Dairy Markets

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Archive for Dairy Markets

From 52¢ to 25¢: Where Your Milk Dollar Goes Now – And 3 Ways to Reclaim Your Share

Wednesday, December 31st, 2025

1980: Farmers got 52¢ of every dairy dollar. 2024: Just 25¢. Farm prices dropped 11% last year. Retail prices? Barely moved.

EXECUTIVE SUMMARY: A Wisconsin farmer did the math: he gets $1.07 for the milk in a gallon, selling for $4.89. That $3.82 gap isn’t new—but it’s widening. Farm share of the retail dairy dollar has dropped from 52 cents in 1980 to just 25 cents today, and when farm prices fell 11% last year, retail prices barely moved. So where does the money actually go? European research offers a surprising answer: farmer organization may matter more than processor consolidation. German farmers, working through strong cooperative structures, capture 80-85% of price transmission; French farmers negotiating individually capture just 23%. For mid-size U.S. operations, three strategic paths emerge—efficiency optimization (where top performers capture $350,000-$550,000 more annually than average), strategic scaling or collaboration, and premium market positioning. With $11 billion in new processing investment flowing toward facilities that favor large-scale supply, the time to choose your path is now.

I spoke with Mark recently, a dairy farmer who has been milking cows in central Wisconsin for 31 years. Last Tuesday, he stopped at the Kwik Trip in Marshfield after dropping a load at the cooperative and watched a young mother put a gallon of whole milk in her cart. The price tag read $4.89.

His milk check that morning showed $20.90 per hundredweight—down from $23.60 just twelve months earlier. USDA’s National Agricultural Statistics Service released those August 2025 numbers in September, and you know how it is… standing in that convenience store aisle, Mark did what every dairy farmer eventually does: the math.

“I’m getting roughly a dollar-seven for the milk in that gallon,” he told me over coffee later that week. “She’s paying four-eighty-nine. Where’s the other three-eighty-two going?”

It’s a fair question. And thanks to some useful academic research coming out of Canada and Europe, we’re getting clearer answers—ones that have honestly changed how I think about dairy market dynamics.

The Dairy Dollar Has Shifted Over Time

Here’s what the historical data shows. And it’s worth understanding these numbers in context, because they tell us something important about structural changes in our industry.

*Farm share of the retail dairy dollar has plummeted from 52 cents in 1980 to just 25 cents today—a 52% decline that reflects fundamental structural shifts in dairy market power, not temporary cycles*

THE DAIRY DOLLAR: WHAT WE KNOW

For every $1.00 consumers spend on dairy products today:

Segment	2024 Share	Change Since 1980
Farm	$0.25	↓ from $0.52
Marketing & Distribution	$0.75	↑

The marketing share includes processing, retail margins, transportation, and packaging. USDA ERS tracks farm share but doesn’t publish detailed breakdowns of marketing components—which is itself part of the transparency challenge we’ll get to later.

Source: USDA Economic Research Service, Price Spreads from Farm to Consumer, 2024

Back in 1980, dairy farmers captured approximately 52 cents of every retail dollar spent on milk. By 1999, that share had dropped to 32 cents. USDA’s Economic Research Service has tracked this through its Food Dollar Series for decades, and the most recent numbers from its 2024 Price Spreads data put the farm share of the retail dairy product basket at roughly 25 cents on the dollar.

Now, some of that shift reflects legitimate changes in the supply chain—more sophisticated processing, extended cold chains, greater product diversity, and increased food safety requirements. These things cost money, and that cost shows up somewhere.

But here’s what caught my attention: when farm prices dropped 11.4% between August 2024 and August 2025, retail prices barely moved. Bureau of Labor Statistics data shows that the average gallon of conventional whole milk ranged from $3.99 to $4.32 during that period.

The margin had to go somewhere. Understanding where—and why—matters for how we think about pricing dynamics going forward.

What Academic Research Reveals About Price Transmission

This brings us to some research that deserves more attention in our industry. It’s the kind of work that helps explain howprice changes actually move through the supply chain—or don’t.

A study published in the Journal of Food Research by economists at the University of Guelph examined price transmission through Canadian agricultural supply chains. They compared supply-managed commodities like dairy with market-driven commodities like pork, and their findings raise some interesting questions for us.

What the Guelph researchers found:

In supply-managed dairy systems, price changes were transmitted relatively symmetrically—when farm prices rose, retail prices followed at roughly the same rate as when farm prices fell
In competitive pork markets, the pattern looked different: retail prices responded quickly when farm prices increased, but declined much more slowly when farm prices dropped
The researchers attributed this asymmetry directly to processor and retailer concentration

As they put it: “Because of processor and retailer concentration, consumer prices respond more quickly to upward than downward movements of farm prices.”

Why does this matter for U.S. dairy? Because our system shares some characteristics with that competitive model they studied. When input costs rise, those increases tend to move through the chain relatively quickly. When costs fall… well, the benefits don’t always flow back to producers at the same pace. Many of us have seen this play out firsthand.

The European Evidence

European research adds another dimension that I found genuinely surprising. A 2020 study from the EU’s VALUMICS project examined dairy value chains across Germany, France, and the United Kingdom, and what they found challenges some conventional thinking.

The key findings:

Germany and the UK showed 80-85% price transmission—meaning most price changes at the farm level eventually reached retail
France showed only 23% transmission—most farm-level price changes got absorbed somewhere in the middle of the chain
Here’s what’s interesting: the difference wasn’t primarily about processor consolidation
The key variable was the farmer organization—how collectively producers could negotiate

So Germany has relatively fragmented processing—many mid-sized processors and cooperatives competing for milk. France has more consolidated processing, with Lactalis and Sodiaal controlling over 20% of the national milk collection.

Country	Price Transmission %	Farmer Organization	Processor Structure
Germany	80-85%	Strong cooperative structures with collective negotiating leverage	Fragmented: many mid-sized processors competing
United Kingdom	80-85%	Strong cooperative frameworks backed by legal structures	Mixed competitive environment
France	23%	Individual farmer negotiation with limited collective leverage	Consolidated: Lactalis & Sodiaal control 20%+ of national milk

Conventional thinking might suggest German farmers would face more pressure in that competitive processor environment. But the data showed the opposite. Germany achieved 80-85% symmetric price transmission. France achieved 23%.

The researchers pointed to the farmer organization as the critical variable. Germany’s cooperative structure provides producers with collective negotiating leverage backed by legal frameworks. French farmers negotiate more individually with those consolidated processors.

I want to be careful not to overstate this—European dairy markets differ from ours in important ways, and correlation doesn’t establish causation. But the findings suggest that how farmers organize may matter as much as how processors consolidate. That’s worth thinking about.

Dr. Andrew Novakovic, who has studied dairy markets at Cornell University for decades, has made similar observations about collective bargaining mechanisms. Information alone doesn’t necessarily translate into better prices—farmers need ways to act on that information collectively.

What might that look like practically? Active participation in cooperative governance, engagement with FMMO hearing processes, and support for producer organizations that advocate on pricing issues. None of these offer quick fixes, but they represent the mechanisms through which farmers can influence market outcomes beyond their individual operations.

Regional Pricing Variation

One aspect of U.S. dairy pricing that merits discussion—and you probably already know this if you’ve ever compared notes with producers in other regions—is the variation in what farmers actually receive.

USDA Agricultural Marketing Service mailbox price data shows meaningful spreads between regions. The 2024 annual averages had Southeast states around $24.58 per hundredweight, while New Mexico averaged $19.96. That’s nearly a five-dollar difference for essentially the same product.

I recently spoke with a producer in California’s Central Valley who noted similar frustrations. “We’re watching cheese exports hit record levels,” she told me, “and our mailbox price doesn’t seem to reflect that demand.” It’s a sentiment I’ve heard echoed from Vermont to Idaho—the sense that global market strength isn’t translating into farm-level returns as producers expect.

Some of this reflects legitimate factors: Federal Milk Marketing Order formulas, transportation costs, local supply-demand balance, and plant proximity. The FMMO system was designed to ensure orderly marketing and prevent predatory practices when milk couldn’t travel far.

But the magnitude of regional differences raises questions worth exploring. I spoke with Dr. Mark Stephenson, recently retired director of dairy policy analysis at the University of Wisconsin-Madison, about this dynamic.

“The regional pricing system reflects historical infrastructure and political compromises as much as current economic realities,” he observed. “Whether it still serves farmers optimally is a legitimate question.”

For individual operations, the practical takeaway is straightforward: understand the dynamics of your specific FMMO region. USDA publishes monthly mailbox prices by state—tracking where you stand relative to other regions can inform marketing decisions.

Processing Sector Changes

Any discussion of dairy pricing should include what’s happening on the processing side. And the numbers tell a story of significant consolidation over the past several decades.

USDA Rural Development cooperative statistics show U.S. dairy cooperatives declined from 1,244 in 1964 to 118 by 2017. Today, the four largest dairy cooperatives market approximately 41% of all U.S. milk. The 2020 acquisition of 44 Dean Foods facilities by Dairy Farmers of America for $425 million represented a significant moment in this trend.

It’s worth noting that cooperatives themselves vary considerably in structure and function. Some focus primarily on bargaining and milk marketing—negotiating prices and finding homes for member milk without owning processing assets. Others operate significant cheese plants, bottling facilities, or ingredient manufacturing. Regional cooperatives often serve different functions than national organizations, and a producer’s relationship with a bargaining-only cooperative differs meaningfully from membership in a cooperative that processes your milk directly.

Understanding what your cooperative actually does, and how its structure affects your returns, matters more than ever in this environment.

Now, I think it’s important to understand the processor’s perspective here too. These are businesses operating in challenging conditions—thin margins, intense retail pressure, significant capital requirements, and increasing regulatory complexity around food safety and environmental compliance.

Mike Brown, senior vice president of economics at the International Dairy Foods Association, has explained the rationale pretty clearly: “Processing is a low-margin business. The investments we’re making in new capacity require a reliable, consistent supply to achieve the economies of scale that make modern processing viable.”

A cheese plant processing 4-5 million pounds of milk daily needs supply certainty. That’s a legitimate operational requirement. The question isn’t whether processors are making rational business decisions—clearly they are. The question is how the overall market structure affects outcomes across the dairy sector.

New Processing Investment and Export Growth

What’s encouraging is the investment flowing into the industry right now. The International Dairy Foods Association reports approximately $11 billion in new dairy processing investment across more than 50 facilities in 19 states. NMPF president and CEO Gregg Doud has called it unprecedented in American agricultural history.

Much of this investment is oriented toward export markets—cheese, butter, and milk powder destined for growing demand in Asia and other regions. U.S. dairy exports have grown substantially over the past decade, and this processing capacity positions the industry to capture more international market share.

That’s genuinely positive for the industry’s future. Expanded processing capacity creates new market opportunities for milk, and export growth provides demand beyond what domestic consumption alone can support.

The nuance worth noting: much of this new capacity appears oriented toward long-term supply agreements with larger operations—dairies that can provide consistent, high-volume supply year-round. For a 400-cow dairy in Michigan or a 600-cow operation in Pennsylvania, this raises practical questions about market access as the processing landscape evolves.

This isn’t cause for alarm, but it is cause for planning. Understanding where processing investment is flowing—and what supply characteristics those facilities seek—can inform strategic decisions.

Policy Developments

On the policy front, Senators Kirsten Gillibrand of New York and Susan Collins of Maine have introduced the Fair Milk Pricing for Farmers Act, that’s H.R. 295 in the House and S. 581 in the Senate. The bill would require processors to report production costs and product yields to the USDA every two years.

Senator Gillibrand framed the rationale in her February 2025 announcement: “Requiring manufacturers to report dairy processing costs on a biennial basis will give dairy producers, processors, and cooperatives the data they need to ensure that their prices accurately reflect the costs of production.”

This seems like a reasonable transparency measure, and it’s attracted bipartisan support from both producer and processor organizations.

That said, it’s worth understanding what the legislation does and doesn’t do. It creates baseline transparency—useful for FMMO hearing processes when make allowances and pricing formulas are adjusted. It doesn’t set minimum prices, mandate formula changes, or establish collective bargaining frameworks.

As the European research suggests, transparency is valuable but may not be sufficient on its own. It’s one piece of a larger puzzle.

Strategic Options for Mid-Size Operations

Given these market dynamics, what can mid-size operations actually do? After conversations with farm management specialists, agricultural economists, and producers across several regions, three strategic directions keep emerging.

Strategy	Capital Required	Time to ROI	Potential Annual Gain (500-600 cow herd)	Risk Level
Efficiency Optimization	$50K-250K (monitoring systems, feed tech, genetics)	7-12 months	$350K-550K annually (gap between average and top-quartile execution)	Low-Medium
Scale Expansion	$8M-12M per 1,000 cows (40% equity required: $3.2M-4.8M)	5-7 years	Scale-dependent; driven by per-cow efficiency at 2,000+ head	High (labor, capital, market access)
Premium Positioning (Organic/Farmstead)	$50K-150K + 36-month transition without premium income	3-5 years	$100K-300K annually (based on $20-30/cwt premium capture)	Medium-High (market, transition, certification)

Which path makes sense depends partly on where you are in the business cycle—and honestly, on generational considerations. An operation with a clear succession plan and incoming family labor faces different calculations than one where the next generation has moved on. The strategic choices you make today will shape what kind of operation exists in ten or fifteen years, whether that’s for family members to continue or for an eventual transition. That reality should inform which path you pursue.

Here’s what the numbers suggest: on a well-managed 500-cow dairy, the gap between average and top-quartile execution across efficiency measures could mean $350,000-550,000 annually. That’s the difference between surviving commodity cycles and building genuine equity. The three paths below represent different ways to capture that value.

Path One: Efficiency Optimization

For many operations, the most practical path is executing the fundamentals exceptionally well. And the performance gap between average and top-performing herds of similar size can be more meaningful than you might expect—Penn State Extension dairy specialists have documented income-over-feed-cost differences of $2.00-3.00 per cow per day between operations with similar herd sizes.

On a 600-cow dairy, that daily difference compounds to something significant over a year.

Where does that improvement come from? A few areas consistently matter:

Feed management remains the largest controllable cost. Most operations run TMR consistency at 4-8% variation; top performers achieve 2% or less. Testing every cutting—rather than assuming values carry over—adjusting rations weekly based on actual components, and managing bunk dynamics… these practices can reduce feed costs by $0.30-0.50 per hundredweight according to University of Wisconsin research.

Health monitoring has advanced considerably. Rumination and activity monitoring can identify mastitis and lameness 2-3 days before visual symptoms appear. Systems from SCR, Afimilk, Lely, and others typically run $50-100 per cow for basic monitoring, with more comprehensive systems at $150-250 per cow. The payback comes through earlier intervention, reduced treatment costs, and avoided production losses—particularly during the transition period when fresh cow problems tend to cascade.

Component optimization rewards attention to genetics and nutrition. Operations targeting butterfat levels of 4.0%+ can capture meaningful premiums. Montbéliarde crosses and select Holstein families have shown strong component performance, though results vary by management system and feeding program.

Beef-on-dairy programs have created new revenue streams that many of us didn’t have five years ago. Breeding 20-30% of the herd to beef bulls—Angus, Charolais, or Limousin, depending on your market—produces crossbred calves selling at $350-400 versus $80-100 for dairy bull calves. That’s meaningful additional revenue for operations with solid reproductive management.

This path suits operations with manageable debt, adequate working capital, and a genuine interest in data-driven management.

💡 BULLVINE INSIDER TIP: Efficiency Optimization

Based on what producers are actually seeing in 2025, here’s where the fastest returns are coming from:

What’s working right now:

AI-powered ration optimization software — Early adopters are reporting 5-10% feed cost reduction with ROI within 7-8 months, according to Lactanet’s herd analytics data. On a 500-cow dairy, that’s $50,000-100,000 annually to your bottom line.
Integrated health monitoring (not standalone sensors) — Systems that combine rumination, activity, and temperature data outperform single-metric monitors. Look for platforms that integrate with your existing herd management software rather than creating another data silo.
Smart calf monitoring — Operations using automated calf health systems are seeing significant reductions in mortality. One Dutch dairy documented a 19% improvement in calf survival within a single lactation cycle, with wearable sensors detecting illness 12+ hours before visual symptoms appeared. Payback typically runs under 12 months.

What to skip for now: Standalone activity monitors without integration capability. False-positive rates often create more work than they’re worth.

Path Two: Scale Expansion

Some operations have the capital position and management depth to expand to the scales preferred by new processing facilities. And I want to be honest about what this actually requires.

The economics are demanding. Expansion from 600 to 2,000+ cows typically requires $8,000-12,000 per cow in capital investment. For a 1,400-cow expansion, that’s $11-17 million. Most lenders currently require around 40% equity for dairy expansion—meaning $4.5-6.8 million just to reach the financing table.

When the numbers work, larger operations do show profitability advantages. University of Minnesota FINBIN data consistently shows per-cow returns increase with scale, all else equal.

But all else is rarely equal. Labor presents a genuine challenge—a 2,000-cow operation requires different workforce management than a family operation, and finding reliable dairy labor has become difficult in many regions. Geographic factors matter too: Idaho and parts of the Southwest still see active development, while the Upper Midwest and Northeast face higher land costs and tighter environmental constraints.

Here’s something worth considering, though: Collaborative scaling offers some of the benefits of scale without the full capital burden. Machinery-sharing cooperatives—common in Europe through what’s called the CUMA model—are now emerging in Ireland and parts of North America.

Actually, Ireland’s first farm machinery sharing cooperative was formed by members of the Kilnamartyra dairy discussion group in West Cork, according to Teagasc (Ireland’s agricultural authority). Their first joint purchase was a low-emissions slurry tanker—equipment that would’ve been uneconomical for individual operations but made sense when shared across several farms.

The CUMA model is widely used in France, where up to 50% of farmers are members of some type of machinery cooperative. Beyond equipment, some operations here are exploring multi-family partnerships or formal alliances for input purchasing, young stock raising, or even shared labor pools. Wisconsin’s dairy discussion groups and organizations, such as the Dairy Business Association, have facilitated some of these arrangements.

It’s not a full-scale expansion, but it captures some economies without the $11-17 million capital requirement. Worth exploring if you’re in that middle ground.

💡 BULLVINE INSIDER TIP: Scale Expansion

If you’re seriously exploring expansion or collaboration:

Before committing capital:

Map your processor relationships first — Talk directly with your co-op or processor about their 5-year capacity plans. Some are actively seeking mid-size suppliers; others are locked into large-operation contracts. Know before you build.
Explore collaborative structures — Contact your state’s dairy business association about machinery-sharing cooperatives or multi-family partnership models. The SARE (Sustainable Agriculture Research & Education) program has published practical guides on legal structures for equipment sharing that can help you avoid common pitfalls.
Run the labor math honestly — a 2,000-cow operation needs 8-12 full-time employees with skill sets different from family labor. If you can’t staff it reliably, the expansion economics fall apart regardless of milk price.

Geographic reality check: Expansion feasibility varies dramatically by region. Idaho, the Texas panhandle, and parts of Kansas still have processor demand for a new large-scale supply. Upper Midwest and Northeast markets are largely committed—expansion there often requires displacing existing supply relationships, which is a different game entirely.

Path Three: Premium Market Positioning

The third direction involves capturing more retail value through differentiation—such as organic certification, farmstead processing, or direct-to-consumer sales.

The economics genuinely shift here. Commodity milk at $20-22 per hundredweight captures about 25-49% of retail value, depending on the product—USDA data shows fluid milk’s farm share runs higher than cheese or butter. Farmstead cheese operations can realize $40-60 per hundredweight equivalent, capturing 60-70% of retail value, according to case studies from Penn State Extension and the Vermont Agency of Agriculture.

Market Position	Price ($/cwt equivalent)	Farm Share of Retail %	Market Access Reality
Commodity Milk	$20-22	25%	Immediate; established processor relationships
Organic Certified	$40-46 (varies by buyer; grass-fed premiums $36-52)	50-60%	36-month transition without organic premiums; buyer commitment required first
Farmstead Cheese/Processing	$50-65	60-70%	3-5 year market development; requires proximity to metro areas 100 miles or less

For organic specifically, the transition requires careful planning. USDA organic certification requires three years of chemical-free land management before milk can be sold as organic—and during that transition period, you’re bearing organic production costs without organic premiums. Capital requirements typically run $50,000-150,000, depending on your starting point.

What I’m hearing from certifiers and industry groups is that certification costs have risen notably for 2025—the new Strengthening Organic Enforcement rule has created additional paperwork requirements, and several certifiers have raised prices in response. Factor that into your projections.

Some operations have navigated the transition successfully by phasing it across their land base, but it requires 18-24 months of cash flow management without premium returns. Go in with your eyes open.

For farmstead processing, the requirements are significant. Penn State Extension notes that total costs for setting up a cheese enterprise “can easily total over $100,000” depending on scale and regulatory requirements. Vermont case studies show a wider range—$15,000- $40,000 for small-scale farmer-built facilities processing limited volumes, up to $150,000- $ 500,000 for commercial, licensed operations with turnkey equipment.

You generally need proximity to markets—within 100 miles of metro areas with appropriate demographics—and patience. Plan on 3-5 years before profitability.

Northeast operations have shown particular success with this model, given the region’s population density and consumers’ willingness to pay premiums for local products. But I’ve also seen successful farmstead operations in unexpected locations—sometimes it’s about finding the right niche rather than the perfect geography.

This path suits operations near population centers with a genuine interest in marketing and brand-building. It’s not for everyone, but it’s created viable businesses for producers with the right circumstances and inclinations.

💡 BULLVINE INSIDER TIP: Premium Market Positioning

Before committing to organic transition or farmstead processing:

Organic pathway:

Secure a buyer commitment first — Contact organic processors (Organic Valley, Maple Hill, regional buyers) about supply needs before starting the transition. Some regions are oversupplied; others are actively recruiting. NODPA’s September 2025 pay price survey shows grass-fed organic premiums ranging from $36/cwt to $52/cwt, depending on the buyer and certification level.
Budget for the paperwork — Certification costs are up for 2025 due to the Strengthening Organic Enforcement rule implementation, and record-keeping requirements have increased substantially. Factor in 4-6 hours weekly for compliance documentation.
Model the transition cash flow — You’ll carry organic production costs for 36 months before organic premiums kick in. Most successful transitions maintain conventional income on part of the operation during this period.

Farmstead processing pathway:

Start with farmers markets — Test your product and build a customer base before investing in full retail infrastructure. Many successful farmstead operations started selling 50-100 pounds of cheese weekly at local markets.
Connect with your state extension — Penn State, Vermont, and Wisconsin all offer farmstead dairy programs with technical assistance and business planning resources that can help you avoid costly mistakes.
Visit operating farmstead dairies — Nothing replaces seeing the daily reality of retail cheese production. Most farmstead operators are generous with their time for serious prospective producers.

