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Archive for Dairy Margins

Margin Squeeze: Dairy Farms Face Tightening Profits as Milk Prices Tumble

Thursday, May 1st, 2025

Milk prices plunge to 3-year lows as beef sales become dairy’s lifeline. Can producers weather the storm?

EXECUTIVE SUMMARY: Dairy margins are tightening in 2025 as milk prices collapse to $22/cwt (lowest since May 2024) while feed costs hold steady at $10.45/cwt. Class III and IV prices fell below $18/cwt for the first time since 2021, squeezing profits despite record beef income from $145/cwt cull cows. Trade wars with China and Canada threaten exports, but futures predict a late-2025 rebound to $12.94/cwt margins. Producers face a “difficult trifecta” of price volatility, disease risks, and policy uncertainty, requiring strategic culling, feed efficiency gains, and aggressive risk management to survive.

KEY TAKEAWAYS

  • Margin squeeze: Milk prices dropped $1.60/cwt since February 2025, while stable feed costs offer limited relief
  • Beef buffer: Record cull cow prices ($145/cwt) and beef-cross calves offset 20-30% of milk revenue losses
  • Trade turbulence: China’s 125% dairy tariffs and Canada’s retaliation threaten $3B+ in annual exports
Dairy margin coverage, milk price trends 2025, dairy trade wars, beef prices dairy income, dairy risk management

The numbers don’t lie – dairy farmers feel the pinch as milk margins continue downward into spring 2025. The USDA’s Dairy Margin Coverage (DMC) program registered an $11.55/cwt margin in March, plummeting $1.57 from February’s figures. While this remains above crisis territory, the rapid erosion of profitability demands attention from producers worldwide. Recent Class III and IV price announcements signal further pressure ahead, creating a complex financial landscape that requires strategic planning and risk management.

THE PERFECT STORM: MILK PRICES CRASH WHILE COSTS HOLD

The primary culprit behind shrinking margins is the dramatic decline in milk prices. The All-Milk price used in DMC calculations hit $22/cwt for March 2025, marking its lowest point since May 2024 and representing a staggering $1.60 drop from February alone. This isn’t just a minor market correction – it’s part of a concerning downward trajectory that began earlier this year.

April’s milk price announcements cast an even darker shadow over producer profits. Class III prices plummeted to $17.48/cwt (down $1.14 from March), while Class IV settled at $17.92/cwt (down $0.29). This marks the first time since October 2021 that both benchmark prices have fallen below the critical $18/cwt threshold simultaneously – a clear warning sign of challenging market conditions ahead.

“These aren’t just statistics – they’re your milk check,” says dairy market analyst Mark Stevens. “When both Class III and IV prices drop below $18 together, we’re looking at milk payments approaching or even below production costs for many operations.”

The USDA continues to revise its forecasts downward, with its March report slashing the 2025 all-milk price projection by a full dollar to $21.60/cwt. This represents a dramatic shift from earlier optimism and reflects growing concerns about market fundamentals throughout the year.

Production Growth Meets Export Challenges

Two forces collide to lower prices: expanding domestic production and weakening export demand. After declining year-over-year for 13 consecutive months, US milk production rebounded in late 2024, with the national dairy herd growing steadily. This increased supply, without corresponding demand growth, naturally pressures prices downward.

Meanwhile, international markets – critical outlets for absorbing US dairy products – face significant headwinds. The USDA has lowered its dairy export forecasts on a fat basis, primarily due to decreased cheese exports. The ongoing trade tensions with major partners, including China, Canada, and Mexico, create additional uncertainty for exporters trying to find homes for US dairy products.

FEED COSTS: SURPRISING STABILITY PROVIDES BUFFER

If there’s a silver lining in the current margin situation, it’s the remarkable stability of feed costs. The DMC feed cost calculation for March 2025 registered at $10.45/cwt, dropping just three cents from February. This stability provides a crucial buffer against falling milk revenues, preventing a dramatic squeeze on producer margins.

