioned dairies to increase the value of day-old calves and cull cows within the beef supply chain. Given this trend, the dairy industry is expected to play an increasingly impactful role in beef markets.
Effective July 1, updates to dairy and livestock insurance products will provide new benefits for dairy producers. The Dairy Revenue Protection (DRP) program has adjusted butterfat and protein levels to align with the trend toward higher milk components. Additionally, DRP now classifies diseases that prevent dairies from marketing milk as a natural disaster, allowing for coverage. Enhancements to Livestock Risk Protection (LRP) products will now allow dairy producers to protect the futures price on their dairy-cull cows. Additionally, producers will be able to protect the price on their day-old dairy-cross calves.
Profitability
Dairy: Slightly profitable - Neutral 12-month outlook
Dairy margins have improved over the past year due to expanded processing capacity, stronger milk prices and lower feed costs, but reforms to milk pricing formulas are likely to hurt prices received by western dairies.