The Bottom Line

Looking at these dynamics—the structural shifts, the research findings, the strategic options—what should producers do?

I don’t think there’s one right answer. Different operations face different circumstances, and what works for a 2,000-cow Idaho dairy won’t necessarily fit a 400-cow Wisconsin operation or a 200-cow Vermont farmstead. You know your situation better than any analyst does.

But I do think waiting for commodity markets to resolve these questions isn’t a strategy. Processing investments are being made now. Supply relationships are being established now. Operations are positioning for the next decade; decisions are being made now.

If you take three things from this analysis, make them these:

First, pull your operation’s income-over-feed-cost trend and compare it against Penn State Extension benchmarks for your herd size. Know where you stand before choosing a path. The gap between average and top-quartile performance is where hundreds of thousands of dollars hide on mid-size operations.

Second, have a direct conversation with your cooperative or processor about their capacity plans for the next five years. Are they seeking supply? Locked into large-operation contracts? Planning new facilities? This isn’t information that comes to you automatically—you have to ask for it.

Third, understand where processing investment is flowing in your region and what supply characteristics those facilities are seeking. IDFA tracks the $11 billion investment wave; your state dairy association can often tell you what’s happening locally.

These aren’t the strategic decisions themselves—they’re the foundation for making those decisions clearly.

The collective questions the research raises—cooperative governance, policy engagement, industry organization—matter too, though they operate on longer timeframes and require collective action. Showing up at cooperative meetings, engaging with your board, participating in industry organizations… these things feel distant from daily farm management, but they’re how farmers influence the structures that shape their prices.

The farms that will be thriving in 2035 won’t be the ones that waited for conditions to improve. They’ll be the ones that understood conditions clearly and positioned themselves accordingly.

Resources for Further Information:

USDA Agricultural Marketing Service Dairy Programs: ams.usda.gov/rules-regulations/moa/dairy
Penn State Extension Dairy Team: extension.psu.edu/dairy
University of Minnesota FINBIN: finbin.umn.edu
Northeast Dairy Business Innovation Center: northeastdairy.org
Organic Transition Resources: organictransition.org

Key Takeaways:

Farm share of the retail dairy dollar has declined from 52% in 1980 to approximately 25% today, reflecting both legitimate supply chain costs and structural market dynamics
European research suggests that farmer organization and collective bargaining mechanisms may influence price transmission as much as processor market structure
$11 billion in new processing investment is reshaping the industry, with much of the capacity oriented toward export markets and large-scale supply relationships
On a well-managed 500-cow dairy, the gap between average and top-quartile execution could mean $350,000-550,000 annually—that’s the real opportunity in efficiency optimization
Mid-size operations face three viable strategic paths: efficiency optimization, collaborative or individual scale expansion, or premium market positioning
Strategic clarity and committed execution will distinguish operations that thrive through the next decade

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

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Categories : Dairy Markets

Tags : Dairy Farm Profitability, dairy markets, dairy supply chain, farm-to-retail price gap, milk marketing cooperatives, milk price spreads

Whole Milk Won – $4.3 Billion Too Late. Your Playbook for the Next 90 Days (And the Next Policy Fight)

Saturday, December 27th, 2025

Congress just reversed the whole milk ban—$4.3 billion and 13 years after dairy farmers first called it out. But here’s the uncomfortable truth: the farms best positioned to profit aren’t the ones that fought for it. Your 90-day playbook to change that.

Executive Summary: Whole milk won—13 years and $4.3 billion too late. Congress reversed school milk restrictions in December 2025, finally acknowledging what a 28-study meta-analysis proved in 2020: children who drink whole milk have a 40% lower risk of obesity than those who drink skim. The catch for most producers: school contracts require 500+ gallons daily, effectively locking out two-thirds of U.S. dairy farms. But the opportunity is real if you know where to look—mid-sized operations should be pushing cooperatives toward whole milk school packaging lines, smaller farms can tap a $2.15 billion premium market where marketing fat as a feature beats hiding it, and component-focused genetics now align with both institutional and consumer demand signals. This playbook segments 90-day action steps by herd size because the market opportunity from this shift is unevenly distributed. The lesson that outlasts whole milk: surviving in dairy means building operations resilient enough to weather the years between when science proves you right and when policy finally catches up.

Thirteen years of watching kids push away skim milk cartons. $4.3 billion in estimated industry losses. Roughly one-third of U.S. dairy farms are gone.

And now, finally, whole milk is coming back to schools.

The U.S. Senate passed the Whole Milk for Healthy Kids Act by unanimous consent on November 20, 2025. The House followed on December 15. But before you celebrate, here’s the uncomfortable truth: the farms best positioned to capture this win aren’t necessarily yours—unless you’re running several thousand cows or you’ve already built direct consumer relationships.

So what can the rest of us actually do with this?

The Policy Shift at a Glance

	2012 Restrictions	2025 Reversal
Flavored milk	Fat-free only	Whole and 2% permitted
Unflavored milk	Fat-free or 1% only	All fat levels permitted
Saturated fat rules	Milk counted toward weekly limits	Milk exempted from sat-fat caps
Scientific basis	1980s-era low-fat consensus	A 2020 meta-analysis showing 40% lower obesity risk with whole milk
Market access	Favors large processors	Still favors large processors

The Component Math: Why This Actually Matters to Your Milk Check

Let’s talk numbers—because this is where the policy shift translates into real economics.

Whole milk contains 3.25% butterfat. Skim milk? Essentially zero. That’s a 3.25-pound butterfat difference per hundredweight.

According to the USDA’s November 2025 component price announcement, butterfat is currently priced at $1.71 per pound. That means whole milk in school channels carries approximately $5.56 per cwt additional butterfat valuecompared to skim.

Milk Type	Butterfat %	Nov 2025 Value/cwt	Jan 2025 Peak Value/cwt
Skim milk	0.0%	Baseline ($0)	Baseline ($0)
1% milk	1.0%	+$1.71	+$2.95
2% milk	2.0%	+$3.42	+$5.90
Whole milk	3.25%	+$5.56	+$9.59

Here’s where it gets interesting: butterfat prices have been volatile this year. Earlier in 2025, butterfat ran as high as $2.95 per pound back in January, which would put that same differential at roughly $9.59 per cwt. Even at today’s lower prices, the component value difference is meaningful.

Quick ROI comparison—Premium Channel Economics:

Channel	Price per cwt	Annual Revenue (100 cows, 23,000 lbs/cow)
Commodity (Class III, Nov 2025)	~$17.18	~$395,140
Premium direct/organic (based on Intel Market Research organic grass-fed pricing, typically 2-3× conventional)	~$40-50	~$920,000-$1,150,000
Difference		$525,000-$755,000

The math explains why producers willing to build direct relationships are capturing fundamentally different economics—even if the transition requires significant upfront investment.

The Genetics Connection: Breeding for a Whole Milk Future

Here’s something worth considering for those of you making breeding decisions right now: the whole milk policy shift adds another data point to an already strong case for component selection.

According to CDCB, the April 2025 genetic base evaluation showed unprecedented gains—Holsteins improved by 45 pounds for butterfat and 30 pounds for protein. The butterfat number’s almost double any number that’s taken place in the past.

The drivers are clear: genomic testing has improved selection accuracy, and multiple-component pricing allocates the majority of milk check value to butterfat and protein—the two components that drive your check under current FMMO formulas. With 61% of all dairy semen sold in the U.S. now coming from sexed categories, producers can accelerate genetic progress by creating heifer calves from top-component females while using beef semen on the rest.

Industry analysts projects that genetic selection could push average butterfat content above 5% within the next decade if herd nutrition can keep pace with genetics.

The practical takeaway for breeding programs: The whole milk policy shift reinforces demand signals that already favor component-focused genetics. If you’re not already emphasizing butterfat and protein in your sire selection, the economics increasingly favor that direction. Top Holsteins are now adding 45 lbs butterfat per genetic base reset—that’s real money showing up in component checks.

How We Got Here

The original policy wasn’t arbitrary. When the Healthy, Hunger-Free Kids Act passed in 2010, policymakers were responding to real concerns—childhood obesity had tripled since the early 1970s, climbing from around 5% to 15% by 2000, according to CDC data.

And you know what? The people who designed these policies weren’t acting in bad faith. They were working within the scientific framework available at the time. The problem? That framework had blind spots that dairy farmers spotted immediately.

Kids stopped drinking the milk. Schools added sugar to improve palatability. The anticipated health benefits never materialized.

When we chatted with a producer who runs a 650-cow operation near Fond du Lac, Wisconsin—who is a third generation on his family’s farm—he put it to me pretty directly: “We knew something was off within the first year. You’d watch the trash cans fill up with barely-touched cartons. The nutritionists were telling us fat was the problem, but we could see with our own eyes that kids just wouldn’t drink the stuff. My dad used to say the same thing about the low-fat push in the ’80s—consumers know what tastes right.”

It’s a sentiment I’ve heard echoed across dairy country, from Vermont to California.

What the Research Actually Found

The turning point came in February 2020. Dr. Jonathon Maguire, a pediatrician at the University of Toronto’s St. Michael’s Hospital, led a meta-analysis published in the American Journal of Clinical Nutrition that encompassed 28 studies across seven countries.

The findings were striking:

Children drinking whole milk had 40% lower odds of being overweight or obese
Not a single study showed that reduced-fat milk is associated with a lower obesity risk
The biological mechanism makes intuitive sense: dietary fats support satiety; remove them, and kids end up consuming more calories elsewhere

What I found particularly frustrating in this research was the timing. A 2013 University of Virginia study had already pointed in this direction—preschoolers who drank 1% or skim milk had higher odds of being overweight than peers who drank whole milk.

That study came out just one year after the restrictions took effect. It took seven more years for the Toronto meta-analysis and five more for the policy reversal.

Which raises an uncomfortable question many of us have asked ourselves: how many farms might still be operating if the policy had responded to evidence more quickly?

The Economic Damage

The American Farm Bureau’s analysis documents the consumption collapse pretty clearly:

School milk use fell from 4.03 cartons per student per week (2008) to 3.39 (2018)—a 15% drop
Rate of decline accelerated 77% after the 2012 rule change compared to the years before
An industry analysis by The Bullvine estimated a total economic impact of around $4.3 billion (though, like any economic model, that involves assumptions about multiplier effects and competitive dynamics)

“A policy that takes 13 years to correct can put an operation out of business long before the evidence wins out.”

The farm-level damage has been severe. USDA analyses show licensed U.S. dairy farms have fallen by roughly one-third over the past decade. You probably know some of those families personally.

Regional breakdown tells its own story:

State/Region	2012 Licensed Farms	2025 Licensed Farms	Change (Farms)	% Decline
Vermont	973	439	-534	-49%
Wisconsin	~11,800	~6,800	~-5,000	~-42%
California	~1,600	~1,150	~-450	~-28%
Pennsylvania	~6,800	~4,900	~-1,900	~-28%
National (U.S.)	~58,000	~35,000	~-23,000	-40%

Vermont: 973 farms (2012) → 439 farms (March 2025 UVM Dairy Update)—a 49% decline
Wisconsin: Steady reduction throughout the decade, particularly among smaller herds
California: Fewer but larger operations capturing an increasing production share

Canadian producers operate under different economic conditions—quota systems insulate them from some commodity volatility but create constraints on fluid milk innovation. The whole milk policy shift is a U.S.-specific development, but Canadian producers watching cross-border trends should note the demand signals. If American consumers are increasingly seeking full-fat dairy products, that sentiment doesn’t stop at the border. Some Ontario and Quebec processors are already watching U.S. premium channel growth with interest, and there may be lessons here for Canadian direct-market producers positioning their own operations.

A third-generation Vermont producer who transitioned to organic during this period described the frustration I’ve heard from many in the region: the school milk situation was just one piece of the economic pressure, but it was the piece that felt most frustrating because producers could see with their own eyes it wasn’t working.

What the Reversal Actually Means for Markets

Here’s where we need to be realistic with each other.

The Farm Bureau projects whole milk could shift 2-3% of U.S. butter production into higher-value bottled milk channels. That’s meaningful volume—but it’s not transformational on its own.

The adoption timeline is going to stretch out:

Early 2026: Districts start releasing procurement RFPs
Spring 2026: Contract bids due
July 1, 2026: First-wave contracts begin
Year 1: Maybe 40-50% district adoption, realistically
Year 3: Perhaps 50-60% adoption

School milk procurement requires a minimum of 500 gallons per day and favors operations that can consistently meet volume and delivery demands. For herds under 300 cows—roughly two-thirds of remaining U.S. dairy farms—direct school contracts just aren’t realistic. The logistics don’t pencil out.

The “Missing Middle” Problem—And What to Do About It

If you’re running 300 to 1,000 cows, you’re in a tough spot. Too small for institutional school contracts. Too large (and too busy) for a farmers’ market stand on Saturday mornings.

But you’re not without options. And frankly, your cooperative’s board probably isn’t thinking about this as hard as you are. That’s your job to push them.

Pressure your cooperative to innovate. Farmers own their co-ops—you can sit on the board, attend meetings, and push for change. Major cooperatives, including DFA, Land O’Lakes, and California Dairies, all offer forward contracting and risk management programs for members. Land O’Lakes launched its Dairy 2025 Commitment, a sustainability and processing innovation initiative. Some specific asks worth raising at your next member meeting:

School-specific packaging lines for whole milk that your co-op can bid on district contracts
Higher-fat fluid product development—the demand signal from this policy shift is clear
Regional processing partnerships that keep more value closer to member farms

Consider cooperative processing arrangements. One Minnesota cooperative involving four farms with a combined 1,800 cows reports routing 25% of collective production through a small processing facility they financed together, according to a recent Bullvine analysis of mid-sized farm strategies. That portion generates roughly twice the commodity price. The remaining 75% continues through traditional channels, so they’re not betting the whole operation on one approach.

“We didn’t have the scale individually to make processing investment work,” one participating farmer explained. “Together we did.”

This isn’t quick or easy—figure 24-36 months for facility build-out and $200,000-$500,000 in shared investment. But for operations with geographic proximity and complementary goals, it’s worth having a feasibility conversation over coffee with neighboring farms.

What if you do nothing? Let’s run those numbers honestly. If you’re in the 300-1,000 cow range, shipping commodity milk at ~$17/cwt while premium channels deliver $35-50/cwt, every year of inaction leaves roughly $200,000-$400,000 on the table (depending on herd size and component production). Over a five-year window, that’s potentially $1-2 million in foregone revenue—capital that could have funded the very infrastructure needed to access premium markets. The cost of waiting isn’t zero, even if it feels safer in the short term.

Advocate for policy that helps mid-sized operations. The school milk win came from organized industry pressure sustained over the years. The same approach applies to FMMO reform, processing infrastructure grants, and cooperative development programs. Individual voices get lost; collective voices get heard.

Your 90-Day Action Checklist

For operations under 300 cows (direct-to-consumer potential):

[ ] Contact your state dairy promotion board about marketing support programs—Midwest Dairy, American Dairy Association Northeast, Southeast Dairy Association, and regional councils often have resources specifically for small-scale direct marketing
[ ] Research farmers’ market requirements and seasonal milk subscription models in your region
[ ] Calculate your break-even point for premium channel investment (licensing, packaging, refrigeration)
[ ] Identify 2-3 neighboring farms for potential cooperative marketing conversations
[ ] Develop your “whole milk story” messaging for consumer-facing channels

For operations 300-1,000 cows (cooperative innovation focus):

[ ] Request your cooperative’s current school milk bid status and whole milk product plans
[ ] Attend your next cooperative member meeting with specific asks (school packaging lines, higher-fat fluid products)
[ ] Explore regional processing partnership feasibility with 2-3 neighboring farms
[ ] Review your forward contracting options through DFA, Land O’Lakes, or your current cooperative
[ ] Assess your genetics program’s component emphasis and adjust sire selection if needed

For operations 1,000+ cows (institutional positioning):

[ ] Contact your cooperative about direct school district procurement opportunities
[ ] Request information on your cooperative’s 2026 school milk RFP timeline and bid process
[ ] Evaluate your component production against school milk volume requirements
[ ] Explore branded whole milk partnership opportunities with regional processors
[ ] Consider school district direct outreach in your geographic area

Herd Size	Primary Opportunity	90-Day Priority Action	Investment/Timeline
<300 cows	Premium direct-to-consumer channels	Contact state dairy promotion board; research farmers’ market + subscription models	$15K-$50K (licensing, packaging, refrigeration); 6-12 months to first sales
300-1,000 cows	Cooperative innovation + shared processing	Attend co-op member meeting with specific asks (school packaging lines, higher-fat fluid products); explore regional processing partnerships	$200K-$500K shared investment; 24-36 months facility build-out
1,000+ cows	Direct school district contracts + institutional positioning	Contact cooperative about 2026 school RFPs; request school milk bid timeline; explore branded whole milk partnerships	Immediate (contracts start July 1, 2026); leverage existing volume

The Premium Opportunity: Marketing the Fat

Here’s where smaller operations have a genuine advantage—if they understand what’s actually working out there.

Market research from Intel Market Research estimates the U.S. organic grass-fed milk market at $2.15 billion in 2025, projected to reach $3.28 billion by 2032 at roughly 7.3% annual growth. Subscription-based delivery models grew 92% over the past year alone.

But here’s what I’ve noticed watching the producers winning in this space: they’re not just producing premium milk. They’re marketing the fat. That’s a meaningful distinction.

Take Painterland Sisters, a fourth-generation Pennsylvania organic dairy. According to a recent Forbes profile, co-founder Stephanie Painter puts it directly: “We aimed to change the narrative surrounding milk fat.”

Their skyr yogurt contains 6% milkfat—double cream. According to Dairy Processing, each 5.3oz container holds the equivalent of four cups of milk. The sisters have emphasized that those healthy fats are central to their product’s nutritional profile—it’s a feature, not something to minimize or apologize for.

The result? Over 6,000 stores in all 50 states, including Whole Foods, Sprouts, and Publix. Forbes’ “30 Under 30” list. The fastest-growing yogurt brand in the natural foods space.

Their insight is instructive: the whole milk vindication isn’t just about returning to what was—it’s about actively marketing fat as a feature.

“Our story is what sets us apart on the shelves,” they told in a recent interview. “Every detail on the cup is designed to tell a story, bridging the gap between the farm and the fridge.”

For farms considering this pathway: launching farmers’ market sales, subscription programs, or an on-farm store requires real investment in licensing, packaging, and refrigeration. Your state dairy promotion board or cooperative extension office can connect you with producers who’ve made similar transitions in your region.

The honest question to ask yourself: Do you have the temperament for direct customer relationships, the capital for infrastructure, and the patience to build a brand? It’s not for everyone—and that’s okay. But for farms that fit the profile, the whole milk story provides a ready-made narrative that consumers genuinely want to hear right now.

Why Policy Correction Takes So Long

Understanding this dynamic helps prepare for whatever comes next—methane regulation, climate requirements, antibiotic restrictions. There’s always something on the horizon.

Research published in 2022 in the journal Public Health Nutrition examined the Dietary Guidelines Advisory Committee. The finding: 19 of 20 members (95%) had at least one documented financial or professional relationship with actors in the food or pharmaceutical industries.

Now, this doesn’t mean committees are corrupt or that members are consciously biased. What it illustrates is something more structural: these committees naturally draw from pools of credentialed experts who’ve built careers within existing consensus frameworks. Challenging established positions carries professional risk. Confirming them is safer. The incentive structure doesn’t reward rapid revision, even when new evidence accumulates.

The result? A system that changes slowly, regardless of how compelling the contradicting evidence becomes.

For producers, the takeaway isn’t that experts can’t be trusted. It’s that policy timelines operate on a different clock than farm economics. Plan accordingly.

Practical Lessons for What Comes Next

Build flexibility into your revenue structure. The farms that survived the last 13 years weren’t entirely dependent on a single market channel. Diversification provides a cushion when policy shifts unexpectedly against you.

One California producer I spoke with recently—running about 2,200 cows in the Central Valley—described it as “not putting all your milk in one tank.” He’s got relationships with three different buyers, plus a small direct-sales operation his daughter runs. When one channel gets disrupted, the others absorb the shift. It’s not complicated, but it requires intentionality.

Consider your story as an asset. If you’ve been farming through these years, you have credibility with consumers who’ve grown skeptical of institutional guidance. A farm that can authentically say “we knew whole milk was nutritious when experts said otherwise” has differentiation that larger operations simply can’t replicate.

Engage policy discussions before consensus hardens. The dairy industry’s organized response to school milk restrictions gained real momentum only after substantial damage had already accumulated. For emerging issues—such as methane regulation and climate requirements—earlier engagement yields better outcomes.

Plan for policy timelines, not evidence timelines. You might be right about the science for years before policy catches up. Your operation needs to survive that gap. That means capital reserves, operational flexibility, and revenue diversification that doesn’t depend on regulatory environments being rational.

The Bottom Line

The immediate market impact from whole milk’s return will be modest—a few percentage points of butterfat utilization, phased in over several years as districts convert.

But the broader lessons apply to whatever comes next:

Policy corrections take longer than farm economics can absorb. Build flexibility to survive the gaps.
Being right doesn’t automatically translate to market benefit. Thousands of farms closed while dairy farmers were correct about whole milk.
Market opportunity distributes unevenly. Large operations win on institutional contracts; small operations can win on premium positioning; mid-sized farms need cooperative innovation or collective processing strategies.
Direct consumer relationships provide policy insulation. And marketing the fat—not just producing it—is what’s actually working in premium channels.
Genetics reinforce the direction. Component-focused sire selection aligns with both premium market demand and institutional whole milk needs—top Holsteins are now adding 45 lbs butterfat per genetic base reset, and that’s real money showing up in component checks.

And honestly, that’s what this whole 13-year story comes down to. The farms that thrive going forward will likely be those that learned from this experience: not just that whole milk was right, but that surviving in this industry requires building operations resilient enough to weather the gaps between when evidence emerges and when policy finally responds.

That’s the real lesson here. Not just vindication—preparation.

We’ll be tracking school district adoption rates and Class I utilization by FMMO region throughout 2026—watch for quarterly updates on how whole milk demand is actually showing up in producer checks.

