U.S. milk production saw significant growth in July 2025, increasing by 3.4% compared to the same month last year. This surge was fueled by favorable weather conditions and a growing national milk cow herd, which expanded by 159,000 head year over year. Both figures are remarkable—milk production has risen year over year for the fifth consecutive month, with July marking the largest annual increase in over four years. Additionally, herd growth represents the largest year-over-year expansion in more than 15 years, despite record-high replacement heifer prices and an increase in dairy-beef crosses destined for the beef cull market. While these trends highlight the U.S.’s ability to produce milk in abundance, the question remains: can this level of production be sustained without overwhelming markets?
Although lower feed costs and income from beef-dairy breeds are helping to support dairy producer margins in the short term, prolonged low milk prices could erode profitability. The surge in milk production has already been a factor in some price softening. More milk supplies have also increased fat supplies, pushing butter prices lower. Spot butter prices declined in August, and reached nearly $2 per pound at the start of September. While these lower butter prices may stimulate international demand, they are keeping Class III milk prices depressed, with futures remaining below $18 per cwt. This is a challenging price point for producers. Class IV futures are similarly projected at $17 per cwt.
Certain regions in the West are poised for further growth. Idaho, for instance, saw milk production surge 8.7% year over year in July, adding over 48,000 cows to its herd in the past year. California also posted a sharp year-over year-increase in milk production, benefiting from its recovery from the impacts of Highly Pathogenic Avian Influenza (HPAI) and milder weather conditions, which reduced heat stress on dairy cows compared to 2024.
However, not all regions are experiencing growth as some producers grapple with milk retains and rising production costs. Washington recorded the largest annual herd decline in the nation, losing 23,000 head over the past year. This drop was partly attributed to the closure of a large dairy facility, which housed over 10,000 dairy cows. Many of these cows were sold at auctions out of state, reflecting the profitability challenges faced by some operations.
Profitability
Dairy: Slightly profitable - Neutral 12-month outlook
Rising milk production and falling futures prices could strain profitability. However, low feed costs and beef-on-dairy income should support margins.