Current feed ingredient prices demonstrate unprecedented calm in a market usually characterized by volatility. The DMC calculation incorporates corn (around $4.58/bu), soybean meal (approximately $305/ton), and premium alfalfa hay (about $243/ton). These prices remain significantly below the peaks reached during previous feed cost crises.

Several factors could keep feed costs in check for the remainder of 2025:

  1. Faster-than-average planting progress (corn at 24% planted by late April, soybeans at 18%)
  2. Potential trade disruptions reducing export demand for US feed grains
  3. Generally favorable growing conditions in major production regions

However, dairy producers shouldn’t become complacent. Weather patterns remain unpredictable, and the “evolving trade war” could introduce unexpected volatility into feed markets. Strategic feed purchasing and inventory management remain essential components of margin protection strategies.

THE BEEF BONUS: RECORD PRICES PROVIDE CRUCIAL INCOME SUPPORT

While milk prices tumble, an unexpected hero has emerged to help dairy farmers weather the storm – the robust beef market. Cull cow prices in the Southern Plains jumped from $121 to $145 per cwt since January 2025, with auction prices consistently outpacing year-ago levels. This substantial premium for dairy culls provides crucial supplementary income when milk revenues are under pressure.

“Don’t underestimate how important these beef prices are right now,” says livestock market specialist Janet Rivera. “For a 1,400-pound dairy cow going to market, we’re talking about $2,000+ checks that significantly offset reduced milk income.”

The beef price surge stems from historically tight cattle supplies nationwide. Both beef and dairy cow slaughter have declined dramatically (down 20% and 6.6%, respectively). This supply constraint and strong consumer demand for ground beef have created a perfect storm for record prices.

Many forward-thinking dairy producers have amplified this income stream through strategic breeding decisions. Using beef semen on a portion of the dairy herd to produce higher-value beef-cross calves generates substantial supplementary revenue. With advanced sexed semen technology ensuring adequate dairy replacements, this approach represents a crucial profit center during margin challenges.

DMC PROGRAM: YOUR SAFETY NET DURING UNCERTAIN TIMES

The Dairy Margin Coverage program remains the cornerstone safety net for US dairy producers navigating volatile markets. The 2025 enrollment period, which ran from January 29 to March 31, offered producers the opportunity to secure protection against precisely the type of margin compression we’re now witnessing.

For just $0.15 per hundredweight at the $9.50 coverage level, DMC offers affordable peace of mind. The program protects dairy farmers when the calculated margin falls below their selected coverage level, with options ranging from to .50 per cwt in 50-cent increments.

While current margins remain above the $9.50 trigger level for maximum DMC coverage, the rapid erosion from February to March demonstrates how quickly conditions can change. Producers who opted for higher coverage levels during enrollment now have valuable protection should margins continue to deteriorate in the coming months.

The program’s value has been proven repeatedly. In 2023 alone, DMC payments were triggered in 11 months, including two months below the catastrophic $4 margin level, distributing more than $1.2 billion to participating farmers. This historical perspective underscores the importance of consistent participation in the program as a fundamental risk management strategy.

GLOBAL TRADE TENSIONS CAST SHADOW OVER MARKETS

International trade dynamics will significantly influence dairy prices and market access in 2025. The “evolving trade war” referenced in industry publications encompasses a complex web of tariffs and retaliatory measures between the United States and major trading partners, particularly China, Canada, and Mexico.

These trade disputes create dual pressures on dairy margins:

  1. Reduced export opportunities: Retaliatory tariffs limit access to critical markets for US dairy products, creating domestic oversupply that pressures prices downward. China – a significant US whey and lactose market – has effectively closed to US exporters through punitive tariffs.
  2. Potential feed cost impacts: While trade tensions may reduce export demand for US feed ingredients (potentially lowering costs), they also introduce market volatility and uncertainty.

USDA’s March report lowered dairy export forecasts on both fat and skim-solid bases, citing expectations for reduced cheese, dry skim milk products, and lactose shipments internationally. This reduced export capability directly contributes to the lower milk price forecasts troubling producers.