KEY TAKEAWAYS

$4.3 billion too late: Whole milk won in December 2025—but one-third of U.S. dairy farms closed during the 13 years policy ignored the science that proved them right
School milk isn’t your opportunity (yet): Contracts require 500+ gallons daily, locking out two-thirds of farms. Push your cooperative to bid on school packaging—that’s how mid-sized herds access this market
Your 90-day move by herd size: Under 300 cows → premium direct channels (organic grass-fed is $2.15B, growing 7.3%). 300-1,000 cows → cooperative pressure + shared processing ($200K-$500K). 1,000+ cows → 2026 school RFPs start soon
Butterfat math favors whole milk: At $1.71/lb, whole milk carries $5.56/cwt more value than skim. Top Holsteins now add 45 lbs butterfat per genetic base reset—component breeding pays regardless of channel
Build resilience before the next policy fight: Thirteen years between science and policy correction is normal, not unusual. Methane rules, climate mandates, antibiotic restrictions—your operation needs to survive the next gap, not just celebrate this win

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

Whole Milk is Back in Schools. Here’s Why Only 834 Dairy Farms Will Really Win. – Exposes the brutal administrative reality of school contracts and delivers a segmented ROI analysis. This breakdown arms you with specific volume thresholds to determine if institutional bidding actually pencils out for your specific herd size.
US Dairy Market in 2025: Butterfat Boom & Price Volatility – How Farmers Can Protect Profits – Reveals how the “component economy” is decoupling fat production from milk volume. This strategy helps you navigate the 5.3% surge in butterfat supply, ensuring your 2026 price floors protect margins against inevitable supply-driven dips.
$2 Milk or $20 Milk: The Simple Testing Strategy Creating 1000% Premiums – Breaks down the unconventional testing protocols that allow smaller herds to unlock thousand-percent price premiums. It delivers a proven blueprint for transforming regulatory transparency into a high-margin brand that completely bypasses the commodity price squeeze.

Join the Revolution!

Categories : Dairy Markets

Tags : butterfat market trends, dairy cooperative innovation, Dairy Farm Profitability, dairy genetics, farm risk management, school milk policy, Whole milk legislation

The Butterfat Reckoning: $337 Million Lost in 90 Days – And Your Herd’s Best Trait May Be Next

Thursday, December 25th, 2025

You bred for butterfat. You won. Now $337M is gone in 90 days—and processors want less of what made your herd profitable. The math changed. Did anyone tell you?

EXECUTIVE SUMMARY: U.S. dairy farmers lost $337 million in 90 days under new FMMO rules—and the genetics they spent a decade perfecting are now working against them. Butterfat climbed 13% since 2015, but protein didn’t keep pace: the average protein-to-fat ratio is 0.77, well below the 0.85-0.90 range processors need for efficient cheesemaking. Some plants have restructured contracts, paying reduced premiums for butterfat above threshold levels, while AFBF analysis shows Class price cuts of 85-93 cents per hundredweight. Canadian producers face parallel pressure—Western provinces shift from 85% butterfat pricing to 70% in April 2026. The playbook for 2026: get your contract terms in writing this week, calculate your herd’s ratio today, and select genetics for component balance rather than butterfat alone. The producers navigating this best understood their contracts before the rules changed.

When a 550-cow operator in east-central Wisconsin reviews his numbers these days, the economics look different than they did a few years back. His herd tests 4.58% butterfat—a genetic achievement that would have earned solid premium dollars not long ago. Today, his processor’s payment structure means production above a certain threshold earns reduced premiums.

“We did exactly what we were told to do for years,” he explained in a conversation for this article, asking that his name be withheld due to ongoing contract negotiations. “Now I’ve got daughters in the milking string from bulls I selected back in 2019, and I can’t change that overnight.”

He isn’t alone in this. Not by a long shot. For the past decade, U.S. dairy farmers responded to clear market signals. They bred for butterfat. They optimized rations for components. They invested in genetics that pushed Holstein herds from 3.75% butterfat in 2015 to 4.24% by 2024—a 13% increase in just ten years, according to USDA milk production data and Council on Dairy Cattle Breeding records. The CoBank Knowledge Exchange reported in September 2025 that this growth rate is roughly six times faster than that of the European Union or New Zealand over the same period.

Now, producers across the country are navigating a market where some of those premium structures are changing. Certain processors have adjusted how they value components above certain thresholds. Export markets that absorbed excess butterfat face trade policy questions. The situation keeps evolving, and thoughtful producers are adapting their strategies accordingly.

This isn’t a story about mistakes—farmers or otherwise. It’s a story about how pricing signals, genetic acceleration, and processor economics can create dynamics that shift over time. Understanding these forces helps us make better decisions going forward.

The Logic Behind Butterfat Focus

To understand the current landscape, it helps to revisit the reasoning that drove butterfat optimization. And honestly? The logic was sound based on the information and incentives available at the time.

Back in 2013, butterfat accounted for about 32% of the Class III milk price, according to Federal Milk Marketing Order data. By 2015, that figure had climbed above 50%. Then by July 2017—and those of you watching milk checks closely will remember this—butterfat was trading at $2.95 per pound while protein sat at $1.22. Nearly a 2.4:1 premium for fat over protein. Progressive Dairy documented this shift extensively, and it naturally influenced breeding priorities across the industry.

The genetic selection tools aligned with these market signals. Leadership at the Council on Dairy Cattle Breeding has explained that Net Merit$ weightings reflect what the market signals to producers—in this case, more fat and more components. The pricing system was essentially communicating: we value more butterfat.

The farm-level economics were compelling. According to analysis from June 2025, producing one pound of strategic butterfat over the past decade generated an average of $2.54 in gross income while requiring only about 52 cents in nutrient costs—a marginal net return of roughly $2.02 per pound. With numbers like that, breeding for fat made clear economic sense.

Key factors driving butterfat selection from 2014 to 2020:

Federal Milk Marketing Order pricing that rewarded components
Consumer demand is shifting toward butter, whole milk, and premium cheese
Genomic testing (available since 2009) enabling rapid genetic acceleration
Net Merit$ index weighting butterfat at historic highs
COVID-era quota systems that encouraged component density over volume

Genomic testing particularly accelerated the pace of change. Before 2009, genetic progress moved more gradually—farmers waited years for bull daughters to prove a sire’s value. After genomic testing became available, breeders could predict about 70% of a young bull’s genetic potential immediately, deploying high-butterfat genetics across the national herd within a few breeding cycles.

The April 2025 genetic base change illustrates this progress pretty clearly. Butterfat shifted by 45 pounds for Holsteins—an 87.5% larger adjustment than the 24-pound change in 2020, according to CDCB. That represents the fastest butterfat genetic gain in Holstein breed history.

Kevin Jorgensen, senior Holstein sire analyst at Select Sires, noted the continuing trajectory in January 2025: “Absolutely, we’re going to see additional gains. The emphasis placed upon this is not waning.”

So the genetics kept pushing forward even as some market dynamics began shifting underneath.

Understanding the Processor Side

This is where things get technical, but stick with me—it’s worth understanding because it explains what’s driving some of these contract changes.

Cheesemakers generally achieve better efficiency with milk at a protein-to-fat ratio roughly in the mid-0.80s to 0.90 range, though this varies somewhat by cheese type. At ratios in that range, fat and protein transfer into the cheese curd efficiently, waste is minimized, and yields are optimized. The American Dairy Products Institute has emphasized that standardizing the fat-to-protein ratio is one of the most important factors in ensuring optimal cheese quality and quantity.

Here’s the challenge. Current U.S. milk averages a ratio of about 0.77—down from the 0.82-0.84 range that held fairly steady from 2000 to 2017. The CoBank Knowledge Exchange reported in September 2025 that butterfat has been growing at roughly twice the pace of protein, which has driven the decline in that ratio. Both Feedstuffs and Hoard’s Dairyman covered this imbalance in their fall 2025 coverage.

Metric	Protein-to-Fat Ratio
Current U.S. Average	0.77
Processor Optimal Range (Low)	0.85
Processor Optimal Range (High)	0.90
Gap from Optimal	-0.08 to -0.13

Research published in Frontiers in Veterinary Science has demonstrated that milk composition significantly affects cheese-making efficiency, with the protein-to-fat ratio playing a central role in determining both fresh and ripened cheese yields. When milk composition deviates from optimal ranges, processors can experience reductions in cheese output and higher nutrient losses in the whey stream.

Why does this matter to farmers? Because processors have costs they need to manage, and those costs ultimately affect what they can pay for milk.

Common processor approaches to managing composition:

Cream removal: Separating excess butterfat before cheesemaking, then selling that cream separately—sometimes at different margins than cheese
Protein fortification: Adding nonfat dry milk, condensed skim, or ultrafiltered milk to rebalance the ratio before processing
Ultrafiltration investment: Installing membrane technology to concentrate proteins and adjust composition

Each approach involves expense. From the processor’s perspective, they’re managing milk composition to optimize their operations. Understanding this helps explain why some contract structures are evolving.

What Farmers Are Experiencing

The picture became clearer for many producers in late 2025 when component premiums stopped scaling as they had previously. Reports from multiple regions indicate that some processors have introduced payment structures where the incremental value of butterfat above certain thresholds is reduced. While individual levels vary by contract, producers in several areas report that additional butterfat above their processor’s preferred range no longer receives full premiums.

In October 2025, cheese processors reported milk is too high in fat relative to milk protein. Some cheese plants were essentially saying, “Don’t send me more butterfat.” By December, industry analysis indicated that premiums for higher butterfat had diminished for production above certain thresholds. What we saw is, the milk check, it got way too heavy in components.

To illustrate how this might affect an operation:

For a 600-cow herd shipping about 13.8 million pounds of milk annually at 4.6% fat, if the payment structure recognized full premiums only up to a certain point—say around 4.5%—the 0.1-point difference would represent roughly 13,800 pounds of butterfat that might earn a reduced premium. At even $0.50 per pound reduction in premium value, that’s approximately $6,900 in foregone annual income—or roughly $11.50 per cow per year left on the table. The actual impact varies considerably by contract, but the math helps illustrate why this matters.

One aspect that keeps coming up in conversations is that these details weren’t always clearly communicated upfront. A central Wisconsin producer described his experience: “I had to sit down with three months of milk checks and back-calculate before I understood what was happening. Nobody had really walked me through how the payment structure worked at higher test levels.”

I heard something similar from a California producer in the San Joaquin Valley who’s been running the same analysis. “We’re at 4.4% fat and thought we were in good shape,” he shared. “Then I realized our processor changed how they calculate premiums above 4.2%. Different market out here, but same basic dynamic.”

This points to an opportunity—and one of the most practical recommendations we can make: understanding your specific contract terms in detail.

How Other Regions Approached Component Growth

An interesting comparison emerges when we look at how other major dairy regions experienced this same period. Why did European and New Zealand farmers see different outcomes?

The differences trace back to structural factors rather than farmer decision-making.

Breed composition plays a significant role. The U.S. dairy herd is predominantly Holstein—a single breed that responded uniformly to genomic selection pressure. When U.S. farmers bred for butterfat, the national herd moved in that direction together. New Zealand’s herd is about 60% Holstein-Friesian/Jersey crossbreeds—the “KiwiCross”—with the remainder split among various breeds. The EU has significant breed diversity across countries. Different breed mixes respond differently to selection pressure.

Jersey crosses naturally produce higher protein-to-fat ratios. When New Zealand farmers selected for components, they achieved more balanced improvements in both fat and protein.

Pricing structures created different incentives. U.S. Federal Milk Marketing Orders explicitly reward individual components—which is why U.S. farmers responded so directly to component signals. EU milk pricing is largely based on intervention prices for butter and skim milk powder rather than on component premiums paid directly to farmers, according to the European Commission DG AGRI Dashboard. Different incentive structures led to different breeding emphases.

Here’s how the numbers compare:

Region	Butterfat 2015	Butterfat 2024	10-Year Change
U.S.	3.75%	4.24%	+13.0%
EU	4.03%	4.13%	+2.5%
New Zealand	5.02%	5.14%	+2.4%

Source: CoBank Knowledge Exchange analysis (September 2025) reporting actual 2024 calendar year data; CLAL international dairy statistics

New Zealand already had higher butterfat than the U.S. Their breeding programs emphasized maintaining ratio balance while improving overall efficiency. Neither approach is inherently superior—they reflect different market structures and breeding objectives. But understanding these differences helps contextualize the U.S. experience.

But the international comparison isn’t just academic—because those other regions are also our customers.

The Export Market Factor

During early to mid-2025, U.S. butterfat exports frequently ran more than 140% above year-earlier levels, with some months nearly tripling prior-year volumes, according to USDA Foreign Agricultural Service data. Brownfield Ag News reported in November 2025 that butterfat exports to Canada alone were up 73%, with butter exports climbing 190%.

That export growth absorbed domestic production and supported prices. But it also created dependencies worth monitoring.

Current export market concentration:

Mexico: More than 25% of all U.S. dairy exports—our largest and most consistent customer. CoBank’s December 2024 analysis noted that Mexico’s share of U.S. dairy product exports had grown to about 29% by late 2024.
Canada: Second-largest market by value at $1.14 billion in 2024
China: A key market for whey and specialty products, though exports have declined since 2022

Export Market	Share of U.S. Dairy Exports	2026 Trade Risk
Mexico	~29%	USMCA renegotiation
Canada	~18%	Supply management tensions
China	~12%	Trade policy uncertainty
Other Markets	~41%	Mixed/regional

These three markets account for a substantial share of U.S. dairy export volume. All three face some degree of trade policy uncertainty heading into 2026, with USMCA renegotiation on the calendar and China trade dynamics continuing to evolve.

The American Farm Bureau Federation has described the U.S. dairy’s trade outlook as requiring careful navigation. CoBank’s lead dairy economist, Corey Geiger, has emphasized in multiple analyses that trade relationships—particularly with Mexico—are increasingly important to domestic market stability and that disruptions could pose significant challenges.

For producers focused primarily on their milk checks, trade policy can seem distant. But export market access affects domestic supply-demand balances, which ultimately influences what processors can pay.

What Canadian Producers Should Know

For our Canadian readers, the dynamics play out differently under supply management—but the underlying tension between fat and protein is creating similar conversations north of the border.

Canada’s Western Milk Pool is making a significant shift. The BC Milk Marketing Board announced in October 2025 that, effective April 1, 2026, Western Canadian provinces (British Columbia, Alberta, Saskatchewan, and Manitoba) will change their component pricing allocation from 85% butterfat / 10% protein / 5% other solids to 70% butterfat / 25% protein / 5% other solids. That’s a major rebalancing—protein’s share of producer payments will more than double.

Component	Current (Pre-April 2026)	New (April 1, 2026)	Change
Butterfat	85%	70%	-15 pts
Protein	10%	25%	+15 pts
Other Solids	5%	5%	—

The signal is clear: even in a quota system that’s historically emphasized butterfat, there’s growing recognition that protein deserves more weight in producer payments. Canadian producers selecting genetics today should factor this shift into their breeding decisions. The April 2025 Canadian genetic evaluations highlighted sires like FRAHOLME VEC TRITON-PP, ranking 30th on GLPI with +940 kg Milk, +105 kg Fat, and +63 kg Protein—the kind of balanced production profile that may become increasingly valuable under the new payment structure.

Practical Approaches Farmers Are Taking

Producers who recognized these dynamics early have been adapting their strategies. Their approaches offer useful frameworks to consider—whether you’re running a 200-cow family operation in Vermont, a 2,000-cow dairy in the Central Valley, or something in between. Specific processor options and contract structures vary by location, but the underlying principles apply broadly.

Contract clarity has become a priority. The question on a lot of minds right now: “At what point does my component premium structure change, and how?” Getting this in writing enables informed decision-making about ration and genetic investments.

An eastern Wisconsin producer described his experience after getting clearer on his contract terms in fall 2025: “Once I understood exactly how the payment structure worked at different test levels, I could actually plan around it. Before that, I was working with incomplete information.”

Ration adjustments are becoming more common. Nutritionists report increased interest in shifting from maximum-butterfat rations toward balanced-component approaches. Typical adjustments include:

Reducing rumen-protected fat supplementation from 1.5% to 0.5% of dry matter
Increasing alfalfa hay/haylage proportion for protein support
Adding rumen-protected amino acids (lysine, methionine) to maintain protein while moderating fat

University of Minnesota dairy nutrition work led by Isaac Salfer, assistant professor of dairy nutrition, suggests that in many herds, component changes begin to show within roughly 4-6 weeks of a ration adjustment, with new steady-state levels often reached by 8-12 weeks—though actual timelines can vary by herd and ration specifics. These aren’t overnight changes, but they’re not multi-year horizons either.

Exploring processor options makes sense. Farmers with competitive alternatives are obtaining quotes from multiple processors before contract renewals. Even without switching, documented alternatives provide useful context for conversations with current partners.
Revenue diversification continues expanding. The beef-on-dairy approach has gained significant traction, with Holstein/Angus and Jersey/Angus cross calves commanding premium prices at weaning, according to recent USDA livestock market reports. Breeding a portion of the herd to beef genetics generates meaningful calf revenue—diversification that reduces dependence on any single revenue stream. Several producers I’ve spoken with describe this as one of their more impactful recent decisions.
Genetic planning is evolving. While existing genetics represent previous decisions—those daughters are already producing—future breeding choices can emphasize a balance between protein and fat alongside other traits. Sire catalogs still feature many high-butterfat genetics. Dairy Global reported in January 2025 that among the top 100 Holstein sires, only six were negative for the fat test. But balanced-ratio options exist. The April 2025 evaluations identified sires showing strong component balance—bulls transmitting positive deviations for both fat percentage and protein percentage, rather than fat alone. When reviewing sire summaries, look beyond total pounds to the percentage deviations and the fat-to-protein relationship in the proof.

What’s Likely to Change

Now, I know federal order math isn’t anyone’s favorite topic, but the numbers here matter because they’re already hitting milk checks.

The 2025 FMMO reform isn’t just a policy update—it’s a fundamental reset of the American milk check. After a record 49-day national hearing that concluded in January 2024, USDA released its final decision on November 12, 2024. Producers in all 11 federal orders voted to approve the changes, and the new pricing formulas took effect June 1, 2025, according to USDA’s Agricultural Marketing Service.

Product Category	Make Allowance Increase (¢/lb)
Cheese	5.0
Butter	5.4
Nonfat Dry Milk	5.9
Dry Whey	6.6

The changes are substantial. Make allowances increased by 5 to 7 cents per pound across cheese, butter, nonfat dry milk, and dry whey—representing a larger share of wholesale value going to processors. Farm Credit East documented the specific increases: cheese up 5 cents, butter up 5.4 cents, nonfat dry milk up 5.9 cents, and dry whey up 6.6 cents per pound.

The financial impact has been significant. Danny Munch, economist with the American Farm Bureau Federation, told Brownfield Ag News in June 2025 that once you net the negative make allowances against the benefits from updated Class I differentials and the return to the “higher of” Class I mover, dairy farmers still face meaningful losses. By September 2025, AFBF’s detailed analysis showed farmers had lost more than $337 million in combined pool value in just the first three months under the new rules, with Class price reductions ranging from 85 to 93 cents per hundredweight depending on the order.

The composition factor changes—updating baseline assumptions to 3.3% protein, 6% other solids, and 9.3% nonfat solids—took effect December 1, 2025, according to USDA’s final rule. These updated factors finally acknowledge what’s actually in today’s milk rather than formulas designed when milk tested around 3.5-3.6% fat and 3.1% protein.

Between processor payment restructuring and FMMO reform impacts, high-butterfat herds face a potential double squeeze heading into 2026. The producers navigating this best are those who understood their contracts before the rules changed—and who are now positioning their herds for what processors actually need, not what the old incentives rewarded.

Processor consolidation continues. The Arla Foods/DMK Group merger, expected to complete in 2026, will create a cooperative of more than 12,000 member farms processing approximately 19 billion kilograms of milk annually—the largest dairy company in Europe, according to Dairy Reporter’s April 2025 coverage. Similar consolidation dynamics exist in other regions. Larger processors typically have greater standardization capacity and different economics for managing milk composition.

Component evaluation discussions are evolving. CoBank economists suggested in their September 2025 analysis that protein may increasingly drive breeding decisions as market conditions evolve. Industry discussions increasingly focus on developing selection tools that emphasize component ratio balance rather than maximizing individual components—a recognition that what processors need and what the genetic indexes have been rewarding may not always align perfectly.

Industry leaders continue pushing for mandatory processor cost surveys to inform future make allowance discussions. NMPF CEO Jim Mulhern emphasized in October 2025 comments to Brownfield Ag News that ongoing reform is necessary for the federal order system to remain effective. The conversations are happening at every level, from cooperative boardrooms to Capitol Hill.

Your Monday Morning Checklist

Get your contract in writing—this week. Call your processor or co-op field rep and request complete written documentation of how component payments work at different test levels. Don’t accept verbal explanations. You need the actual payment schedule showing where premiums flatten or decline.
Calculate your herd’s protein-to-fat ratio today. Pull your last DHI test or bulk tank analysis. Divide protein percentage by fat percentage. If you’re below 0.80, you’re producing milk that costs your processor money to rebalance. That matters for your next contract conversation.
Review one month of ration costs against component returns. Sit down with your nutritionist this month and calculate the actual ROI on your rumen-protected fat supplementation. At current component values, is that investment still paying?
Get a competitive quote before your next contract renewal. Even if you have no intention of switching processors, having documented alternatives strengthens your position. Make three calls.
Flag three sires in your tank for ratio review. Look at your current AI lineup. For each sire, check whether the fat percentage deviation significantly exceeds the protein percentage deviation. Consider whether that balance still serves your operation’s future.
Set a calendar reminder for trade and policy news. Block 15 minutes monthly to scan USDA export reports and FMMO announcements. What happens in Washington and at the border affects your milk check more than most producers realize.

The Bottom Line

The butterfat gains achieved between 2015 and 2024 represent remarkable genetic progress. U.S. farmers responded effectively to market signals and improved their components, while their global counterparts didn’t. The current situation isn’t about those decisions being wrong—it’s about market conditions evolving and creating opportunities for strategic adjustment.

What producers across the Midwest and beyond are experiencing is a transition period. The signals were real, the decisions were rational, and the current landscape calls for thoughtful adaptation. The opportunity now lies in applying the same analytical approach that drove butterfat gains toward more balanced outcomes: genetics aligned with processor requirements, contracts with clear terms, and diversified revenue that provides flexibility.

The question every producer should be asking their co-op board right now: When did you know component pricing was shifting, and why didn’t you tell us?

“I’m not upset about it,” the east-central Wisconsin producer reflected. “I’m just adjusting. That’s what we do. But I wish somebody had laid out the whole picture five years ago instead of just highlighting the premium check.”

Farmers who recognized these dynamics and began adapting in 2025 will likely view this period as a recalibration rather than a setback. The question for every operation is whether current decisions account for where markets are heading—not just where they’ve been.

