The U.S. dairy sector continues to expand as producers add cows and increase milk production. Recent USDA cattle inventory and milk production underscore this trend. As of July 1, the U.S. dairy herd totaled 9.65 million head, up 2.1% from a year ago and nearing 30-year highs. The number of replacement heifers also increased to 3.6 million head, compared to 3.5 million head last year, indicating continued herd expansion ahead.
Across AgWest states, Arizona, Idaho, California, and Oregon all posted year-over-year growth in dairy cow numbers. Washington's dairy herd appears to be stabilizing, with losses limited to 2,000 head compared to a year ago. The state has reduced its dairy herd by approximately 20,000 head over the past 18 months.
Milk production growth is being driven by both larger herds and improvements in productivity. In the major dairy-producing states, June milk production reached 18.9 billion pounds, up 2.4% from last year, while milk production per cow increased by 7 pounds year over year. California was a notable exception, as June's extreme heat limited productivity gains and kept milk yields relatively flat compared to last year. Continued growth in milk supplies could pressure milk prices if production outpaces demand growth or if new processing capacity comes online more slowly than expected.
Despite a seasonal rebound in milk prices during the spring, dairy producers face increasing margin pressure as milk supplies continue to grow. The year began with an All-Milk price of $17.50 per cwt, resulting in Dairy Margin Coverage (DMC) payments for the first three months of 2026. Prices strengthened through May, peaking at $21.30 per cwt, before beginning to soften in June. July prices may again be low enough to trigger a DMC payment, signaling renewed pressure on producer profitability. Further price declines are expected during the second half of the year, which could continue to erode dairy margins.
Profitability
Dairy: Slightly profitable - Neutral 12-month outlookImproving milk prices and relatively low feed costs, combined with added revenue from elevated beef values, support modest profitability.