OUTLOOK: CAUTIOUS OPTIMISM FOR LATE 2025

Despite current challenges, futures markets provide some reason for optimism later in 2025. Market indicators suggest margins will remain compressed in the $11/cwt range for the next four months before improving in the year’s second half. Fourth-quarter margins are projected to average $12.94/cwt – still below last year’s exceptional levels but sufficient to support continued milk production for most operations.

The USDA’s most recent milk production forecast for 2025 stands at 226.2 billion pounds, reflecting a reduction of 700 million pounds from earlier projections. This adjustment, based on expectations for lower output per cow (despite slightly higher cow inventories), could help rebalance markets if it materializes.

Class III futures have shown resilience despite ample milk supplies, with May contracts trading well above the USDA’s annual forecast. This disconnect between futures markets and USDA projections creates additional uncertainty but suggests traders may anticipate stronger demand than currently forecast by government analysts.

STRATEGIC CONSIDERATIONS FOR DAIRY PRODUCERS

The current margin environment demands proactive management from dairy producers worldwide. Consider these key strategies:

Risk Management Is Non-Negotiable

Other risk management tools remain available while the 2025 DMC enrollment deadline has passed. Explore Dairy Revenue Protection (Dairy-RP) options, futures and options contracts, and forward contracting opportunities with your processor. The volatility in early 2025 underscores that relying solely on strong market prices is insufficient.

Maximize Beef Income Opportunities

With record-high beef prices providing crucial income support, optimize your culling and breeding strategies. Consider:

  • Strategic use of beef semen on lower-genetic-merit dairy animals
  • Developing relationships with cattle buyers to capture maximum cull value
  • Timing culling decisions to align with seasonal price patterns

Focus on Feed Efficiency

While feed costs remain stable, improving feed conversion efficiency directly enhances margins. Evaluate your current ration with your nutritionist, focusing on cost per ton and income over feed cost metrics. Small improvements in feed efficiency can yield significant margin benefits.

Monitor International Developments

Stay informed about evolving trade situations, particularly with China, Canada, and Mexico. Their impact on export opportunities and input costs will significantly influence dairy margins throughout 2025.

CONCLUSION: WEATHERING THE PROFIT SQUEEZE

The dairy industry has entered a challenging period of margin compression that demands attention but not panic. While significantly reduced from late 2024 peaks, current dairy margins remain historically adequate and well above levels that trigger government support payments.

The combination of falling milk prices, stable feed costs, and record beef values creates a complex economic landscape that rewards strategic management. The most successful operations will be those that actively manage both the revenue and cost sides of the equation while utilizing appropriate risk management tools.

For dairy producers worldwide, the message is clear: be proactive, not reactive. The current margin pressure appears likely to persist through mid-year before improving in late 2025. Positioning your operation to weather this challenging period while maintaining production capacity for the anticipated recovery will be the defining characteristic of successful dairy businesses in the year ahead.

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Dairy Industry Faces Record Setbacks: Stable Margins Amid California’s Milk Production Plunge

Monday, January 6th, 2025

Discover how bird flu in California affects dairy margins. Can stable prices balance out production drops? Explore challenges and strategies for farmers.

dairy margins, milk prices, feed costs, California bird flu outbreak, milk production drop, U.S. milk production, December dairy market, dairy industry trends, factors affecting dairy, dynamic dairy market

Ah, December—it always feels like a time of surprises. Even in the dairy world, just when you think you’ve got everything figured out, bam! Here comes the plot twist. For those deeply entrenched in the dairy industry, this December was one such month with its unique challenges and revelations. Yet, the resilience and adaptability of our industry professionals continue to amaze us, enabling them to navigate these twists with confidence and capability. 

Let’s examine the numbers over the past six months more closely. Understanding these trends is essential, as they provide insight into market conditions. 

MonthDairy MarginYear Over Year Change
July$11.50+2.5%
August$11.75+3.0%
September$11.60-1.5%
October$11.80+0.8%
November$11.90+1.2%
December$12.00+2.0%

These numbers underscore the challenges of navigating through an ever-changing market landscape.