Additional Resources

For those interested in exploring these topics further:

Council on Dairy Cattle Breeding (CDCB): Genetic evaluation tools and Net Merit$ component weightings at uscdcb.com
University of Minnesota Extension Dairy: Research on component management through nutrition at extension.umn.edu/dairy
CoBank Knowledge Exchange: Quarterly dairy economic analyses, including component and trade reports at cobank.com
USDA Agricultural Marketing Service: Federal Order pricing data and component values at ams.usda.gov/market-news/dairy

In upcoming coverage, The Bullvine will examine specific breeding strategies for optimizing the protein-to-fat ratio over a five-year genetic plan—including which sire lines are showing promising balance characteristics for evolving market conditions.

KEY TAKEAWAYS

$337 million gone in 90 days — FMMO reforms cut Class prices 85-93¢/cwt. This isn’t projection—it’s already hitting milk checks.
The ratio gap is driving it — U.S. milk averages 0.77 protein-to-fat. Processors need 0.85-0.90. That mismatch explains why contracts are changing.
Premium structures are shifting — Some plants now cap full butterfat premiums at threshold levels. Most producers haven’t seen their actual payment schedule. Have you?
Canada confirms the trend — Western provinces shift from 85% butterfat pricing to 70% in April 2026. Protein’s value is rising on both sides of the border.
Three moves to make this week: (1) Get your contract payment terms in writing. (2) Calculate your herd’s protein-to-fat ratio. (3) Review your sire lineup for component balance.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

Bred for $3 Butterfat, Selling at $2.50: Inside the 5-Year Gap That’s Reshaping Genetic Strategy – Exposes the brutal five-year lag between genetic selection and your bulk tank reality. It delivers a framework to audit your current sire lineup against 2026 pricing, arming you with the tactics to pivot before those daughters ever hit the parlor.
The $4.78 Spread: Why Protein Premiums Won’t Last Past 2027 – Breaks down the historic $4.78 Class III-IV spread and reveals why current protein premiums are a closing 18-month window. It positions your operation for the post-2027 market shift, ensuring you aren’t left chasing yesterday’s high-value component.
The $700 Truth: Your Best Milkers Are Your Worst Investment (And 3,000 Dairies Just Proved It) – Unveils how 3,000 dairies are weaponizing beef-on-dairy premiums to cull their least efficient “high-volume” cows. This strategy delivers a $470-per-cow profitability boost by ruthlessly aligning herd genetics with actual market ROI instead of traditional production vanity.

Join the Revolution!

Categories : Dairy Markets

Tags : Breeding Strategy, butterfat protein ratio, component pricing, dairy profitability, FMMO reform, Holstein genetics

Stop Tightening Your Belt: Dairy’s $6.35/cwt Gap and Your 90-Day Window to Close It

Wednesday, December 24th, 2025

90 days to reposition before 2026 hits. The top 25% of dairy operations already moved. This is the playbook they’re using.

EXECUTIVE SUMMARY: Tightening your belt won’t save you this time. The shifts hitting dairy in 2025-2026—production running 4.7% above year-ago levels, replacement heifers at a 47-year low, butterfat collapsed from $3.00 to $1.40/lb, processors leveraging billions in new capacity—aren’t cyclical headwinds that reverse when prices recover. They’re structural changes to how this industry operates. Cornell Pro-Dairy data makes the stakes clear: a $6.35/cwt efficiency gap separates top-quartile from bottom-quartile farms, a difference exceeding $100,000 annually between similar-sized operations. The producers repositioning now—locking in feed costs, enrolling in risk management before January deadlines, recalibrating breeding programs for the beef-on-dairy era—will be the ones thriving in 2028. You have a 90-day window. This is the playbook.

You’ve probably seen the headlines by now. U.S. milk production has been running hot—really hot—through the back half of 2025. We’re talking 3.7 to 4.2 percent above year-ago levels in September and October, and then November came in at 4.7 percent higher than the same month in 2024, according to USDA’s latest milk production reports and Cheese Reporter’s analysis of the data. That’s the kind of year-over-year growth we haven’t seen since the COVID recovery period.

And the industry is still figuring out where all that extra milk should go.

USDA’s November estimates show the national dairy herd has grown to approximately 9.57 million head—up 211,000 cows from a year ago. Per-cow productivity keeps climbing, too. USDA data shows milk per cow running 20 to 40 pounds higher per month than a year earlier across the major dairy states.

When you multiply those gains across millions of cows, you end up with substantial incremental production that needs to find a home.

I’ve been tracking dairy markets for a long time, and this moment feels genuinely different. Not catastrophically so—dairy will remain viable, and there are real opportunities for well-positioned operations—but different enough that the playbook from 2016 or 2020 may need some adjustment in 2026.

Let me walk through what’s actually happening and what it might mean for your operation.

The Production Picture That’s Emerging

The supply situation requires some unpacking because it’s not just about one factor. It’s several forces converging at once.

Herd numbers have expanded meaningfully after years of modest growth, and productivity gains keep compounding. Modern genetics and management practices—better transition cow protocols, improved fresh cow management, tighter reproduction programs—keep pushing output higher. That additional 20-40 pounds per cow per month doesn’t sound dramatic until you’re looking at the national numbers.

The regional story has gotten interesting, too. Some areas hit by HPAI and weather challenges in 2024 saw temporary production setbacks, but by late 2025, USDA data show California’s milk output actually rising sharply—up about 6.9 percent year-over-year in October—as both cow numbers and per-cow production recovered.

Meanwhile, expansion in Texas, parts of the Upper Midwest, and states like South Dakota continues to reshape the geography of the U.S. milk supply.

I recently spoke with a producer in the Texas Panhandle who has been farming for 30 years. He noted that five years ago, he could count the large dairies in his county on one hand. Now there are several major operations within a reasonable drive, all competing for the same labor pool and feed resources. That kind of regional shift creates both opportunities and new competitive pressures.

What economists like Dr. Marin Bozic at the University of Minnesota have been tracking is a fundamental geographic redistribution of U.S. milk production. The industry is less concentrated in traditional dairy regions, which has real implications for processor logistics and regional pricing.

For our Canadian readers, the contrast is striking—while U.S. producers navigate oversupply pressure, Canada’s supply management system, with quota prices ranging from CAD $24,000 to over $56,000 per kilogram of butterfat per day, depending on province (according to Agriculture Canada’s 2025 data) and tariffs of 200-300% on imports creates an entirely different market reality. That protection comes with its own trade-offs, but it insulates Canadian producers from the volatility American farmers are facing.

So what does this mean practically? USDA forecasts indicate domestic production will likely continue exceeding consumption growth through at least mid-2027. That suggests continued pressure on milk prices—though as always, unexpected developments could change the trajectory.

What’s Actually Happening to Component Premiums

For a lot of operations, component pricing—particularly butterfat premiums—has been a crucial margin driver over the past several years. That dynamic is shifting in ways worth understanding.

Butterfat values have come down significantly from their recent peaks. CME spot butter prices, which topped $3.00 per pound at various points in 2023-2024, have declined through 2025. By August, prices had dropped to around $2.18 per pound according to market tracking. September brought a new year-to-date low of around $2.01.

And by October, butter had fallen to $1.60 per pound. As of late December, we’re looking at butter trading in the $1.40 range—a meaningful change in butterfat economics that affects the math for many feeding strategies.

What’s driving this? A combination of factors. Farmers responded to high premiums by selecting for higher-fat genetics and adjusting rations—exactly what economic incentives encourage. At the same time, retail demand for butter and full-fat products has moderated somewhat. Supply caught up with demand, and premiums softened accordingly.

As Dr. Mike Hutjens, Professor Emeritus of Animal Sciences at the University of Illinois, has emphasized in his extension work over the years, chasing very high butterfat often raises feed costs faster than it raises milk checks. Many herds find better margins around moderate butterfat—say, 3.8 to 4.0 percent—with solid protein performance, rather than pushing fat above 4.2 percent and paying for the extra inputs.

That guidance feels particularly relevant given where butter is now.

Of course, every operation is different. Farms with cost-effective access to high-fat supplements may still find the economics work. The key is running the numbers for your specific situation rather than assuming what worked in 2023 still pencils out today.

It’s also worth noting that Federal Milk Marketing Order modernization proposals released by USDA in late 2024 are expected to adjust how components are valued over time. How butterfat and protein strategies pay going forward may look quite different than what we’ve seen in the past few years.

The Genetic Revolution That’s Rewriting Replacement Math

Let’s be direct about something: What’s happening with replacement heifers isn’t just a market trend or a temporary shortage. It’s a genetic revolution that has fundamentally altered how dairy farmers must think about herd replacement—and most operations haven’t yet fully grasped the implications.

USDA’s January 1, 2025, Cattle Inventory report shows 3.914 million dairy heifers 500 pounds and over. That’s the smallest number since 1978, as Dairy Reporter and multiple other outlets have noted. We’re at a 47-year low for replacement inventory.

The data from USDA and HighGround Dairy shows just 2.5 million dairy heifers expected to calve in 2025—the lowest level since that dataset began in 2001. That’s a drop of 0.4 percent compared to 2024, and industry analysts suggest tight replacement numbers will keep heifer availability constrained for several years.

Here’s what makes this different from previous heifer shortages: this one was deliberately created through breeding decisions.

The beef-on-dairy movement isn’t some accident of market forces—it represents a fundamental shift in how progressive dairy operations view their genetic programs. Every breeding decision is now a strategic choice about whether you’re in the business of making milk, making beef, or both.

The old mental model—breed everything dairy, cull what doesn’t work—is obsolete. The new reality requires treating your replacement pipeline as a distinct enterprise with its own P&L, not an afterthought of your breeding program.

The economic forces driving this shift were compelling. When beef calves were bringing $750 more than they had been two years prior, concentrating dairy genetics on your best animals while capturing beef premiums on the rest made perfect sense. USDA and industry commentary explicitly connect lower replacement inventories to increased use of beef semen on dairy cows.

But here’s what the numbers don’t always show: The farms that executed this strategy well didn’t just chase beef premiums—they simultaneously intensified their genetic selection on the dairy side. They used genomic testing to identify the top 30-40% of females, bred them aggressively with sexed dairy semen, and captured beef value on the rest.

The April 2025 CDCB genetic base change—moving the reference population from cows born in 2015 to cows born in 2020, with updated Net Merit formula weights—gives producers better tools for these decisions. The December 2025 evaluation updates added further refinements to health and type trait data, according to CDCB. Farms making breeding decisions without current genomic information are essentially flying blind in this new environment.

The farms that got caught were the ones who saw beef-on-dairy as a revenue grab rather than a genetic strategy. They reduced dairy breedings without upgrading the genetic intensity of the ones they kept.

Consider a scenario many Midwest operations have navigated: A 600-cow Wisconsin dairy that shifted from 70 percent gender-sorted dairy semen to 40 percent in 2024 might have captured an additional $300,000 in beef calf revenue that year. But that same operation now faces needing 75-100 more replacement heifers than their breeding program will produce—a gap that requires careful planning to address at current prices.

The gain was immediate and visible. The cost is delayed and often larger.

“We got caught up in the beef premium along with everyone else,” one 700-cow operator in central Wisconsin told me. He asked to stay anonymous, which is understandable. “The checks were great in 2024. Now I’m looking at replacement costs that eat into those gains significantly. Looking back, I might have maintained a higher percentage of dairy breedings. But the economics at the time pointed toward beef.”

Recent reports show that U.S. replacement dairy cow prices are reaching record highs in late 2025, with many quality cows and bred heifers trading well above earlier levels of $2,000-$2,200. At those prices, buying your way out of a heifer deficit isn’t just expensive—it may not be possible at scale.

The strategic question every operation needs to answer: What percentage of your herd represents your genetic future, and are you breeding them accordingly?

The good news is that farmers are recalibrating. The National Association of Animal Breeders reports gender-sorted dairy semen sales grew by 1.5 million units in 2024—a 17.9 percent growth rate in just one year—as producers adjust their programs.

The farms that will thrive in this new environment aren’t abandoning beef-on-dairy—they’re getting smarter about it. They’re using genomics to make precise decisions about which animals deserve dairy genetics and which should produce beef calves. They’re treating replacement inventory as a strategic asset, not a byproduct.

This is the genetic revolution in action. The question is whether you’re driving it or being driven by it.

The Power Shift to Those Who Own the Stainless Steel

Let’s talk plainly about something the industry doesn’t always acknowledge directly: The power dynamic between dairy farmers and processors has fundamentally shifted. The leverage now belongs to those who own the stainless steel.

Significant processing capacity has come online over the past several years. Industry reports from Cheese Reporter, CoBank, and others tally multi-billion-dollar investments in new cheese, butter, and specialty dairy plants in the U.S.—with estimates ranging from $7 billion to $11 billion in committed or recent capacity additions, depending on the source and timeframe.

Major projects from Hilmar, Bel Brands, Leprino, and others were predicated on expectations of continued milk supply growth and strong export demand. These processors made massive bets on dairy’s future—and now they need milk to justify those investments.

Here’s where it gets uncomfortable: Analysts and trade publications report that several recently commissioned cheese and powder plants are running below their designed capacity.

That creates enormous pressure for processors carrying major capital investments. And that pressure flows directly to farmers in the form of supply commitments, pricing structures, and partnership terms that increasingly favor the processor’s position.

Run the numbers from their side. A $500 million cheese plant sitting at 70 percent utilization is bleeding money. The incentive to lock up milk supply through multi-year agreements, financing arrangements, and expansion partnerships isn’t altruism—it’s survival.

The Darigold situation in the Pacific Northwest illustrates this dynamic clearly. Local reports indicate their new Pasco, Washington plant has seen its price tag rise from initial estimates of $600 million to over $900 million—approximately $300 million over budget. As a result, the cooperative has implemented a $4 deduction per hundredweight from member milk checks, with $2.50 allocated explicitly to construction costs.

Even in a cooperative structure—where farmers theoretically own the processing—the capital requirements of modern dairy manufacturing mean producers are effectively captive to infrastructure decisions made on their behalf. For a farm shipping 5 million pounds monthly, that $4 deduction represents $200,000 annually coming out of your check. Whether you are in a co-op or independent, if you aren’t auditing the ‘why’ behind your check deductions in 2026, you’re essentially writing a blank check to your processor’s construction budget.

When processors offer financing for heifer purchases, equipment upgrades, or expansion projects in exchange for multi-year milk supply commitments, understand what’s really happening: They’re converting your flexibility into their supply security. That’s not necessarily bad—capital access and price stability have genuine value—but you need to recognize the trade.

Economists like Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin-Madison, have observed that processors who invested billions in new capacity now face utilization challenges.

When evaluating these arrangements, consider them with clear eyes:

Who benefits more from the locked-in supply? In a rising market, fixed pricing hurts you. In a falling market, it helps. But the processor gets supply certainty regardless.
What are the exit provisions? If your situation changes, what does it cost to get out?
Are you financing their utilization problem? Expansion commitments that serve processor capacity needs may or may not align with your operation’s optimal scale.
What’s the opportunity cost of reduced flexibility? Five-year agreements made in 2025 lock you into a world that might look very different by 2028.

None of this means you shouldn’t engage with processors or consider partnership structures. It means you should engage as a businessperson who understands that the party with the capital makes the rules. Get independent financial advice. Model the downside scenarios. Understand what you’re giving up, not just what you’re getting.

The Export Picture: Opportunity and Uncertainty

Exports have absorbed substantial U.S. dairy production in recent years, with 2024 reaching $8.2 billion—the second-highest export value ever, according to USDEC and IDFA reporting. Understanding the current export environment helps put domestic market dynamics in context.

Mexico remains the dominant destination—and deserves close attention. USDA Foreign Agricultural Service data and USDEC reporting show Mexico accounts for more than a third of all U.S. cheese export volume—by far the largest single destination. Mexico purchased 37 percent of all U.S. cheese sold to international customers through September 2024, and Cheese Reporter confirms 424 million pounds of cheese were exported to Mexico in 2024.

This concentration creates both opportunity and exposure. Mexican economic conditions—including inflation pressures and remittance flows—directly influence demand. The relationship has been remarkably durable, but it’s worth monitoring.

The China situation represents a more structural shift. USDA and Rabobank analysis show Chinese dairy imports dropping from a peak of nearly 845,000 metric tons in 2021 to about 430,000 metric tons in 2023—a decline of nearly 50 percent in just two years, as Dairy Reporter and Capital Press have documented.

USDA GAIN reports and Rabobank describe China’s strategy to boost domestic raw milk production and reduce import dependence. Chinese dairy imports were down roughly 10-14 percent in early 2024, with forecasts suggesting continued pressure.

The consensus among economists studying global dairy trade is that China deliberately increased self-sufficiency. That suggests planning for Chinese demand to return to 2021 levels may not be realistic—though trade relationships can shift in unexpected ways.

On a more positive note, other markets continue developing. Southeast Asia, the Middle East, and parts of Latin America offer growth potential. And USDEC confirms U.S. dairy export volume was up 1.7 percent through the first three quarters of 2025, indicating continued demand despite the China headwinds.

Global competition remains a factor. EU milk production is forecast to decline modestly in 2025, according to European Commission data—about 0.2 percent—as environmental regulations and cost pressures affect European producers. New Zealand, Australia, and South American producers continue competing in key markets.

Building business plans that work at realistic domestic price levels, while remaining positioned to benefit from export opportunities, seems like a prudent approach.

What Could Change This Outlook

Markets regularly surprise us, and it’s worth considering scenarios where conditions might improve faster than current projections suggest.

Weather or disease events could tighten global supply. A significant drought in New Zealand or production challenges in European herds would reduce global competition. U.S. dairy would benefit from being a reliable supplier in that environment.

China’s approach could evolve. Economic pressures, food security priorities, or trade negotiations could reopen Chinese import demand. It’s not the base case, but it’s possible.

Domestic demand could strengthen. Cheese consumption has grown modestly but consistently. A shift in consumer preferences or successful product innovation could accelerate demand. The foodservice recovery post-COVID continues developing.

Trade policy could create openings. New trade agreements or the resolution of existing disputes could improve access to markets that are currently restricted.

I wouldn’t build a business plan assuming these developments, but they’re worth monitoring. They’re also reasons for measured optimism rather than pessimism about dairy’s long-term prospects.

Practical Steps for the Months Ahead

For dairy operators assessing their position, several action areas warrant attention in the near term. These aren’t theoretical—they’re decisions with specific windows. And while the priorities may vary based on your operation’s size and situation, the core principles apply broadly.

Feed Cost Management

With corn prices running around $4.00-4.05 per bushel in late December—down from $4.20-plus earlier in the fall and well below the $5-plus levels of 2023—this represents a genuine opportunity, according to USDA and CME data.

Forward contracting 50-70 percent of the anticipated 2026 grain requirements provides cost certainty regardless of how commodity markets move. For a 600-cow operation, that’s roughly 1,200-1,800 tons of corn equivalent. If prices move higher by spring, you’ve protected yourself.

Smaller operations—say, 100-200 cows—might target the lower end of that range to preserve cash flexibility, while larger commercial dairies with dedicated nutritionists and storage capacity might push toward 70 percent or higher.

I spoke with a nutritionist in the Northeast who mentioned that several of her clients locked in corn in October and are already seeing the benefit as prices have firmed. “It’s not about timing the absolute bottom,” she noted. “It’s about knowing your costs and removing uncertainty.”

The window for favorable pricing exists now, though markets can always move in either direction.

Risk Management Tools

Both the Dairy Revenue Protection and Dairy Margin Coverage programs offer downside protection worth evaluating. Each works differently:

DRP protects revenue and allows customizable coverage levels. Recent quotes in the Upper Midwest have shown producers can often secure Class III price floors in the high-$17 to low-$19 range, with premiums typically running a few dozen cents per hundredweight, depending on coverage level and quarter. These numbers move with the market, so working with your agent on current pricing makes sense.

DMC protects margins—milk price minus feed costs—and offers subsidized rates for smaller operations. As Wisconsin Extension and Ohio State confirm, Tier 1 coverage at $9.50 margin costs just $0.15 per hundredweight for qualifying operations—genuinely affordable protection for smaller producers.

Dr. John Newton, Vice President of Public Policy and Economic Analysis at the American Farm Bureau Federation, has noted that more sophisticated operators are layering both programs. DMC provides base margin protection; DRP covers revenue risk on top of that. The combination requires some investment, but it’s comprehensive.

A note on operation size: DMC’s Tier 1 subsidized rates make it particularly attractive for smaller operations with a production history of under 5 million pounds production history. Larger operations may find DRP more cost-effective on a per-hundredweight basis.

Insurance enrollment deadlines typically fall in mid-to-late January. This is an immediate decision point worth prioritizing.

Program	What It Protects	Coverage Cost ($/cwt)	Best For	Enrollment Deadline
Dairy Revenue Protection (DRP)	Milk revenue (price × volume)	$0.30 – $0.70 (varies)	Larger operations, revenue focus	Mid-January (quarterly)
Dairy Margin Coverage (DMC) Tier 1	Margin (milk price – feed costs)	$0.15 (subsidized)	Small farms (<5M lbs history)	Mid-January (annual)
DMC Tier 2	Margin (milk price – feed costs)	$1.11 – $1.53	Mid-size operations	Mid-January (annual)
No Coverage (Exposed)	Nothing	$0	High-risk strategy	N/A

Balance Sheet Assessment

Operations carrying significant debt—particularly debt originated at lower interest rates that’s now repricing—benefit from proactive lender conversations.

The math matters. A $4.5 million debt portfolio repricing from 3.5 to 7.5 percent adds roughly $180,000 in annual interest expense. On a typical-size operation, that extra interest alone can add $1.00-1.50 per hundredweight to your cost of production—money that comes straight off your margin.

Options worth discussing with your lender:

Amortization extensions that reduce annual payments by stretching repayment
Refinancing into FSA programs—USDA’s December 2025 announcement confirms current rates at 4.625 percent for direct farm operating loans and 5.75 percent for farm ownership loans
Covenant modifications that provide flexibility during market transitions

A lender I know in the Upper Midwest told me that producers who come in early with clear projections and a realistic plan typically achieve the best outcomes. “It’s the ones who wait until they’re already stressed who have fewer options,” he observed.

Initiating these conversations proactively, with clear financial projections showing you understand market conditions, typically produces better results than waiting.

Herd Composition Review

Evaluating whether lower-producing animals justify their feed and labor costs becomes more important as margins compress.

The efficiency gap between top and bottom performers in most herds is larger than many farmers realize. Cornell Pro-Dairy data shows the lowest quartile of farms averaging operating costs of $22.32 per hundredweight, while the highest quartile averages just $15.79—a difference of $6.35 per hundredweight that translates to performance gaps exceeding $100,000 between similarly-sized operations.

The math often favors addressing the bottom 10 percent of producers rather than carrying them through a soft market. For a 600-cow herd, that’s 60 animals consuming feed, requiring labor, and potentially affecting rolling herd average.

