U.S. dairy herd hovers near 30-year high

Farm milk prices dipped sharply in the second half of 2025 due to strong milk production. 

Class III prices dropped by $1.38 per hundredweight (cwt) since August’s $17.24 payout for cheese and whey. Unfortunately, Class IV experienced even steeper losses, falling from $18.50 to $13.64 per cwt by December, according to Corey Geiger, lead dairy economist for CoBank Knowledge Exchange.

“This $4.85 reduction per cwt has put significant pressure on West Coast dairy farmers where larger volumes of butter and milk powders are produced at processing plants, which begs the question, ‘When might we see a rebound in milk prices?’” Geiger explained.

Challenging question

Geiger admitted, “It’s a challenging question to answer because it depends on when we will see a pullback on milk production in both the U.S. and other major dairy product exporters.”

This is because milk prices have taken a downturn in those regions, too. European Union (EU) milk production has been rather robust in recent months after being flat a year ago. 

In August, EU milk was up 3.2 percent, and by October, output climbed a remarkable 5.5 percent, Geiger noted. Signals indicate November and December could be more of the same once final tallies get reported. 

“This matters for two reasons,” he said. “For starters, the EU milk shed – with the United Kingdom – is 1.6 times the size of the U.S. Secondly, the EU is the world’s largest dairy product and ingredient exporter, shipping the equivalent of nearly 20 percent of its milk production overseas. Strong production from this continent tends to put pressure on global milk prices as dairy products and ingredients search for a home abroad.”

In New Zealand, the world’s second-largest exporter – the U.S. comes in third – milk production has been up 2.5 percent season-over-season.

With margins rather favorable to make milk, due to low feed prices, Kiwi production growth should hold in steady in the 2.5-percent range during the second half of its production season. 

“This is all taking place even though the country’s largest cooperative, Fonterra, revised milk prices lower on both Nov. 25 and Dec. 18,” Geiger said.

Strong stateside growth

To some extent, U.S. milk output had mirrored the EU, with growth hovering under two-percent levels from January through April. Then, output began trending higher, with June through November milk rising 3.3 to 4.5 percent year-over-year. 

“However, the more dynamic story has been growth in milk components,” Geiger said. “During the same June-to-November window, protein production moved 4.3 to 5.7 percent higher. Markets have easily absorbed the extra protein production given growing demand for yogurt, cottage cheese and high-protein dairy shakes and whey powders.” 

Butterfat has been a different component story. 

“Dairy fats posted growth from 2.9 to four percent in the first five months of the year. By June, butterfat climbed 5.3 percent year-over-year and peaked at 6.3 percent in September, with no month being under five percent through year’s end,” he explained. 

“Markets simply have become saturated despite growth in per capita butter and creamers, along with strong butter exports. Hence the downturn in Class III and Class IV milk prices,” he added.

Given what buyers believe will take place for future output, Class III futures on the CME first pushed past the $17 mark in July 2026 with Class IV moving above $16 next September, based on early January trading activity. 

What turns the tide? 

“Certainly, dairy cows have become more efficient, with the collective U.S. dairy herd posting 2.1 percent growth on a per cow basis this past November,” Geiger stated. “However, more milk per cow only accounts for half of November’s new milk output.”

Beef-on-dairy breeding patterns account for the larger half as dairy farmers retain cows to make beef calves. 

“When looking back over the past 12 months, there are 211,000 additional dairy cows, and those extra cows produced an extra 414.1 million pounds of milk,” Geiger said. “This represents 2.3 percent of the growth in November milk on a national level from just those extra cows. When looking back to October milk, the extra 200,000-plus cows were responsible for 61 percent of the additional milk compared to the 39 percent share attributed to added efficiency in milk produced per cow.”

“This helps shape the picture for higher supply-side milk volumes, putting pressure on the demand side of the equation as cow numbers hover near 30-year highs,” he added.

Due to pressures on milk margins, the U.S. dairy industry has begun to see a slight uptick in dairy cow culling. There were more cows sent to slaughter every week from mid-September to year’s end, according to Geiger. 

However, those 15 straight weeks only netted 24,000 additional cows culled – or 11 percent of the 200,000-plus additional dairy cows. 

With the beef category now contributing between four to five dollars per cwt to dairy farm revenues, those extra cows in dairy herds continue to pay dividends to the bottom line.

“In early January, sales of beef-on-dairy calves were fetching a $1,400 average in Lancaster, Pa.,” he said. “Until this financial contribution reverses or margins to produce milk fall further, we may have a larger dairy herd and more milk to disperse in the marketplace. This will continue to put pressure on milk prices and slow a milk price recovery.” 

According to Geiger, the most likely scenario is global dairy markets realize a pullback in EU milk production first. 

This scenario is likely to play out first because the European continent is not seeing high returns in the beef category like U.S. dairy farmers are. As a result, lower milk prices are not buoyed as much by beef-on-dairy income.

 Pressure on milk margins should induce culling sooner. 

Given all those factors, U.S. Department of Agriculture (USDA) economists lowered their all-milk price forecast for 2026 from $18.75 to $18.25 per cwt in the January 2026 World Agricultural Supply and Demand Estimates. This number was closer to $21 in 2025. 

In the meantime, if these financial conditions continue, producers might once again see payments for milk covered in USDA’s Dairy Margin Coverage Program as milk income over feed costs could fall below the $9.50 level.

Fran O’Leary is the senior editor for Wisconsin Agriculturist. This article was originally published in Wisconsin Agriculturist on Jan. 20.