Grasping the Dairy See-Saw: Supply, Demand, and Dairy Margins 

Understanding the delicate dance of supply and demand is crucial in the dairy industry. The industry involves more than cows producing milk or farmers waking up at dawn. It is an ever-evolving market ecosystem influenced by many factors, from weather patterns to consumer preferences and, importantly, the intricate balance of supply and demand. 

Let’s start with the basics of supply and demand. Milk prices? They’ve nudged up, which initially might sound like good news, right? But hold your horses because feed costs climbed in tandem, nullifying the potential gains from those higher milk prices. It’s a classic case of one step forward, two steps back in dairy margins. Talk about a balancing act! For many, this prompts the question: how do you strategically plan when the see-saw of costs and prices keeps swinging? Despite these challenges, there’s always room for strategic planning and optimism in the face of market volatility. For instance, dairy farmers in the Midwest implemented innovative cost-saving measures to counteract the impact of fluctuating milk prices. 

The Unexpected Heavyweight: California Facing a Dairy Dilemma 

StateMilk Production (November 2024, billion pounds)Year-Over-Year Change (%)
California3.0-9.2
Wisconsin2.51.5
Idaho1.32.0
New York1.2-0.5
Pennsylvania0.9-1.0

Now,  talk about that unexpected (and unfortunate) heavyweight—California. This pivotal state in the dairy sector has been grappling with an unexpected adversary—a severe bird flu outbreak. This isn’t just a minor glitch; this outbreak has slashed milk production by a staggering 9.2% year-over-year. Let’s pause here and think—this is the most significant annual decrease ever noted in the state’s milk production history. It’s like watching an Olympic record being broken but on a much grimmer note. 

Why does this matter so much to Californians and all involved in the dairy ecosystem? California is a powerhouse in milk production, and this considerable drop has rippling effects far beyond its borders, influencing dairy prices nationwide and even affecting international trade dynamics. Nationally, for instance, U.S. milk production chalked up to 17.875 billion pounds in November, reflecting a 1% decline compared to the previous year. Yes, that number is correct, and it’s a figure that encapsulates the complex dynamics at play. While some regions were basking in growth, the weight of California’s losses tipped the scales in the opposite direction. Think about it—had circumstances been different, there was chatter of a 0.2% increase on the horizon. Who would have predicted this downturn instead? This significant decrease in milk production in California affects the national supply. It has implications for the global dairy market, potentially leading to increased prices and changes in trade dynamics. 

The Intricate Dance of Data and Context in Dairy Management 

Still, numbers can paint only part of the picture without the context that makes them meaningful. For instance, the USDA was a little surprised by October’s figures. They revised their initial estimates, adding 35 million pounds to the national tally. But how did that happen?  There was an unexpected surge in cow numbers, with dairy farmers adding to their herds and squeezing out higher production per cow. By November, the milking cows numbered 9.365 million—5,000 less than in October but still a decent step up from last year by 20,000. It’s a game of strategic expansions and contractions, where dairy farmers carefully adjust herd sizes based on market conditions, highlighting the dynamic nature of cattle management. Isn’t it fascinating how these small shifts can make a massive difference overall? 

Exploring Dairy Treasures Beyond Milk: California’s Impact on Butter 

Let’s take a closer look at California’s impact on butter and powder production. California isn’t just any player in the dairy game; it’s the nation’s heavyweight champion, the undisputed leader in milk production. When a state of such magnitude faces a production hiccup — like the 9.2% year-over-year slump we’re seeing — it’s only natural that the effects will ripple far and wide. But how exactly does this slowdown shadow butter and powder supplies? 

It’s worth noting that in California, a substantial volume of the milk produced is directed towards creating Class 4 products — our butter and dry milk powder. So, when less milk flows through the pipelines, there’s automatically a squeeze on how much of these products can be churned out (pun intended). Butter stocks might seem stable, with a mere 0.4% increase over last year, but remember, this subtle rise is termed the smallest in the entire yearly tally for 2024. That’s no minor detail. 