This doesn’t necessarily mean culling aggressively—it might mean more intensive management of problem cows, faster culling decisions on chronic cases, or adjusting breeding priorities. The right approach depends on your specific situation.

Regional Considerations

These strategies apply broadly, but regional variations matter.

Operations in Texas and the expanding Southwest face different labor markets and heat stress considerations than Wisconsin or Michigan dairies. California operations navigating recovery from recent challenges have unique constraints. Farms in traditional dairy regions may have more processor options and competitive milk pricing than those in emerging areas.

Working with your local extension specialists and financial advisors to calibrate these recommendations to your specific situation makes sense. Generic advice only goes so far.

The Efficiency Conversation—What It Actually Means

“Get more efficient” has become standard advice. But what does meaningful efficiency improvement actually involve at a practical level?

Milk quality management delivers measurable returns. Operations maintaining somatic cell counts below 200,000 capture quality premiums while avoiding the production losses, treatment costs, and discarded milk associated with elevated SCC.

Extension economists at Cornell, Penn State, and elsewhere estimate that reducing bulk tank SCC from the 400,000 range to under 200,000 can improve returns by several hundred dollars per cow per year, including quality premiums, reduced discarded milk, and lower treatment costs.

I visited a 400-cow operation in Pennsylvania last spring that had invested significantly in parlor upgrades and milking protocols. Their SCC dropped from 280,000 to 140,000 over eighteen months. The owner estimated the combination of premium capture and reduced mastitis treatment was worth about $350 per cow annually. “It wasn’t cheap to get there,” he acknowledged, “but the payback has been solid.”

For operations considering larger capital investments, robotic milking systems are showing compelling economics for the right situations—studies cited by Progressive Dairy and industry analysts show payback periods of 5-7 years when labor savings, production increases, and improved herd health detection are factored together, though ROI varies significantly based on herd size, labor costs, and management intensity.

Feed efficiency metrics matter more than ever. Tracking pounds of milk produced per pound of dry matter intake reveals opportunities many operations overlook.

Research documented in the Journal of Dairy Science and confirmed by Michigan State’s extension work shows each 1 percent improvement in forage NDF digestibility translates to approximately 0.55 pounds additional milk per cow per day and about 0.38 pounds more dry matter intake, according to a summary of the research.

On a 600-cow herd, that 0.55 pounds daily adds up to 330 pounds across the herd, or roughly 120,000 pounds annually. At $16 milk, you’re looking at around $19,000 in additional revenue from a single percentage point improvement in forage quality. That’s why forage testing and harvest timing decisions carry such significant economic weight.

Labor productivity varies widely across operations, too. Farms running 120-140 cows per full-time equivalent generally outperform those at 80-100 cows per FTE on a cost-per-hundredweight basis. This doesn’t mean minimizing staff—it means ensuring labor investments produce proportional output through good systems, appropriate automation, and reduced turnover.

The farms navigating current conditions most successfully tend to excel across multiple efficiency dimensions simultaneously rather than focusing narrowly on any single metric. It’s the combination that creates a durable competitive advantage.

Why ‘Tightening Your Belt’ Won’t Save You This Time

Here’s what I keep coming back to when I look at all of this: The biggest risk for dairy farmers right now isn’t any single market factor. It’s the assumption that this is just another cycle that will correct itself if you tighten your belt and wait it out.

Dairy farmers are extraordinarily resilient. You’ve navigated 2008-2009, 2015-2016, 2020, and everything in between. Every time you cut costs, got more efficient, and made it through to better prices.

That resilience has been your greatest asset. But in this environment, the traditional playbook has limits.

The structural changes we’re seeing—the genetic revolution reshaping replacement dynamics, the power shift toward processors, the permanent loss of Chinese import demand, the capital intensity that favors scale—these aren’t cyclical headwinds that will reverse when milk prices recover. They’re fundamental changes in how the industry operates.

Tightening your belt works when you’re waiting out a temporary downturn. It doesn’t work when the game itself has changed.

The farms that will emerge strongest from 2026-2028 aren’t necessarily the biggest. They’re the ones that recognized early that some operating conditions have shifted permanently and adjusted their approaches accordingly.

That means:

Building cost structures that work at $16-18 milk, while remaining positioned to benefit if prices improve
Managing debt proactively rather than assuming refinancing will always be available on favorable terms
Making breeding decisions that balance near-term revenue with longer-term replacement needs—and treating your genetic program as a strategic asset
Evaluating processor partnerships with clear eyes about who holds the leverage
Focusing on profitability at the current size rather than assuming growth solves margin challenges

The Bottom Line

The dairy industry has weathered difficult periods before, and it will navigate this one as well. Domestic and global demand for quality dairy products remains substantial. Well-managed operations will continue finding paths to profitability.

The question is which operations will position themselves to thrive in the industry’s next chapter. And that positioning is happening now, in the decisions being made over the next 90 days.

The farmers who approach this moment with clear-eyed realism—neither panic nor complacency—and take deliberate action to strengthen their operations will look back in 2028 with satisfaction at the choices they made.

That outcome is available to you. That window closes faster than you think.

Key Takeaways

The market reality:

U.S. milk production running 3.7-4.7 percent above year-ago levels through fall 2025—the strongest growth since the COVID recovery
National herd at 9.57 million head, up 211,000 from a year ago
Domestic supply projected to exceed demand growth through at least mid-2027
China’s import decline—from 845,000 to 430,000 metric tons—represents a structural policy shift
Mexico accounts for more than a third of U.S. cheese exports

The structural shifts:

Beef-on-dairy isn’t a trend—it’s a genetic revolution requiring new replacement math
Power has shifted to processors who control the stainless steel and need milk to justify their investments
Butterfat premiums have collapsed—butter from over $3.00/lb to around $1.40/lb
Replacement heifer inventory at 47-year lows (3.914 million head); record prices

Action items for the next 90 days:

Evaluate forward contracting 50-70 percent of the 2026 feed needs
Review DRP and DMC options before January enrollment deadlines
Initiate lender conversations—FSA operating loans at 4.625%
Reassess breeding strategy: What percentage of your herd represents your genetic future?
Model breakeven at $16-18 milk and identify improvement areas

The mindset shift:

“Tightening your belt” is a failing strategy when the game has changed
Resilience means proactive adaptation, not passive endurance
Q1 2026 decisions will significantly influence outcomes through 2028

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

The Triple Cushion Trap: Why 2025’s Strong Margins Won’t Save You in 2026 – Gain immediate operational clarity through this tactical guide that exposes the temporary “cushions” inflating your current margins and delivers a hard-hitting checklist to right-size your herd before these safety nets vanish in late 2026.
The $11 Billion Reality Check: Why Dairy Processors Are Banking on Fewer, Bigger Farms – Secure your long-term market position by understanding the structural reset of processing power, where $11 billion in new plant investments are pre-securing 80% of future supply, fundamentally reshaping your regional competitive advantage and market access.
Bred for $3 Butterfat, Selling at $2.50: Inside the 5-Year Gap That’s Reshaping Genetic Strategy – Master the 2025 Net Merit updates with this deep dive into the “genetic timing trap,” arming you with the precise selection strategies needed to navigate the industry’s massive shift from volume-only to component-centric value.

Join the Revolution!

Categories : Dairy Markets

Tags : butterfat prices, dairy markets, dairy profitability, milk production trends, replacement heifer inventory, risk management

China’s 42.7% Dairy Tariff Hits the EU – Why Your Milk Check Won’t See the Boost You’re Expecting

Monday, December 22nd, 2025

China’s 42.7% EU dairy tariff? Don’t celebrate yet. NZ ships duty-free with 51% market share—and China built their herd with genetics we sold them.

Executive Summary: China’s 21.9%–42.7% tariffs on EU dairy, announced December 22, 2025, are being called an opportunity for American exporters—but the market math doesn’t add up. New Zealand ships to China duty-free and holds 51% of the import market share. The U.S. exports primarily whey (95%), not the specialty cheeses being tariffed, limiting substitution potential. Most significant: China expanded domestic production to 43 million tonnes using genetics purchased from Western suppliers, including the U.S. For producers, this isn’t a moment to expect export rallies—it’s a signal to assess your processor’s export exposure, stress-test finances assuming flat Class III prices, and focus on what you control: components, efficiency, and diversification strategies like beef-on-dairy.

You know, I’ve been watching trade disputes affect dairy farmers for two decades now, and what happened today feels different. When China announced provisional tariffs of up to 42.7% on European Union dairy imports—a decision Reuters confirmed this morning—the industry press releases started flying within hours. “Opportunity for U.S. producers.” “Market share available.” “Ready to step into the gap.”

Those statements reflect genuine optimism. But there’s more context here that deserves attention. Context that can help you make better decisions about your operation, regardless of how this dispute plays out.

Grab a coffee—this one’s got some layers to it.

How Electric Vehicles Became a Dairy Problem

Back in August 2024—August 21st specifically, according to China’s Ministry of Commerce—Beijing announced it would investigate European dairy imports for alleged subsidies. The timing wasn’t coincidental. When the EU finalized tariffs of up to 45.3% on Chinese EVs that October, China had already begun its response.

Rather than targeting European cars directly, Beijing identified politically sensitive export categories: brandy, pork, and dairy. Smart strategy, honestly.

“It is highly frustrating that again, dairy seems to be used as a political pawn in a wider trade dispute between the EU and China regarding electric vehicles,” Conor Mulvihill, director of Dairy Industry Ireland, told reporters. Irish dairy exports to China topped €385 million in 2024, according to Bord Bia figures, and that revenue is now at risk.

The tariff structure ranges from 21.9% for cooperative companies up to the full 42.7% for non-cooperative ones, according to China’s Ministry of Commerce.

Assessing the Opportunity—Multiple Perspectives

Here’s where we need to think carefully. A Midwest processor I spoke with last week was measured:

“There might be some incremental business here, but anyone expecting a flood of new orders is probably going to be disappointed.” — Midwest dairy processor

The International Dairy Foods Association has offered a more optimistic view, noting U.S. exporters are ready to step into opportunities created by trade actions affecting competitors.

But here’s what many producers don’t appreciate: the U.S. and EU don’t sell the same products to China.

According to the UK’s Agriculture and Horticulture Development Board, around 95% of U.S. dairy exports to China consist of whey and whey products—commodity ingredients for food processing and animal feed. The EU sends specialty cheeses, infant formula base, and UHT milk. Premium consumer products.

So when a Chinese buyer stops purchasing French Brie because of a 42% tariff, they’re not necessarily in the market for American permeate. Different products, different purposes.

The New Zealand Factor

The AHDB reported that New Zealand controlled approximately 51% of China’s dairy import market in H1 2024—up from 42% in 2023. And thanks to their Free Trade Agreement, Kiwi dairy now enters China completely duty-free as of January 2024.

New Zealand’s Trade Minister Todd McClay confirmed it directly: all safeguard duties on milk powder have been eliminated.

China Market Access at a Glance

Exporter	Tariff Status (Dec. 2025)	Market Position	Key Products
European Union	21.9%–42.7% provisional duties	Germany 7%, France 4% of imports	Specialty cheese, infant formula
United States	Existing MFN + retaliatory tariffs	~13% share; second-largest supplier	Whey (95%), lactose, commodities
New Zealand	0% (duty-free)	~51% share; largest supplier	Whole milk powder, butter, cheese

Sources: China Ministry of Commerce; AHDB (H1 2024); Dairy Global

When European cheese gets more expensive, who captures that demand? New Zealand—and they’ve been working this market for decades.

Understanding China’s Domestic Situation

China’s tariffs serve multiple purposes. Yes, retaliation. But also breathing room for a domestic industry facing challenges.

According to the USDA’s November 2024 report, Chinese raw milk production reached approximately 41-42 million tonnes. Rabobank forecasts 43.3 million tonnes for 2024. China has essentially added a New Zealand’s worth of production inside their own borders over five years.

Meanwhile, demand has slowed. China’s birth rate dropped to a record low of 6.39 per 1,000 in 2023, continuing a multi-decade decline. Fewer babies means less infant formula demand—one of the highest-value import categories.

Chinese processors are converting fresh milk to powder for storage. If you’ve been in dairy long enough, you recognize that as a classic oversupply signal.

The Genetic Paradox: Did We Export Our Own Market?

For Bullvine readers who understand breeding, this is worth sitting with.

Where did China get the cows for this expansion? From us.

According to the NAAB 2024 Semen Sales Report, the U.S. exported 30.8 million units of dairy semen globally—up 1.6 million from 2023. China has historically been a top destination. Sexed semen technology accelerated the process considerably, allowing Chinese operations to rapidly multiply their female inventory using genetics that took Western breeders generations to develop.

This was normal commercial activity—nobody did anything wrong. But the dynamic is worth recognizing. The better our genetics got, the faster we enabled competitors to catch up.

The Southeast Asia Pivot

With China’s import appetite moderating, U.S. trade organizations are developing alternative markets. IDFA’s Michael Dykes notes these efforts promise improved access in growing Southeast Asian markets.

Current trade values show the scale challenge: Malaysia ~$118 million, Vietnam ~$127 million, Thailand ~$87 million in U.S. dairy sales according to USDA data. Growing markets, but building presence takes years.

“We’re excited about Southeast Asia, but we’re also realistic. Each country has different food safety standards, different labeling requirements. This isn’t switching customers—it’s building relationships from scratch.” — Wisconsin cheese exporter

New Zealand has been working these markets for decades with established relationships and geographic proximity. The Southeast Asia pivot is a real strategy—it’s also a multi-year project.

Processing Capacity: The Math That Hits Your Milk Check

Here’s where this gets personal for producers, even those who never think about exports.

According to IDFA’s October 2025 report, U.S. processors are investing more than $11 billion in new capacity across 19 states, with projects coming online between 2025 and early 2028. This investment assumed continued production growth and export demand.

Modern cheese plants generally need 85-95% utilization to hit economic targets. When volume drops, fixed costs per pound climb fast.

Let’s run some numbers. For a 500-cow dairy averaging 75 lbs/cow/day, you’re shipping roughly 13.7 million pounds annually. Now, not all of that is equally exposed to export market volatility—it depends on your plant’s product mix. But if 10-15% of your production value ties to export-sensitive products like whey going to China, a $1.50/cwt effective price decline on your total check translates to roughly $20,000-30,000 in annual revenue impact. For operations more heavily exposed, multiply accordingly.

Herd Size	Annual Production (cwt)	Revenue Loss @ $1.50/cwt	Revenue Loss @ $2.50/cwt
250 cows	68,438	$102,657	$171,095
500 cows	136,875	$205,313	$342,188
750 cows	205,313	$307,969	$513,282
1,000 cows	273,750	$410,625	$684,375

Here’s a specific scenario: If you’re an Upper Midwest producer shipping to a plant that sends 40% of its whey to China, and Chinese buyers shift to duty-free New Zealand sources, your plant’s utilization could drop. Even if your milk still gets processed, reduced efficiency often shows up in basis adjustments, component premiums, or year-end patronage dividends.

For producers in Class III-heavy federal order regions—such as Wisconsin, Minnesota, and the Upper Midwest—these dynamics matter more. When export-oriented cheese plants face utilization challenges, it pressures Class III specifically.

5 Signs Your Co-op May Be Too Export-Dependent

More than 30% of plant output goes to export markets (especially single-country concentration)
Whey or lactose represents a significant revenue stream with heavy China exposure
No active diversification into Southeast Asian or Mexican markets is underway
Recent capital investments were justified primarily by “growing Asian demand.”
Member communications emphasize export opportunities without discussing contingencies

If three or more apply, it’s time to ask harder questions at your next member meeting.

Warning Sign	Risk Threshold	Question to Ask Your Co-op
Export concentration	>30% of output to export markets	“What percentage of our plant’s production goes to export, and to which countries specifically?”
China-specific exposure	>20% of whey/lactose revenue from China	“How much of our whey revenue depends on Chinese buyers, and what’s our backup plan?”
Market diversification	<3 active export regions	“Are we building relationships in Southeast Asia and Mexico, or concentrated in East Asia?”
Capital investment rationale	“Asian growth” as primary justification	“Were recent expansions underwritten by export growth assumptions? What if those don’t materialize?”
Communication transparency	Export opportunities mentioned without contingencies	“What’s our plan if China’s self-sufficiency push continues reducing import demand over the next 3-5 years?”

Practical Considerations for Your Operation

3 Questions to Ask Your Co-op Today

Exposure: “What percentage of our plant’s output is tied to Chinese markets or other export-dependent products?”
Diversification: “Do we have active sales relationships in Malaysia, Vietnam, or Mexico—or are we concentrated in East Asia?”
Contingency: “What’s our plan if China’s self-sufficiency push continues reducing import demand?”

The breakeven question: At what export exposure does this tariff situation materially affect your milk check? Based on typical plant economics, producers shipping to facilities with export concentrations of 25-30% or more—particularly to China—face meaningful price risk if trade dynamics shift.

Component focus: Markets increasingly reward milk components over fluid volume. Breeding and feeding strategies that emphasize component density—managing your TMR for butterfat performance, making genetic selections that improve protein yields—can improve returns even when prices are flat.

Diversification strategies: The beef-on-dairy trend represents a rational response to moderating replacement heifer needs and provides revenue diversification independent of dairy market conditions.

Financial positioning: Planning for flat-to-modest milk prices provides a more stable foundation than relying on export-driven rallies. Programs like Dairy Revenue Protection exist precisely for this uncertainty.

The Labeling Dimension

China is establishing cheese naming standards, potentially aligning with European Geographical Indication protections. The EU is pursuing similar provisions throughout Southeast Asia.

The implication: American cheeses using names like Parmesan or Feta could face market access challenges regardless of tariffs. The long-term response involves building identity around distinctly American varieties—Wisconsin Original, California Dry Jack, and Vermont Creamery styles.

Your Next Moves

Final determinations are expected by February 2026. CNBC noted Beijing significantly reduced preliminary pork tariffs in final rulings, so flexibility remains possible. But regardless of how this dispute resolves, the underlying dynamics aren’t changing.

Here’s what to do now:

Assess your exposure. Ask your co-op directly what percentage of plant output goes to export markets—especially China. If it’s above 25-30%, you have meaningful trade risk.
Run your own numbers. Calculate what a $1.50-2.50/cwt Class III decline would mean for your operation annually. Know your vulnerability before it materializes.
Evaluate your processor’s diversification. Are they actively building relationships in Southeast Asia and Mexico, or are they concentrated in markets facing structural headwinds?
Double down on components. Regardless of trade outcomes, butterfat and protein premiums reward operational excellence. That’s within your control.
Stress-test your finances. Model flat prices for 18-24 months. If that scenario creates problems, address leverage and cash reserves now while milk checks are decent.

The producers I see positioning themselves well are treating export markets as valuable but variable—additional revenue opportunity rather than baseline assumptions. They’re asking good questions and planning for multiple scenarios.

That’s the kind of thinking that builds durable farm businesses.

Key Takeaways:

New Zealand wins this one: Duty-free access plus 51% market share means Kiwi dairy—not American—captures displaced EU demand
Product mismatch limits upside: We export whey to China (95% of shipments); they’re tariffing specialty cheeses we don’t sell
The genetics paradox: China reached 43M tonnes domestic production using genetics we sold them—we enabled our own competition
Know your exposure number: If your co-op sends 25%+ of output to export markets, trade volatility hits your milk check directly
Control beats hope: Component premiums, operational efficiency, and beef-on-dairy diversification outperform waiting for export rallies

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

China Promised 100%. Delivered 2.7%. Here’s Your 48-Hour Defense Plan. – Gain a 3-step tactical framework for vetting trade headlines and insulating your cash flow. This defense plan reveals how to model for zero-revenue scenarios and verify your margin protection before trade volatility erases your bottom line.
2025’s $21 Milk Reality: The 18-Month Window to Transform Your Dairy Before Consolidation Decides for You – Expose the structural shifts reshaping the global landscape before consolidation chooses your path for you. This strategic roadmap delivers a blueprint for restructuring your business model, ensuring your operation remains a leader in the high-stakes 2030 market.
Biology Repriced Dairy: $4,000 Heifers Created a 90-Day Window When You Have Leverage, Not Processors– Weaponize your replacement inventory by understanding the rare leverage created by the current heifer shortage. This analysis breaks down how biological constraints have temporarily shifted power back to producers, arming you with the math to negotiate better terms.

Join the Revolution!

Categories : Dairy Markets

Tags : China dairy tariffs, dairy export strategy, dairy market volatility, Global Dairy Trends, New Zealand dairy trade, US dairy markets

The $97,500 Protein Shift: How Weight-Loss Drug Users Are Rewriting Your Breeding Strategy

Monday, December 22nd, 2025

$97,500. That’s what weight-loss drugs are worth to a 500-cow dairy. Here’s how to capture it.

Executive Summary: $97,500 annually. That’s what a 500-cow dairy can capture by responding to the protein shift—a market realignment most producers haven’t traced to its source. GLP-1 weight-loss drugs have reached 41 million Americans who now consume high-protein dairy at triple the normal rate, reshaping what your milk is worth. Protein premiums have hit $5/cwt at cheese facilities, and December’s Federal Order update raised baseline protein to 3.3%—meaning below-average herds now subsidize neighbors who ship higher components. The opportunity stacks three ways: nutrition optimization ($8,750-$15,000), protein-focused genetics ($17,500-$22,500), and processor premiums ($24,000-$60,000). The catch: breeding decisions this spring won’t reach your bulk tank until 2029, rewarding producers who move early. The math is clear, the window is open, and this analysis shows exactly how to capture it.

A number worth sitting with: households taking GLP-1 weight-loss medications are consuming yogurt at nearly three times the national average. Not 20% more. Not double. Three times.

That data point comes from Mintel’s 2025 consumer tracking. It tells you something important about where dairy demand is heading—and raises questions worth considering if your breeding program has been focused primarily on butterfat.

Something meaningful is shifting in how the market values what comes out of your bulk tank. This isn’t a temporary blip or a pricing anomaly. What we’re seeing appears to be a structural change driven by forces that weren’t on most of our radars even five years ago—pharmaceutical trends, aging demographics, and global nutrition demands all converging at once.

This creates opportunities for producers positioned to respond. It also creates challenges for those caught off guard. The difference often comes down to understanding what’s actually driving these changes.

THE QUICK MATH: What’s This Worth?

For a 500-cow herd positioned to capture the protein shift:

Opportunity	Annual Value
Nutrition optimization (amino acid balancing)	$8,750 – $15,000
Genetic improvement (protein-focused selection)	$17,500 – $22,500
Processor premiums (above-baseline protein)	$24,000 – $60,000
Combined Annual Opportunity	$50,000 – $97,500

These figures assume: 500 cows, 24,000 lbs/cow annually, current component price relationships, and access to a processor paying protein premiums. Individual results vary based on current herd genetics, ration, and market access.

The Pharmaceutical Connection

When GLP-1 drugs first hit the market, I didn’t give much thought to dairy implications. Weight-loss medications seemed pretty far removed from breeding decisions and component pricing.

That thinking needed updating.

As of late 2025, roughly 12% of Americans—about 41 million people—have used GLP-1 medications like Ozempic, Wegovy, or Mounjaro. That figure comes from a KFF poll reported in JAMA in mid-2024, with subsequent tracking by RAND and others confirming the trend has held. Market projections for these drugs range from $157 billion to $324 billion by 2035, depending on which analyst you ask. This isn’t a niche trend anymore. It’s a mainstream pharmaceutical category reshaping eating behavior at a population level.

What makes this relevant to your operation is how these medications change consumption patterns. GLP-1 drugs work by slowing gastric emptying—patients feel full faster and eat much less. But their protein requirements don’t drop. If anything, clinical guidance suggests they increase.

Obesity medicine specialists now recommend GLP-1 users consume 1.2 to 1.6 grams of protein per kilogram of body weight daily—backed by research in the Journal of the International Society of Sports Nutrition and clinical practice guidelines from multiple medical organizations. That’s substantially higher than typical recommendations. The reasoning? Rapid weight loss without adequate protein intake leads to significant muscle wasting.

And this is where it gets clinically important: studies published in peer-reviewed journals indicate that between 25% and 40% of weight lost on these medications can come from lean body mass rather than fat. A 2025 analysis in BMJ Nutrition, Prevention & Health quantified this at “about 25%–40%” as a proportion of total weight loss. That’s a real concern for patients and their physicians—and it’s driving specific dietary recommendations.

So you have millions of people who can only eat small portions but genuinely need concentrated protein sources. What foods fit that profile?

High-protein dairy fits it remarkably well.

The consumption data supports this. According to Mintel’s tracking, Greek yogurt and cottage cheese consumption has increased significantly among GLP-1 users, while higher-fat dairy categories have moved in the opposite direction. Reports in June 2025 showed that “plain dairy and protein powders hold steady” while “processed goods are taking the biggest hit.” The exact percentages vary by study, but the directional trend is consistent.

There’s also a bioavailability dimension worth understanding. The DIAAS score—Digestible Indispensable Amino Acid Score, the FAO-recommended measurement method—indicates how efficiently the body uses different protein sources. According to research by the International Dairy Federation and the Global Dairy Platform, whole milk powder scores around 1.22 on DIAAS, while other dairy proteins consistently score 1.0 or higher. Compare that to soy at roughly 0.75-0.90, depending on processing, and pea protein at 0.62-0.64. For someone eating limited quantities, that efficiency difference matters considerably.

What does this means practically? This isn’t just a preference shift—there’s a physiological basis driving these patients toward nutrient-dense protein sources. Dairy happens to fit that need particularly well.

Reading Your Milk Check Differently

So consumer preferences are shifting. What does that actually mean for component pricing?

The answer depends partly on your market, but broad trends are worth understanding.

Looking at USDA component price announcements over recent months, protein has traded at a meaningful premium over butterfat. Through late 2025, the protein-to-fat price ratio has been running in the range of 1.3 to 1.4—a notable departure from historical norms. For much of the past two decades, these components traded closer to parity, with fat often commanding a slight premium.

I recently spoke with a Wisconsin producer who’d been closely tracking this shift. “I started paying attention about two years ago,” he told me. “Once I saw the ratio consistently above 1.25, I went back and looked at my sire selection. Realized I’d been leaving money on the table.”

That experience isn’t unusual. Many producers look at their check, review the component breakdowns, and maybe note whether fat or protein prices have changed from last month. But they’re not calculating what the spread actually means for breeding strategy over time.

Let me put some illustrative numbers on it, using late 2025 component price relationships as a guide.

Consider a 500-cow operation producing 24,000 pounds per cow annually. If you compare a fat-focused breeding approach averaging 4.0% fat and 3.1% protein against a protein-focused approach averaging 3.7% fat and 3.4% protein, the difference in total component value can run $35 to $45 per cow annually from the bulk tank alone (these figures shift as component prices move, but the general principle holds when protein maintains its current premium over fat). For that 500-cow herd, you’re looking at roughly $17,500 to $22,500 in annual difference from genetics alone.

That’s before considering processor premiums that cheese and ingredient plants often pay for high-protein milk. Factor those in, and the opportunity can be larger still.

I want to be measured here. I’m not suggesting everyone immediately overhaul their breeding strategy. What I am suggesting is that this ratio deserves more attention than most producers have been giving it.

The Federal Order Update

Another dimension affects how money flows through the pricing system.

The June 2025 updates to Federal Milk Marketing Order formulas—finalized by USDA in January 2025 after the producer referendum—adjusted baseline composition factors to reflect current herd averages. According to the USDA Agricultural Marketing Service final rule, protein moved from 3.1% to 3.3%, other solids from 5.9% to 6.0%, and nonfat solids from 9.0% to 9.3%. The composition factor updates became effective December 1, 2025.

Why does this matter practically? Processors now assume your milk contains 3.3% protein as the baseline. If you’re consistently shipping 3.0% or 3.1%, you’re not just missing premiums—you may be contributing to the pool that pays premiums to higher-component herds.

I’ve spoken with producers who didn’t fully grasp this dynamic at first. They knew their components were “a little below average” but figured it wasn’t significant. When we worked through their position relative to the pool, they were surprised to see how much value was being transferred out of their operation each month.

The system isn’t unfair—it’s designed to reward quality. But you need to understand where you stand within it.

Genetic Strategies Worth Considering

For operations looking to improve protein production, genetic selection offers the most durable path forward. The challenge, as we all know, is that results take time to show up in the bulk tank.

The timeline reality looks something like this:

From Breeding Decision to Bulk Tank Impact

Select high-protein sires (January 2026) → Semen in tank
Breed cows (Spring 2026) → Conception
Gestation (Spring 2026 – Winter 2027) → Calf born
Heifer development (2027 – 2028) → Growing replacement
First calving (Late 2028) → Enters milking string
First full lactation data (2029) → Bulk tank impact measurable

Phase	Timing	Months from Decision
Sire Selection	January 2026	0
Breeding/Conception	Spring 2026	3–6
Gestation	Spring 2026 – Winter 2027	12–15
Heifer Development	2027 – 2028	24–30
First Calving	Late 2028	33–36
Measurable Bulk Tank Impact	2029	36–48

If you breed a cow this spring, her daughter won’t enter the milking string until late 2028 at the earliest. That’s just the biology. So breeding decisions you make in the next few months will shape your herd’s component profile three to five years from now.

Metric	Fat-Focused Strategy	Protein-Focused Strategy
Avg Fat %	4.0%	3.7%
Avg Protein %	3.1%	3.4%
Component Value/Cow/Year	$1,245	$1,290
Processor Premium/Cow/Year	$0	$120
Total Annual Herd Revenue (500 cows)	$622,500	$705,000
Revenue Advantage	—	+$82,500

This is why genetics is a long game—but it’s also the only permanent solution. Nutrition can help capture more of your genetic potential today, but it can’t exceed what the genetics allow.

One development that’s accelerating this timeline for some operations: genomic testing. If you’re testing heifers at a few months of age, you can identify your high-protein genetics earlier and make culling decisions before investing in two years of development costs. It doesn’t change the biological timeline, but it does let you be more selective about which animals you’re developing in the first place.

Selection Index Considerations

Most producers default to Total Performance Index (TPI) when evaluating Holstein sires, and it remains useful for balanced selection. But if protein improvement is a specific priority, Cheese Merit (CM$) rankings warrant closer scrutiny.

Trait Category	Minimum Threshold	Protein-Focused Target	Why It Matters
PTA Protein %	+0.03%	+0.04% to +0.06%	Improves concentration—the key to premiums
PTA Protein Pounds	+40 lbs	+50 lbs or higher	Ensures volume doesn’t drop as % increases
PTA Fat %	No minimum	+0.01% to +0.03%	Hedges against protein premium narrowing
Productive Life (PL)	+2.0	+3.0 or higher	Cows must last long enough to justify investment
Daughter Pregnancy Rate (DPR)	+0.5	+1.0 or higher	Poor fertility destroys genetic progress
Somatic Cell Score (SCS)	2.90 or lower	2.85 or lower	High SCC kills premiums faster than low protein
Inbreeding Coefficient	—	Monitor: keep below 6.25%	Aggressive protein selection can concentrate genes
Selection Index	—	Use CM$ or updated NM$	Better protein weighting than traditional TPI

CM$ places greater emphasis on protein per pound and protein percentage than TPI does. It was designed for operations shipping to cheese plants, where protein drives vat yield. The updated Net Merit (NM$) formula has also adjusted component weightings in recent years to reflect market realities.

General Thresholds to Consider

When evaluating individual sires for protein improvement, what many nutritionists and AI representatives suggest—keeping in mind these are general guidelines, not hard rules:

PTA Protein %: Bulls at +0.04% or higher are generally considered strong for protein concentration. Bulls above +0.06% are moving the needle meaningfully.
PTA Protein Pounds: Targeting +50 lbs or higher helps maintain total protein production while improving percentage.
Combined approach: The ideal sires show positive values in both categories. Bulls that improve percentage by diluting volume aren’t actually helping you.

One important caution: don’t chase protein so aggressively that you sacrifice health and fertility traits. A cow that burns out after 1.8 lactations isn’t profitable regardless of her component profile. Setting minimum thresholds for Productive Life and Daughter Pregnancy Rate before optimizing for components makes sense. Talk with your AI rep about what fits your specific situation.

Intervention Strategy	Low Estimate	High Estimate	Timeline to Impact
Nutrition Optimization (amino acid balancing)	$8,750	$15,000	2–4 weeks
Genetic Improvement (protein-focused sires)	$17,500	$22,500	3–5 years
Processor Premiums (high-protein milk)	$24,000	$60,000	Immediate (if available)
TOTAL ANNUAL OPPORTUNITY	$50,250	$97,500	Varies by strategy

A Note on Inbreeding

Another consideration doesn’t get discussed enough: selecting heavily for narrow trait clusters can accelerate inbreeding. Pennsylvania State University’s Dr. Chad Dechow, who has extensively studied genetic diversity in Holsteins, notes that intense selection for specific traits can accelerate genetic concentration faster than many producers realize—as he’s put it, “if it works, it’s line breeding; if it doesn’t, it’s inbreeding.” Research published in Frontiers in Animal Science found that selection for homozygosity at specific loci (like A2 protein) significantly increased inbreeding both across the genome and regionally. The takeaway: if you’re selecting aggressively for protein traits, monitor inbreeding coefficients and work with your genetic advisor to maintain adequate diversity in your sire lineup.

The Beef-on-Dairy Angle

There’s strategic flexibility that comes with the current beef market. Beef-on-dairy calves have been commanding strong prices—industry reports from late 2025 show day-old beef-cross calves going for $750 to over $1,000 in many markets, with well-bred calves sometimes topping $1,600 depending on genetics and condition. Dairy Herd Management reported in August 2025 that Jersey beef-on-dairy calves were fetching $750 to $900 at day of birth, with the market remaining robust through the fall.

Some producers are using this strategically: breed your top 40-50% of the herd to high-protein dairy sires for replacements, and use beef semen on the bottom half. You capture immediate cash flow from beef calves while concentrating genetic improvement on animals that will actually move the herd forward.

A California producer I spoke with recently has been doing exactly this for three years. “It changed my whole approach to replacement decisions,” she said. “I’m more selective about which genetics I’m actually keeping in the herd, and the beef calves are paying their own way.”

It’s not the right approach for every operation, but it’s worth thinking through.

The Nutrition Bridge

Genetics determine the ceiling for what your cows can produce. Nutrition determines how close you get to that ceiling. And unlike genetics, nutrition interventions can show results within weeks.

The most targeted intervention for protein production involves amino acid supplementation—specifically rumen-protected methionine.

The background: in typical U.S. dairy diets built around corn silage and soybean meal, methionine often becomes the limiting amino acid for milk protein synthesis. You can feed all the crude protein you want, but if the cow runs short on methionine, she can’t efficiently convert it to milk protein. The excess nitrogen gets excreted.

Rumen-protected forms of methionine—coated to survive rumen degradation—allow the amino acid to reach the small intestine, where absorption actually happens.

What the Research Shows

University trials—including work from Cornell, Penn State, and Wisconsin dairy extension programs—have demonstrated that rumen-protected methionine can boost milk protein percentage, often by 0.08% to 0.15% within 2 to 3 weeks of implementation. Results vary by herd and baseline diet, so verifying response on your own operation before committing fully makes sense.

Run a trial with one pen of mid-lactation cows for 21-30 days. Compare their component tests to a control group or their own pre-trial baseline. Work with your nutritionist on the economics—supplement costs, expected response, and whether it pencils at current protein prices. If you’re seeing the expected response, roll it out more broadly. If not, you haven’t invested much to find out.

One thing I’ve noticed, talking with nutritionists across the Midwest and Northeast, is that the response tends to be most consistent in herds that haven’t previously optimized their amino acid balance. If you’ve already been balancing for methionine and lysine, the incremental gain may be smaller. Fresh cows and early-lactation groups often show the most dramatic response, since that’s when protein synthesis is competing most with other metabolic demands during the critical transition period.

For a 500-cow herd seeing a 0.10-0.12% protein increase, that can translate to $8,750 to $15,000 annually in additional component value at current prices—often exceeding the supplement cost by a meaningful margin.

An additional benefit: because you’ve addressed the limiting amino acid, you may be able to reduce total ration crude protein slightly without sacrificing production. That can offset some or all of the supplement cost.

Processor Relationships

This dimension deserves more attention than it typically gets.

Not all processing facilities are equally equipped to capture the value of high-protein milk. Before making significant changes to your breeding program, it’s essential to understand what your buyer can actually afford.

Cheese plants—particularly the large cooperative facilities across Wisconsin’s cheese belt and specialty operations in California’s Central Valley—are generally the most straightforward. Higher protein concentration means more cheese per gallon processed. A plant can increase output without expanding capacity simply by sourcing higher-protein milk. Clear economic incentive exists to pay for it.

Processor Type	Protein Threshold	Premium per CWT	Annual Value (500 cows)
Commodity Powder Plant	No premium	$0.00	$0
Regional Cheese Co-op	3.3%	$0.50–$0.75	$60,000–$90,000
Large Cheese Facility (WI)	3.3%	$1.00–$1.50	$120,000–$180,000
Specialty Protein Plant	3.35%	$2.00–$3.00	$240,000–$360,000
Direct Contract (High-volume)	3.4%	$3.00–$5.00	$360,000–$600,000

Cheese plant managers I’ve spoken with confirm they’re actively seeking higher-protein milk supplies. One plant manager in central Wisconsin told me their facility has increased protein premiums twice in the past eighteen months, specifically to attract higher-component milk. “We’re competing for that milk now,” he said. “Five years ago, we weren’t having that conversation.”

What Premiums Actually Look Like

Processor premiums vary considerably by region and facility, but here’s what the market data shows: USDA Dairy Market News reports the average protein premium is around $1.25 per hundredweight above baseline. Some producers shipping to cheese-focused cooperatives report premiums in the $0.50 to $0.75/cwt range for modest improvements, while direct contracts with protein-hungry facilities can reach $3.00 to $5.00/cwt for milk consistently testing above 3.35% protein—though these premium contracts typically require volume commitments and consistent quality.

For a 500-cow herd producing 120,000 cwt annually, even a $0.50/cwt premium adds $60,000 to the annual milk check. At $1.00/cwt, that’s $120,000. The math quickly draws producers’ attention.

Ingredient and filtration plants making whey protein concentrates, milk protein isolates, and similar products also value protein highly. Operations in Idaho and across the West are specifically tooled to extract and monetize protein fractions. These facilities serve the growing functional nutrition market, including products for GLP-1 users.

Fluid milk bottlers and commodity powder dryers may have less ability to monetize elevated protein. If a bottler standardizing for the Southeast fluid market is already adjusting milk to regulatory specifications, excess protein beyond those specs doesn’t necessarily yield premium returns.

PROCESSOR CONVERSATION CHECKLIST

Download and bring to your next meeting with your milk buyer:

☐ Premium Structure

“What protein threshold triggers premium payments?”
“Is there a cap on protein premiums, or do they scale continuously?”
“How is the premium calculated—per point above threshold, or tiered brackets?”

☐ Testing & Verification

“How frequently is my milk tested for components?”
“Can I access my component test history for the past 12 months?”

☐ Plant Capabilities

“Does your plant have protein standardization capability?”
“What’s your target protein level for incoming milk?”

☐ Market Trends

“Are you seeing increased demand for high-protein products from your customers?”
“Do you anticipate changes to your premium structure in the next 12-24 months?”

☐ Contract Options

“Are direct premium contracts available for consistent high-protein suppliers?”
“What volume and consistency requirements would apply?”

Keep notes from this conversation—the answers should inform your breeding and nutrition decisions.

The answers might influence how aggressively you pursue protein genetics. If your buyer caps premiums at 3.3%, there is less incentive to push for 3.5%. If they’re paying meaningful premiums with no cap because they’re expanding ingredient production, that’s entirely different information.

A Decision Framework

Given this complexity, a framework for thinking through whether an aggressive protein pivot makes sense:

Consider aggressive protein focus if:

You ship to a cheese plant or ingredient facility
Your current herd averages below 3.25% protein
Your buyer explicitly pays protein premiums without caps
You have flexibility in your replacement strategy
Your herd health metrics are already solid

Consider a balanced approach if:

You ship to a fluid bottler or a diversified cooperative
Your herd already averages 3.3%+ protein
Your buyer caps protein premiums at a specific threshold
You’re still working on fertility or longevity genetics
You operate in a region with limited processor options

Consider maintaining the current strategy if:

Your processor has no protein premium structure
Switching buyers isn’t practical for your location
Your herd has significant health or fertility challenges to address first
You’re already at or above pool averages for both components

There’s no single right answer here. The key is matching your genetic strategy to your actual market circumstances.

Your Current Situation	Aggressive Protein Focus	Balanced Approach	Maintain Current Strategy
Processor pays protein premiums?	Yes, uncapped or high cap	Yes, but capped at 3.3–3.4%	No premium structure
Current herd protein average	Below 3.25%	3.25–3.35%	Above 3.35%
Milk buyer type	Cheese/protein plant	Diversified co-op	Fluid bottler/powder plant
Herd health & fertility status	Already solid (DPR >20%)	Some challenges	Significant problems to fix first
Ability to switch processors	Yes, within 50 miles	Limited options	Locked into current contract
Replacement strategy flexibility	Can use beef-on-dairy	Raising most replacements	Must raise 100% replacements
Risk tolerance	Willing to commit 3+ years	Moderate	Conservative
RECOMMENDATION	Go aggressive: aim for 3.4–3.5% protein	Incremental improvement: target 3.3–3.4%	Focus on other profit drivers first

Regional Considerations

This analysis doesn’t apply uniformly across all operations and regions—something worth acknowledging.

Upper Midwest herds shipping to Wisconsin cheese plants are positioned differently than Southeast operations serving fluid markets. A 3,000-cow operation in the San Joaquin Valley faces different economics than a 100-cow farm in Vermont or a grazing dairy in Missouri.

Those shipping to cheese-focused cooperatives in Wisconsin and Minnesota have generally been tracking protein-to-fat ratios more closely—some for several years—and have adjusted breeding programs accordingly. In conversations with producers in these areas, I’ve repeatedly heard that neighbors who were initially skeptical are now asking about sire selections.

But producers in fluid-heavy markets often take a more measured approach. If your buyer can’t pay for high protein, breeding for a premium you can’t capture doesn’t make economic sense. Watching trends while maintaining flexibility is entirely reasonable.

Both perspectives make sense given their circumstances.

The fundamental trends—GLP-1 adoption, component pricing shifts, global protein demand—are real regardless of location. But how you respond depends on your specific situation: current herd genetics, processor relationship, cash flow position, and risk tolerance.

The Global Context: America’s Protein Export Opportunity

What’s happening domestically aligns with broader international patterns—and positions the U.S. dairy industry for a significant strategic shift.

New Zealand’s dairy industry—historically the world’s dominant dairy exporter—has hit production constraints. Environmental regulations capping nitrogen runoff have effectively frozen their national herd. Rather than competing for market share in commodity whole milk powder, they’ve pivoted toward high-value protein products.

According to a 2023 report from DCANZ and Sense Partners, protein products rose from 8.6% to 13.2% of New Zealand’s export mix between 2019 and 2023. DairyNZ reported that protein product exports increased 120% over that period, reaching $3.4 billion. That’s a deliberate strategic shift, not an accident.

Here’s what’s interesting for U.S. producers: we’re no longer just a dairy exporter—we’re increasingly becoming a protein exporter. According to the International Dairy Foods Association, U.S. dairy exports reached $8.2 billion in 2024, the second-highest level ever recorded. That’s a remarkable transformation. As IDFA noted in their February 2025 analysis, “After being a net importer of dairy products a decade ago, the United States now exports $8 billion worth of dairy products to 145 countries.”

The composition of those exports is shifting in telling ways. Brownfield Ag News reported in November 2025 that high-protein whey exports rose nine percent, led by sales to Japan. Farm Progress confirmed in July 2025 that “high-end whey exports continue to grow both in volume and value,” specifically noting that whey protein concentrates and isolates with 80% or more protein are driving the growth. According to the U.S. Dairy Export Council’s reference materials, the United States is now the largest single-country producer and exporter of whey ingredients in the world, with total whey exports reaching 564,000 metric tons in 2023—up 14% from 2019.

The industry is investing, and strong growth prospects have led to $8 billion in new processing plant investments set to increase production over the next two years. By mid-2025, nearly 20 million additional pounds of milk were flowing through new facilities, with much of that capacity focused on cheese—and the whey protein streams that come with it.

This matters for producers because U.S. dairy protein must increasingly meet global specifications. The U.S. Dairy Export Council has been working with the American Dairy Products Institute to develop industry standards for U.S. products and with the International Dairy Federation to develop worldwide technical standards. The National Milk Producers Federation prompted an investigation in 2025—through the U.S. International Trade Commission—into global competitiveness for nonfat milk solids, including milk protein concentrates and isolates.

Why does this matter at the farm level? Asian markets have evolved. China’s domestic milk production has grown, reducing the need for basic powder imports. What they’re purchasing now are specialized high-protein ingredients: lactoferrin for infant formula, protein isolates for clinical nutrition, functional ingredients for the growing urban fitness market.