It all boils down to supply and demand. While demand remains relatively steady — because, let’s face it, who doesn’t love a good pat of butter on their toast? — a drop in production can lead to tighter supply conditions. This could increase prices, making it more expensive for consumers and businesses relying on these dairy staples. Moreover, as one of the staunch suppliers, California’s reduced output means a potential shift in the supply chain dynamics, forcing other states or even countries to step up and fill the gap. These adjustments can lead to heightened volatility within the market, affecting overall margins and how the industry strategizes for future fluctuations. 

So, next time you butter your bread or indulge in a creamy latte, consider the broader narrative behind these seemingly small changes. They remind us of the interconnectedness and delicate balance that define the dairy industry.

For All the Cheese Enthusiasts: A Closer Look at the Numbers 

Now, for all the cheese enthusiasts, here’s a nugget for you. Total cheese inventories at the end of November stood at 1.335 billion pounds. That’s a decline of 1% month-over-month from October and a more pronounced 7.2% dip year-over-year. Quite the shift, wouldn’t you say? It suggests that cheese production, too, is feeling the pinch in this tightening market. 

The Whirlwind in Commodities: Brace for Unexpected Twists 

And what about the commodities market? It indeed wasn’t sitting idle. Corn and soybean meal markets showcased some exhilarating rallies, akin to a thrilling rollercoaster ride driven by fund shorts scrambling to cover positions alongside pivotal technical breakouts. Soybean meal notably spiked 11.6% from its recent low—a surge that caught many off-guard. Like skilled sailors navigating turbulent seas, dairy professionals must demonstrate nimbleness and adaptability to weather the storm. Navigating the dairy market is akin to conducting a symphony, where each strategic decision plays a crucial note in the harmony of profit margins, showcasing the intricacies of daily business operations. Dairy professionals can consider strategies such as forward contracting, risk management tools, and diversifying feed sources to navigate these market fluctuations. 

The Bottom Line

So where does that leave us? Maybe you’re wondering how these shifts will shape your operations’ future. Are there strategies you’re contemplating to shield your business from the unpredictable ebbs and flows? Or perhaps you’re thinking of innovative ways to harness the shifting tides to your benefit? As always, there’s much to consider in the ever-evolving landscape of dairy farming. The dairy industry faces challenges ranging from navigating supply and demand dynamics to addressing unexpected outbreaks and managing market volatility. However, with strategic planning, adaptability, and a keen understanding of the market, dairy professionals can overcome these hurdles and even find growth opportunities.

Key Takeaways:

  • Dairy margins remained relatively stable throughout December, with milk prices rising alongside feed costs.
  • California’s bird flu outbreaks led to a historic decrease in milk production, with a 9.2% decline from the previous year.
  • Overall U.S. milk production in November came in at 17.875 billion pounds, representing a 1% decrease compared to the previous year.
  • The declining milk production in California significantly impacted national production statistics despite gains elsewhere.
  • USDA slightly revised October milk production, adjusting for increased cow numbers and productivity.
  • Butter stocks saw considerable tightening in November, reflecting California’s production challenges, although stocks increased marginally year-over-year.
  • Cheese inventories decreased by 1% from October and 7.2% compared to the previous year, highlighting a more significant reduction.
  • Commodity markets witnessed sharp rallies, driven by fund activities, impacting corn and soybean meal prices.
  • Producers continue to navigate the markets with strategic, flexible approaches to safeguard margins in light of consistent market fluctuations.

Summary:

In December, dairy margins stayed stable because higher milk prices were balanced with rising feed costs. However, California’s bird flu outbreak led to a massive 9.2% drop in milk production, the largest recorded. This event influenced November’s overall U.S. milk production, which was 17.875 billion pounds, down 1% from last year. These numbers demonstrate how important it is to stay informed about all the factors in play, from diseases to changes in production, in the dynamic dairy market.

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