With New Zealand capacity-constrained and the U.S. investing heavily in protein-processing infrastructure, there’s a genuine opportunity—but only if we’re producing what global buyers want. They’re not paying premium freight costs to import commodity milk. They want protein density that meets international quality standards. The farms supplying that milk are part of an increasingly export-oriented value chain, whether they realize it or not.

Balancing Opportunity and Risk

Any time someone presents a market opportunity, you should ask: “What if the assumptions don’t hold?”

Fair question.

What if the protein premium narrows?

It could happen. Processor capacity might expand. Consumer trends might shift. The protein-to-fat ratio could drift toward historical norms.

My thinking: even if protein premiums moderate, protein is unlikely to become less valuable than fat on a sustained basis. The fundamentals—bioavailability advantages, consumer demand for functional nutrition, processing economics—support continued protein value.

More importantly, breeding for combined solids rather than protein alone provides insurance. Bulls that improve both fat and protein percentages protect against shifts in the ratio. The market has never penalized producers for shipping high total solids. The risk is in low-component production, not in being wrong about which component the market favors most.

What if GLP-1 adoption plateaus?

Possible, but current trajectory suggests otherwise. These medications are being prescribed not just for weight loss but for diabetes management and cardiovascular protection. Insurance coverage is expanding. Pill formulations are entering the market. The user base appears to be institutionalizing rather than peaking.

But even setting GLP-1 aside, other demand drivers—aging populations seeking muscle preservation, fitness culture emphasizing protein intake, Asian markets wanting protein imports—remain intact.

Practical risk management approaches:

Use Net Merit (NM$) rather than extreme protein indexes for a balanced hedge
Maintain health and longevity trait minimums regardless of component goals
Keep some flexibility through beef-on-dairy rather than raising 100% of replacement heifers
Consider nutrition interventions (reversible) before genetic changes (permanent)
Monitor inbreeding coefficients when selecting heavily for protein traits

Practical Takeaways

Bringing this together into actionable items:

Understanding Where You Stand

Calculate the protein-to-fat price ratio from your last few milk checks
Compare your herd’s protein percentage to the Federal Order pool average (now 3.3%)
Have an explicit conversation with your milk buyer about protein premiums and thresholds

Evaluating Genetic Options

Review your current sire lineup for protein trait emphasis
Consider CM$ or updated NM$ rankings alongside traditional TPI
Set minimum thresholds for health and fertility traits before optimizing for components
Look for bulls positive in both protein percentage and protein pounds
Work with your AI rep on what makes sense for your herd
If you’re genomic testing heifers, use protein traits in your retention decisions
Monitor inbreeding levels when concentrating selection on protein traits

Near-Term Nutrition Interventions

Discuss rumen-protected methionine with your nutritionist
Consider a 21-30 day pen trial before full implementation
Track component response carefully to verify ROI on your operation
Pay particular attention to fresh cow and early lactation response

Timeline Expectations

Nutrition changes: visible results in 2-4 weeks
Genetic changes: first daughters milking in 3+ years
Spring 2026 breeding decisions will shape your 2029 bulk tank

Questions to Keep Asking

Does my processor have the infrastructure to pay for high-protein milk?
Am I positioned above or below the pool average for components?
What’s my risk tolerance for genetic strategy changes?
Am I tracking the protein-to-fat ratio, or just looking at absolute prices?

The Bottom Line

The dairy industry has navigated plenty of transitions over the decades. What makes this moment noteworthy is the convergence of forces—pharmaceutical, demographic, and economic—pointing in a consistent direction.

I’m not predicting that butterfat will become worthless or that every operation needs to overhaul its breeding program immediately. What I am suggesting is that assumptions many of us have operated under for the past decade deserve fresh examination.

The market is sending signals. Processors are paying premiums for protein that would have seemed unusual five years ago. Consumer demand is shifting in ways that favor nutrient density over volume. Global buyers are seeking protein ingredients, not commodity powder. And American dairy is increasingly positioned as a global protein exporter, not just a domestic commodity producer.

The combined opportunity is real. For a 500-cow herd that optimizes nutrition, adjusts genetic selection, and captures processor premiums—we’re talking $50,000 to $97,500 annually in additional value. That’s not theoretical. It’s math based on current market conditions and achievable improvements.

Producers who take time to understand these dynamics—and thoughtfully evaluate what they mean for their specific operations—are well positioned. Those who assume the old rules still apply may find themselves wondering why neighbors’ milk checks look different.

This isn’t about chasing trends. It’s about recognizing when fundamental market structures are shifting and responding accordingly. For some operations, that response might be modest adjustments. For others, more significant changes might make sense. Either way, understanding what’s actually happening is the essential first step.

That protein-to-fat ratio on your milk check? It’s telling you something.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

The $4.78 Spread: Why Protein Premiums Won’t Last Past 2027 – Gain an immediate competitive edge with a targeted 60-day action plan for capturing surging protein premiums. This breakdown delivers the exact math on amino acid balancing and arms you with a high-impact “Must-Do” list for Monday morning.
Your 0.77 Ratio Is Wrong: The $67,500 Component Fix That Can’t Wait Until 2028 – Reveal the hidden structural flaw in your bulk tank that could be costing you $67,500 annually. This strategic analysis exposes why breeding for butterfat alone is a losing bet and positions your herd for the 2028 processor requirements.
The GLP-1 Gold Rush: Why Dairy Protein is Pharma’s New Best Friend – Step inside the high-stakes worldwhere pharma meets the milk check. This deep dive into functional nutrition reveals how A2A2 and Kappa-Casein genetics are securing exclusive 15% premiums through new multi-billion dollar weight-loss support contracts.

Join the Revolution!

Categories : Dairy Markets

Tags : Breeding Strategy, dairy genetics, dairy profitability, GLP-1 dairy demand, herd management, milk component pricing, milk protein premiums

28p vs. £300 Million: The 2025 Milk Price Gap Nobody’s Explaining

Monday, December 22nd, 2025

Asked Arla and Müller how £300M in expansions aligns with 28p milk. No response. Their annual reports answered anyway: €401M profit, margins tripled.

EXECUTIVE SUMMARY: Lakeland’s November 2025 price of 28.8p per litre—the first below 30p in over a year—means the average farm loses 15p on every litre produced. Processor economics tell a different story: Arla netted €401 million profit, Müller tripled operating margins to £39.6 million, and the sector poured £300 million into new capacity. This pattern extends globally. US lenders expect only half of dairy borrowers to profit this year; Germany loses 6 farms a day; Darigold members describe $4/cwt deductions making cash flow “impossible.” Factor in 2-3p/L in looming environmental compliance costs, and margins compress further still. Farms positioned to navigate this share clearly have the following characteristics: debt below 50% of assets, production costs under 38p, and component or contract strategies that capture value beyond the base price. The global dairy industry is consolidating faster than at any point since 2015. What you decide in the next 90 days shapes whether your operation leads that consolidation or gets swept up in it.

The text came through just after 6 AM on a wet December morning in County Fermanagh. Lakeland Dairies had announced November’s price: 28.8 pence per litre. The Irish Farmers Journal confirmed it was the first time we’d seen prices dip below 30p since November 2023.

For the farmer who shared it with me—180 cows, third-generation operation, silage already put up for winter—the math took about thirty seconds. At 28.8p against his actual production cost of roughly 44p, he’s losing just over 15p on every litre his cows produce. That works out to around £2,500 a month in the red, assuming nothing else goes sideways between now and spring.

“Dairy farming is not sustainable for families at the minute,” is how he put it when we spoke later that week. “They talk about it coming back at the second half of next year—the second half of next year could be December.”

You know what struck me about that conversation? It wasn’t the frustration. Every dairy farmer I’ve talked to lately has plenty of that. It was the clarity. He’d already run his numbers. He knew exactly how many months of working capital he had left, what land he could move if it came to that, and at what price point he’d need to start having some hard conversations about the herd’s future.

That kind of clear-eyed planning is becoming more common across dairy operations worldwide right now. And given where things stand, that’s probably smart.

The 70p Gap: Where Your Milk Money Actually Goes

So let’s dig into what we actually know about where the money flows in late 2024.

The headline numbers tell a pretty stark story. Lakeland’s 28.8p base price for Northern Ireland suppliers is the first time we’ve breached that 30p floor in over a year. Meanwhile, you walk into any Tesco Express or Sainsbury’s Local, and you’re looking at somewhere between £1.00 and £1.50 for a litre of milk.

That’s a gap of 70p to 120p per litre between what we’re getting at the farm gate and what consumers pay at checkout.

Now here’s the thing—and you probably know this already—a good chunk of that gap is completely legitimate. Processing costs real money. So does transport, packaging, refrigeration, retail labour, and the considerable energy costs of keeping those dairy cases cold around the clock. A reasonable industry estimate for post-farm costs is 25-35p, depending on the product and supply chain.

But even accounting for all those real costs, there’s still a meaningful portion—perhaps 40p or more—being captured at various points along the supply chain between the bulk tank and the checkout. Understanding where that value ends up, and why, helps when you’re trying to make sense of your own situation.

Segment	Typical revenue per litre (p/L)	Approximate cost per litre (p/L)	Approximate margin per litre (p/L)
Dairy farm	28.8	44.0	-15.2
Processor	45.0	35.0	10.0
Retailer	110.0	70.0	40.0
Whole chain	110.0	149.0*	–

Here’s what gets interesting when you look at the regional breakdown. According to AHDB data from October 2025, the UK average farmgate price is 46.56p per litre, with Great Britain at 47.99p. Northern Ireland? Just 39.09p—and remember, that’s the average, which includes farms on better contracts. The 28.8p base price we’re talking about sits well below even that regional figure.

I was chatting with a Devon producer last month who put it pretty plainly:

“We’re getting 38p on a standard liquid contract, which isn’t great, but it’s survivable if you’re careful. When I hear what lads in Fermanagh are getting, I honestly wonder how they’re managing it.”

So why such a big difference across regions? Some structural factors help explain it.

The Export Trap: Why Northern Ireland is the Canary in the Coal Mine

Here’s the key thing about Northern Ireland that shapes everything else: roughly 80% of NI milk production—that’s from AHDB’s latest figures—heads straight for export markets. Cheese, butter, powder destined for Europe, Africa, and beyond. That’s a fundamentally different setup from Great Britain, where more milk stays domestic and flows through liquid contracts with the major retailers.

What that export focus means—and this is really the central point—is that pricing works on completely different terms. When you’re selling mozzarella into European food service or milk powder into global commodity markets, you’re competing against New Zealand, Ireland, and every other major exporter out there. Your price gets driven by the Global Dairy Trade index, not by whether Tesco needs to keep shelves stocked.

And there’s a geographic reality that also constrains options. You can’t economically truck raw milk across the Irish Sea to chase a buyer in Liverpool. The collection infrastructure, the processing capacity, the contractual relationships—they’re all concentrated within Northern Ireland. That creates a different competitive environment than what a Cheshire farmer might have with potentially more buyers nearby.

Why does this matter for producers elsewhere? Because what’s happening in Northern Ireland is a preview of what export-dependent regions face globally when commodity markets soften. The same dynamics are playing out in New Zealand right now, where Fonterra is facing pressure on its farmgate milk price forecast amid supply outpacing global demand. Australia’s southern export regions have seen similar pressure on milk prices compared to last season, according to recent Rabobank analysis.

Cyril Orr, the Ulster Farmers’ Union Dairy Chairman, has been pushing hard on the transparency issue through all of this. “As dairy farmers, we are entering a challenging period marked by significant market uncertainty and pressure on farm gate prices,” he said in a December statement. “It is more vital than ever that farmers can place trust in their processors. We need to see greater openness, transparency, and genuine collaboration within milk pools.”

That call for transparency reflects something I’ve heard from producers across the UK, Ireland, and frankly, the US too: there’s a real desire for clearer information about how product values actually translate into what shows up on our milk checks.

The £300 Million Question: What Processor Investments Really Tell Us

Here’s where things get more nuanced—and it’s worth thinking through carefully.

If the dairy sector were struggling across the board, you’d typically expect processors to pull back on capital spending, maybe close some facilities, and issue profit warnings. That’s what we saw during the 2015-2016 downturn, as many of us remember.

But that’s not what’s happening now.

Over the past 18 months, UK and Ireland-based processors have committed nearly £300 million to capacity expansion:

Arla Foods: £179 million for Taw Valley mozzarella capacity, announced July 2024
Müller: £45 million at Skelmersdale for powder and ingredients
Dale Farm: £70 million for the Dunmanbridge cheddar facility in Northern Ireland, plus a major long-term supply deal with Lidl covering 8,000 stores across 22 countries

You don’t commit nearly £300 million to capacity expansion unless you’re confident about future milk availability and market demand. That’s just business sense.

It’s worth looking at the processor financials, too. Arla Foods group-wide posted €401 million in net profit for 2024—up from €380 million the year before—on revenues of €13.8 billion, according to their February annual report. Müller UK, according to The Grocer’s September coverage, nearly tripled its operating profit to £39.6 million after turning a profit again.

What does all this suggest? Well, one way to read it is that while farm-level economics are under real pressure, other parts of the supply chain have found ways to maintain or even improve their positions. Whether that’s a temporary rebalancing or something more structural… honestly, reasonable people can look at these numbers differently. The situation is complex.

I reached out to both Arla and Müller for comment on how their investment plans align with current farmgate pricing. Neither responded. And you know, that silence tells you something too.

A Global Squeeze: This Isn’t Just a UK Problem

Before we go further, it’s worth zooming out—because this margin pressure isn’t unique to the UK. Not by a long shot.

In the US, agricultural lenders now expect only about half of farm borrowers to turn a profit this year. That’s a marked decline from previous expectations. Out in the Pacific Northwest, Darigold—a cooperative serving around 250 member farms across Washington, Oregon, Idaho, and Montana—announced a $ 4-per-hundredweight deduction earlier this year to cover construction cost overruns at its new Pasco facility. As Capital Press reported in May, one farmer bluntly described the situation: “The $4.00 deduct, combined with all the other standard deductions, has made it impossible for us to cash flow.”

The EU picture isn’t any rosier. A December 2024 USDA GAIN report forecast that EU milk production would decline in 2025 due to declining cow numbers, tight dairy farmer margins, and environmental regulations. Germany has been losing over 2,000 dairy farms annually—that’s roughly six operations closing every single day, according to analysis of federal statistics. Poland’s dairy industry profitability is “teetering on the edge,” per a recent Wielkopolska Chamber of Agriculture report. And across Eastern Europe, thousands of farms have exited in recent years amid what industry leaders describe as significant crisis conditions.

The pattern is unmistakable: processors investing, producers struggling, margins getting captured somewhere in between.

What’s interesting is how different regions are responding. And one of the more instructive comparisons—with lessons worth considering—is how Irish farmers handled similar pressure.

When Farmers Fought Back: The Irish Playbook

When Irish processors announced cuts in late 2024, the response was notably coordinated. Over 200 farmers gathered outside Dairygold’s headquarters in Mitchelstown on September 19th—Agriland covered it extensively—and many of them brought printed copies of their milk statements. A broader group eventually mobilised roughly 600 suppliers to raise specific questions about pricing formulas and the calculation of value-added returns.

What made this different was the specificity of it. Rather than general complaints about “unfair prices,” farmers showed up with documented questions: How does the Ornua PPI relate to what’s actually showing up in our milk checks? How are value-added premiums being allocated? What are the real margins on different product categories?

Pat McCormack, the ICMSA President, was pretty direct in his assessment—he suggested processors were using milk prices to absorb volatility that might otherwise hit other parts of the chain. The IFA raised concerns about what continued cuts might mean for production levels.

Within a few weeks, several cooperatives did adjust their pricing. The movement wasn’t dramatic, but it showed that organised, data-driven engagement could influence outcomes.

Here in the UK, the farming unions—NFU, NFU Scotland, NFU Cymru, and UFU—took a different approach, issuing a joint letter calling for “responsible conduct” across the supply chain. Professional and measured.

I’m not saying one approach is inherently better than another—different markets and structures call for different strategies. But the contrast raises some interesting questions about which kinds of engagement actually move the needle. Something to think about.

The Environmental Wildcard: Already on Your Balance Sheet

Here’s a factor that’s reshaping farm economics right now—not someday, but today: environmental regulation. And honestly, it probably deserves more attention than most of us are giving it.

What happened in the Netherlands—where nitrogen limits led to mandatory herd reductions—shows how fast the regulatory picture can shift. Irish farmers have already felt it from nitrate derogation adjustments. Ireland’s water quality issues prompted the EU to reduce the limit to 220kg/ha in some areas starting January 2024, forcing affected farmers to cut stock or find more land.

For UK producers, several things are worth watching:

Water quality pressure: Defra’s getting pushed to address agricultural contributions to river catchment issues. Dairy-heavy areas in the South West and North West could face new requirements as review cycles progress.
Ammonia targets: The Clean Air Strategy includes a UK commitment to cut ammonia emissions by 16% by 2030 compared to 2005—that’s according to official government reporting. Housing and slurry management are big focus areas.
ELMS implications: How dairy operations fit into the Environmental Land Management scheme’s eligibility—and whether future support involves stocking density requirements—are still evolving questions with real implications.

Why does this matter for your cost of production calculation? Because compliance investments aren’t optional anymore—they’re line items. If you’re running your numbers at 44p and not factoring in upcoming environmental requirements, you might be underestimating your true breakeven by 2-3p per litre. That’s the difference between surviving and not in a sub-30p market.

If UK policy moves toward firmer livestock limits, the ripple effects would run right through the supply chain. Processing infrastructure designed for current volumes faces different economics if milk availability shifts through regulation rather than markets.

The Numbers That Actually Matter for Your Operation

If you’re milking cows right now and trying to figure out where you stand, all this industry analysis provides useful context. But your specific numbers are what really matter. Here’s a framework several farm business consultants have been using—not hard rules, but useful reference points:

What to Track	Generally Comfortable	Worth Watching	⚠️ Needs Attention
Debt-to-Asset Ratio	Below 50%	50-60%	Above 60%
Working Capital Runway	12+ months	6-12 months	Under 6 months
True Cost of Production	Under 38p/L	38-42p/L	Above 42p/L
Annual Volume	2M+ litres	1.5-2M litres	Under 1.5M litres

The debt-to-asset calculation you probably know—total liabilities divided by total asset value. What matters about that 60% threshold is that above it, your ability to absorb an extended low-price period gets pretty limited. You might find yourself servicing debt out of equity rather than cash flow, and any softening in land or livestock values creates additional pressure you don’t need.

Working capital runway—current assets minus current liabilities, divided by your monthly cash burn—tells you how long you can keep going if nothing changes. Dairy pricing cycles generally take 6-18 months to shift meaningfully, so shorter runways don’t leave much room to wait things out.

And the cost of production number? That’s where honest self-assessment really matters. Include everything: variable inputs, fixed overhead, family labour at what you’d actually have to pay someone else, full finance charges—and now, factor in those environmental compliance costs we just discussed. If that figure’s above 42p and there’s no clear path to getting it under 38p in the next 90 days… that’s a structural challenge that better markets alone probably won’t fix.

Three Questions Worth Asking Your Processor This Week

What’s the current Ornua PPI or equivalent product return index, and how does my price track against it?
What market factors might support a price adjustment in Q1 2025?
Are there aligned contract opportunities available, and what would I need to qualify?

You might not get detailed answers. But asking demonstrates you’re engaged, and it creates a record of the conversation.

What’s Working for Producers Who’ve Been Here Before

In conversations with farmers who’ve navigated previous cycles, several themes consistently emerge. Here’s what seems to be helping.

On feed costs: “Lock what you can while grain markets are favourable” was something I heard over and over. Feed generally runs over 40% of variable costs for most of us, so it’s one of the bigger levers you can actually pull. Forward contracting through Q2 2025 won’t entirely offset a 15p/litre shortfall, but it removes one variable from the equation. Several farmers mentioned negotiating extended payment terms—60-90 days—in exchange for volume commitments. Worth exploring.

On component strategy: Here’s something that doesn’t get enough attention in these pricing discussions: butterfat and protein premiums can meaningfully offset base price pressure for operations set up to capture them. UK butterfat levels averaged 4.44% in October 2025 according to Defra statistics—but there’s wide variation between herds. First Milk’s Mike Smith noted in their June 2025 announcement that component payments directly affect their manufacturing litre price, with the standard calculated at 4.2% butterfat and 3.4% protein. Farms consistently running above those benchmarks are realizing additional value that doesn’t show in base-price comparisons. If your herd genetics and nutrition programme support higher components, that’s real money—potentially 1-2p/L or more depending on your processor’s payment structure.

On culling decisions: With beef prices relatively strong right now, the math on marginal cows looks different than it might in other years. The general guidance is to look hard at your bottom 15% by productivity—but timing matters too. Cull values tend to be better now than they might be if spring brings a wave of dispersal sales from farms exiting. One Cumbrian producer told me he’d moved 20 cows in November specifically because he expected prices to soften by February. Smart thinking.

On contracts: Farmers with competitive cost structures and solid compliance credentials may benefit from exploring retailer-aligned pools. The premium over standard contracts—typically 2-5p per litre—can add up to £35,000-£90,000 annually on a million-litre operation. Application windows for Q1 usually run in autumn, so timing for 2025 might be tight, but it’s worth a conversation.

And here’s something that doesn’t get talked about enough: farmers on well-structured, aligned contracts often say it’s the stability, not just the premium, that makes the real difference during volatile times. Knowing your price three months out changes how you plan, how you manage cash flow, and, honestly, how those conversations with your bank manager go.

On sharing information: Producer Organisations provide a framework for collective engagement that individual suppliers just don’t have. The Fair Dealing regulations have given these structures more teeth. Several farmers mentioned that even informal setups—WhatsApp groups where neighbours compare milk checks and input costs—have been really valuable for understanding whether their situation reflects broader patterns or something specific. Shared information helps everyone.

Breeding Decisions in a Survival Economy

Here’s something worth thinking through carefully if you’re making genetic decisions right now: the beef-on-dairy question has gotten a lot more complicated.

The numbers tell part of the story. According to AHDB’s December 2025 analysis, dairy beef now makes up 37% of GB prime cattle supply—up from 28% in 2019. Dairy-beef calf registrations increased another 6% in the first half of 2025 compared to the same period in 2024. That’s a significant shift in how our industry contributes to the broader meat supply.

What’s driven it? Pretty straightforward economics, really. When beef-cross calves were bringing strong premiums and replacement heifer values had collapsed to around £1,200 back in 2019, the maths pushed many operations toward more beef semen at the bottom end of the herd. Made perfect sense at the time.

But here’s what’s changed: replacement heifer economics have flipped dramatically. In the US, USDA data shows replacement dairy heifer prices jumped 69% year-over-year in Wisconsin—from $1,990 to $2,850 by October 2024. CoBank’s August 2025 analysis reported prices reaching $3,010 per head nationally, with top heifers in California and Minnesota auctions fetching over $4,000. That’s a 164% increase from the 2019 lows.

The UK hasn’t seen quite the same spike, but the trend is similar: quality replacement heifers are getting harder to source and more expensive when you find them.

So what does this mean for breeding decisions right now? A few things worth considering:

Genomic testing economics have shifted. When heifers were cheap, testing your youngstock and culling aggressively on genomics felt like a luxury. Now, with replacement costs significantly higher, knowing which animals are worth developing and which should go to beef makes real financial sense.
The fertility-longevity trade-off matters more. Every open cow or early cull represents a replacement purchase in a tight heifer market. Genetic selection for fertility and productive life has direct cash flow implications that weren’t as acute three years ago.
Component genetics intersect with pricing strategy. If your processor pays meaningful butterfat and protein premiums, breeding decisions that move those numbers aren’t just about future herd composition—they’re about capturing more value from the milk you’re already producing.

I’m not suggesting everyone should immediately pivot away from beef-on-dairy—the calf values are still there, and for many operations the economics still work. But the calculation has changed enough that it’s worth running the numbers fresh rather than assuming what worked in 2021 still makes sense in 2025.

The Bottom Line: Consolidation is Coming—Position Yourself Now

Let me be direct about what I see happening.

The UK dairy industry isn’t just going through a temporary rough patch. It’s consolidating. The combination of margin pressure, environmental compliance costs, and processor investment patterns all point in the same direction: fewer, larger operations capturing a greater share of production. USDA data shows more than 1,400 US dairy farms closed in 2024—that’s 5% of all operations in a single year. Germany is losing over 2,000 dairy farms annually. The Andersons Outlook report projects GB dairy producers could fall to between 5,000 and 6,000 within the next two years, down from 7,130 in April 2024. The pattern is global, and it’s accelerating.

That’s neither good nor bad—it’s just reality. The question is whether you’re positioned to be one of the operations that emerges stronger, or whether the current squeeze catches you unprepared.

The farms that will thrive through this cycle share some common characteristics: debt loads below 50%, production costs under 38p, component levels capturing premium payments, breeding programmes balancing replacement needs against beef income, and the willingness to explore non-traditional arrangements—whether that’s aligned contracts, on-farm processing, or strategic partnerships.

The current environment is genuinely challenging, but it’s not the same for everyone. Some farms will work through this and find opportunities on the other side. Others face situations where operational improvements alone may not be enough.

Figuring out which category your operation falls into is the essential first step. Run your numbers honestly. Have proactive conversations with your lender—before they’re calling you. Think through the full range of options, including the possibility of stepping away with equity intact rather than waiting until choices narrow.

If it’s been more than a couple of months since you’ve really dug into your financial position, this might be a good week for that work. The decisions made now—with complete information and realistic expectations—are usually the ones that still look sound eighteen months down the road, whatever direction ends up making sense for your situation.

The processors are betting on continued milk availability. The question is: at what price, and from whom?

KEY TAKEAWAYS

You’re Losing 15p on Every Litre: 28.8p farmgate vs. 44p production cost = £2,500/month loss for average herds. First sub-30p price in over a year.
Processors Are Expanding While Farms Contract: €401M Arla profit. Müller margins tripled to £39.6M. £300M in new capacity committed. The pain isn’t distributed equally.
This Is Global Restructuring, Not a Local Dip: Half of US dairy borrowers expected to be unprofitable in 2025. Germany loses six farms daily. Same pattern, different currencies.
Your True Breakeven Is 2-3p/L Higher: Environmental compliance—ammonia targets, water-quality regs—is now a line item. Update your numbers before your lender does.
The 90-Day Survival Test: Debt below 50%? Costs under 38p/L? Strategy capturing value beyond base price? Farms passing all three will shape the consolidation. The rest will be shaped by it.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

Squeezed Out? A 12-Month Decision Guide for 300-1,000 Cow Dairies – Arms you with a month-by-month survival roadmap to combat shrinking margins. You’ll gain specific ROI benchmarks for robotic transitions and labor-saving tech, allowing you to stop the equity bleed and stabilize cash flow before spring arrives.
2025’s $21 Milk Reality: The 18-Month Window to Transform Your Dairy Before Consolidation Decides for You – Exposes the structural shifts reshaping the global dairy landscape. It delivers a blueprint for restructuring your operation into a high-leverage business model, ensuring you emerge as a leader in the inevitable consolidation wave hitting the industry by 2030.
Sensor-Based Milking Speed: CDCB’s Game-Changing Trait Set for August Release – Reveals a breakthrough in genetic selection that directly cuts parlor labor costs. By selecting for sensor-derived milking speed, you gain a massive competitive advantage, optimizing throughput and slashing hours without adding a single extra cow to the herd.

Join the Revolution!

Categories : Dairy Markets

Tags : cost of production, dairy markets, dairy profitability, farmgate milk prices, milk price gap, supply chain transparency

The 90-Day Reckoning: What Your Milk Check Is Really Saying About 2026

Monday, December 22nd, 2025

The math doesn’t care about sentiment. At $15.62 milk and $18.75 costs, a 550-cow dairy burns $36,350/month. What’s your number?

EXECUTIVE SUMMARY: At $15.62 Class III milk and $18.75 all-in costs, a 550-cow dairy burns $36,350 every month—and the math doesn’t care about sentiment. Heifer inventories have hit a 47-year low. Nine consecutive GDT auctions have declined. Over $11 billion in new processing capacity is coming online while farms contract. This isn’t a cycle; it’s a structural reset. For producers with costs in the $17-19 range and limited liquidity, the window to preserve family equity through a controlled transition is roughly 90 days. The frameworks are here—true cost of production, liquidity runway, decision pathways—because knowing your real numbers is the difference between making decisions and having them made for you.

You know how it goes this time of year. You’re wrapping up evening chores, maybe checking futures on your phone while the parlor finishes up, and the numbers just don’t add up the way you need them to.

Class III contracts for early 2026 have been trading in the mid-teens on the CME—January 2026 recently settled around $15.62—and for a lot of operations, that’s a couple of dollars or more below what’s needed to cover everything. Not just feed and labor. Everything. The mortgage, the equipment note, and family living expenses.

Here’s what makes this moment unusual, though. Feed costs have actually come down. Corn’s running around $4.40-4.45 a bushel on the Chicago Board of Trade as of mid-December. Soybean meal’s around $300-320 a ton—well below where it was a couple of years back. Butter inventories look manageable. Domestic cheese demand is holding steady.

So why does the math still feel so difficult?

After spending the past few weeks going through the data—conversations with economists, reports from CoBank and the extension services, watching the Global Dairy Trade auctions—I’ve come to believe that what we’re looking at in early 2026 isn’t just another down cycle. Global supply growth, shifting export dynamics, and significant new processing capacity all arriving at once… these conditions seem likely to reshape dairy’s structure over the next several years.

This isn’t about waiting for prices to recover. It’s about understanding where your operation actually stands—and thinking through your options while they’re still open.

The Numbers Nobody Wants to See

The Global Dairy Trade auctions have been tough to watch lately. The December 16th event marked the ninth consecutive decline, with the index dropping 4.4% according to GDT Event 394 results. The auction before that fell 4.3%. Whole milk powder values have softened enough to create real headwinds for exporters trying to move product internationally.

On the domestic side, butter’s been trading in the mid-$2 range per pound, down from earlier this fall. Block cheese has settled into the mid-$1.60s after pushing toward $1.90 in October, based on CME spot market data. Not terrible, but not where most of us need it to be either.

What’s worth noting—and this is something that’s frustrated a lot of folks—is what’s happening with Dairy Margin Coverage. The program triggered a solid payment in January 2024 when margins dipped below $9.50, according to USDA Farm Service Agency records. Since then? With feed costs lower than they were, the formula shows margins that look healthy on paper, even when your cash flow is telling a very different story.

Danny Munch, an economist at the American Farm Bureau Federation, has spoken to this dynamic. When corn and soybean meal prices drop, the DMC calculation can paint a rosier picture than what many farms are actually experiencing. The safety net’s still there, but the way the formula works means it doesn’t always deploy when you’d expect it to.

💰 THE MATH THAT MATTERS

What margin pressure actually looks like per cow:

At $18.75 all-in cost and $15.50 Class III milk:

$3.25/cwt margin loss
Average U.S. cow produces ~24,375 lbs/year (that’s from USDA’s December 2025 Economic Research Service forecast)
That works out to 244 cwt × $3.25 = $793/cow/year loss

For a 550-cow dairy:

$436,150 annual margin shortfall
$36,350/month cash burn from milk margin alone

And that’s before you add debt service, family living, and depreciation. You can see why liquidity evaporates faster than most folks expect.

The Heifer Trap

Those of us who’ve been through 2009, 2015-16, and 2018 know what price cycles look like. We’ve navigated them before. But a few things are converging now that really do set this period apart.

The replacement pipeline is running dry. USDA’s cattle inventory data from January 2025 showed dairy replacement heifers over 500 pounds at around 3.9 million head—the lowest since 1978, according to the National Agricultural Statistics Service. That’s a 47-year low. Let that sink in for a moment.

How did we get here? Well, you probably know, because you may have made some of the same decisions I’ve seen across the industry. When beef-on-dairy started penciling out so well, a lot of operations shifted their breeding programs. NAAB data shows beef semen use on dairy operations climbed substantially over the past decade. It made economic sense at the time—those crossbred calves brought good money, and they still do. But it means fewer heifers in the replacement pipeline, and that’s not something that corrects quickly.

CoBank’s August 2025 Knowledge Exchange report projected that heifer inventories will likely tighten further before any meaningful recovery, probably not until 2027 at the earliest. Biology takes time. You can’t speed up gestation.

Export markets have shifted underneath us. China has been building domestic production capacity for years now. USDA Foreign Agricultural Service and OECD-FAO analyses show they’re meeting most of their dairy needs internally these days internally, with imports focused more on specific ingredients than on bulk commodities. That’s a structural change, not a temporary dip.

Several Southeast Asian markets—Indonesia, Vietnam, the Philippines—have also pulled back from where they were a few years ago, according to USDA’s Dairy: World Markets and Trade reports. There’s still an opportunity there, but competition has intensified considerably.

Processing is expanding while farms contract. According to IDFA data released in October 2025, more than $11 billion in new and expanded dairy processing projects are underway across 19 states, with over 50 facilities scheduled to come online between 2025 and early 2028. That represents significant demand for raw milk—but also creates some interesting pressure on the supply side.

This creates a tension that’s worth watching closely. Processors built capacity expecting continued production growth. The heifer shortage complicates that considerably. And margin pressure is affecting decisions across the board. Everyone in the supply chain is working through the same challenges simultaneously.

Editor’s note: We’re working on a follow-up piece—”What Your Milk Buyer Wants You to Know About 2026″—examining how processors are managing supplier relationships during this consolidation period. If you’re a processor willing to share perspective, reach out to us at info@thebullvine.com.

Know Your Real Numbers

I’ve been talking with financial consultants and extension specialists about what metrics matter most right now. Every operation is different—different debt structures, different facilities, different family circumstances—but a few numbers keep coming up in those conversations.

Your Actual Cost of Production

This is probably the most important number you can know. It’s also the one most commonly underestimated.

A farm financial analyst who works with Midwest dairies shared something that stuck with me: most producers he sits down with think they know their cost of production, but once they work through everything carefully, they often find they’re $1.50 to $3.00 higher than they thought. That’s a significant gap when margins are already tight.

A complete picture typically includes:

Cash operating costs—feed, fuel, labor, utilities, supplies. For most operations, that’s somewhere in the $10.50-12.50 per hundredweight range, according to Penn State Extension dairy breakeven analyses.
Debt service—equipment payments, real estate, operating lines. That can add another $3-5 per hundredweight depending on your situation.
Family living—what you actually draw, not what you budgeted. Another $1.50-2.50. And be honest here.
Depreciation—what it really costs to maintain and replace equipment and facilities over time. Perhaps $1-2 more.

When you add everything up, many mid-sized operations are running $17.50 to $21.50 per hundredweight all-in. The Penn State Extension dairy breakeven tools, the Wisconsin Center for Dairy Profitability benchmarking data (which compares over 500 farms annually), and the University of Minnesota extension work all show similar ranges.

Regional pricing differences matter here, too. Your mailbox price depends heavily on where you’re located and your Federal Order. California’s quota system creates dynamics different from those in FMMO regions. Upper Midwest producers in Order 30 generally benefit from proximity to processing—Wisconsin’s weighted average hauling charge runs around 47 cents per hundredweight, according to Federal Order 30 market administrator data from May 2025.

Cost Scenario (all‑in)	Margin per cwt (USD)	Margin per cow per year (USD)	550‑cow farm margin per year (USD)	Monthly cash flow (USD)
$17.00/cwt	-1.00	-244	-134,200	-11,183
$18.50/cwt	-2.50	-610	-335,500	-27,958
$20.00/cwt	-4.00	-976	-536,800	-44,733

But if you’re in the Northeast under Order 1 or the Southeast under Order 7, you’re facing different math entirely. The June 2025 FMMO reforms increased Class I differentials specifically to reflect the higher cost of servicing fluid markets in those regions—the Southeast saw the largest increase nationally at $1.74 per hundredweight on average, according to USDA analysis. Recently passed intraorder transportation credits are helping offset some of those long-haul costs for Southeast producers, according to Progressive Dairy’s 2025 State of Dairy report. Still, when you’re calculating your margins, make sure you’re using your actual milk check, not a national average.

If your true cost is north of $18 and milk’s in the mid-teens, the gap becomes challenging to manage for very long. You know this already. The question is what to do about it.

The Runway Calculation

This next calculation can be uncomfortable, but it’s genuinely important.

📊 YOUR LIQUIDITY RUNWAY

The Formula: (Available Cash + Remaining Operating Credit) ÷ Monthly Loss at Current Prices = Months of Runway

What It Means:

6+ months: Time to evaluate options strategically
3-6 months: Decisions needed in next 30-60 days
Under 3 months: Urgent situation requiring immediate action

Example: $87,000 cash + $140,000 credit line = $227,000 total liquidity At $21,000 monthly loss = 10.8 weeks of runway

Farm finance advisors tell me that many mid-sized operations—the ones in that $18-19 breakeven range—have roughly 3-4 months of liquidity right now. Factor in what’s already been drawn during Q4, and some folks are looking at eight to twelve weeks before things get genuinely difficult.

Can Growth Change the Equation?

Some producers are thinking: if I could get bigger, spread fixed costs over more milk, maybe I could bring my per-hundredweight costs down enough to make this work.

Sometimes that does pencil out. Often it doesn’t.

Here’s one way to think about it: take the investment required—new parlor, additional cows, facility improvements—and divide it by the capital you can realistically access. If that ratio gets much above 2.0, the new debt service often consumes the efficiency gains. I’ve seen operations attempt to grow their way out of margin pressure and find themselves worse off because interest payments exceeded the cost savings they achieved.

What About Premium Markets?

Organic, grass-based, A2—there are genuine opportunities in specialty markets. Premiums in the $22-28 range exist for the right product in the right market.

But transitions require time and capital. Organic certification is a three-year process under the USDA National Organic Program rules. That’s three years of meeting the requirements without receiving the premium. If your liquidity runway is 12 months, that timeline just doesn’t work, regardless of the long-term potential.

One Family’s Experience

Let me share what this analysis looks like in practice. I spoke with a 550-cow dairy in east-central Wisconsin a few weeks ago. The family asked me not to use their names, but they were willing to walk through their numbers openly.

When they sat down in early December to really nail down their cost of production, they initially thought they were at about $17.25. That’s the figure they’d been carrying in their heads. But once they included the equipment loan from their 2021 parlor renovation, actual family health insurance costs, and what they’d really been drawing for living expenses—not the budget, but actual spending—they landed at $18.75.

Their available cash was $87,000. Operating line had about $140,000 remaining. Total liquidity: $227,000.

At current milk prices, their monthly cash burn worked out to roughly $21,000. That gave them about 11 weeks.

“Eleven weeks sounds like almost three months until you realize one of those months is already half gone. We thought we had until spring to figure this out. Turns out we had until mid-February.”

— Wisconsin dairy producer, 550 cows

They’re now working with their lender on an orderly timeline. Not the outcome anyone hoped for. But better to understand the situation in December than to discover it in April when options have narrowed considerably.

Three Paths Forward

Based on where your numbers fall, you’re likely looking at one of three general situations. And I want to be clear about something—these aren’t judgments about management ability. Cost structures reflect decisions made over decades, regional differences, facility age, land costs, and interest rates at the time of financing. This is simply about matching current circumstances to realistic options.

📅 CALENDAR OF NO RETURN: Key Decision Windows

If you’re considering a controlled transition, timing affects value significantly:

Date	Decision Point	Why It Matters
Jan 15, 2026	Final date to list heifer calves for late-winter sales	Heifer calf values typically are strongest before the spring flush; Dairy Herd Management reported Holstein springers hitting $3,500-$4,550 and beef-cross calves commanding $1,200-$1,650 at fall 2025 auctions
Feb 1, 2026	Lender conversation deadline for Q1 action	Banks close Q1 books in March; flexibility drops significantly after February conversations
Feb 15, 2026	Last reasonable date for Q1 controlled exit planning	Allows 6-8 weeks for orderly herd dispersal before the spring flush depresses values
March 15, 2026	Point of no return for spring timing	After this date, you’re competing with spring flush volumes; asset values typically soften as supply increases

These windows assume a controlled transition. Crisis liquidations follow different, more compressed timelines.

Situation	Key Indicators	Primary Focus
Well-Positioned	Costs under $17/cwt, 6+ months liquidity, solid debt coverage	Strategic positioning for the consolidation period
Middle Ground	Costs $17-19/cwt, 3-6 months liquidity, tight but manageable debt	Evaluate controlled transition within 90 days
Immediate Pressure	Costs above $19/cwt, under 3 months liquidity, debt coverage below 1.0	Proactive restructuring or professional consultation

The Strong Position Play

All-in costs under $17, 6+ months of liquidity, solid debt coverage, and a good lender relationship.

This describes a minority of operations currently—more common among larger Western dairies with scale efficiencies and some newer Midwest facilities with recent upgrades. If this is your situation, you have the runway to work through the consolidation period ahead.

What tends to make sense here: lock in feed costs while they’re favorable. Ensure your Dairy Revenue Protection coverage is in place for 2026. Have substantive conversations with your milk buyer about 2026-27 arrangements. If heifer availability improves through processor partnerships—and CoBank reports some buyers are offering co-financing to maintain key supplier relationships—you may be positioned to grow at reasonable terms.

The key discipline is avoiding overextension. The operations that emerged strongest from 2015-16 were often those that stayed conservative even when they had the capacity to expand. There’s wisdom in that.

The 90-Day Window

Costs in that $17-19 range, three to six months of liquidity, and debt coverage that’s manageable but tight.

Many farms fall into this category—probably the largest group, honestly. For this group, the window for a controlled transition that preserves meaningful equity is roughly 90 days.

Financial advisors who work with dairy operations consistently report that farms executing planned transitions early in a downturn preserve significantly more equity than those who wait until circumstances force their hand. The Wisconsin Center for Dairy Profitability has tracked these patterns through multiple price cycles.

Timing matters because asset values—particularly herd values—typically soften when many farms are selling simultaneously. Operations moving in March or April will likely realize stronger prices than those waiting until May or June if exit activity accelerates as some expect. Dairy Herd Management’s fall 2025 auction reports showed Holstein springers commanding $3,500-$4,550 per head and beef-cross calves bringing $1,200-$1,650—but these premiums depend on moving before the market gets crowded.

What does a controlled transition look like? Liquidate heifer calves first while prices remain firm. Market cull cows and productive animals over six to eight weeks rather than all at once. Apply proceeds strategically to debt, prioritizing real estate obligations. Communicate openly with your lender throughout.

I spoke with a regional agricultural lending officer in the Upper Midwest who’s worked with dairy borrowers for over 20 years. His perspective: “We’d much rather work with a producer on an orderly plan than deal with a surprise. When someone comes to us early and says, ‘Here’s what I’m seeing in my numbers, here’s what I’m thinking,’ we can usually find more flexibility than if they wait until they’ve missed payments and we’re both in a corner.”

An operation with $6 million in assets and $4.5 million in debt can potentially preserve $1 million or more in family equity through well-timed management. That’s meaningful capital for whatever comes next—whether that’s a different agricultural venture, off-farm investment, or retirement.

When Restructuring Is the Reality

Costs above $19, less than three months of liquidity, and debt coverage below 1.0.

A growing number of farms find themselves here. For this group, the question isn’t whether restructuring happens—it’s whether you’re making the call or someone else is.

Chapter 12 bankruptcy was designed specifically for family farm operations under the Bankruptcy Abuse Prevention and Consumer Protection Act. It provides court protection for three to five years. Lenders can’t foreclose during that period, and debt typically gets reduced by 30-50%.

An agricultural bankruptcy attorney in Iowa who handles dairy cases offered this perspective: file proactively rather than waiting for your lender to accelerate the note. Farmers who seek advice before they’re in full crisis tend to have better outcomes than those who wait until foreclosure is imminent.

The honest reality with Chapter 12: it works when restructured debt levels actually allow the operation to generate positive cash flow going forward. For situations where even halving the debt wouldn’t create sustainable margins at current milk prices, restructuring may delay the outcome rather than change it. That’s a hard truth, but it’s worth considering carefully.

Hard-Won Wisdom

I reached out to several producers who navigated the 2015-16 downturn to ask what they learned from it. Their perspectives are worth hearing.

A 400-cow producer in upstate New York—he asked to remain anonymous—emphasized the lender relationship: “Your banker isn’t working against you. They don’t want to foreclose—that’s a loss for them too. But they need to know what’s happening. The worst thing you can do is go quiet and let them be surprised.”

A manager at a 2,200-cow operation in California’s San Joaquin Valley offered additional perspective. Scale doesn’t eliminate these challenges, he noted—it changes the arithmetic. “We have more runway because of volume, but we also have more at stake. The weight of these decisions feels the same.”

Several people I spoke with mentioned the difficulty of separating emotional attachment from financial analysis. These are multi-generational operations. Family history, land that’s been worked for decades, identity tied to being a dairy farmer—that’s all profoundly real. But financial calculations don’t account for sentiment. And the operations that survive to transition to the next generation potentially require decisions grounded in numbers.

Where to Find Help

If you’re working through these calculations and want assistance, the land-grant universities offer genuinely valuable tools:

Penn State Extension provides a dairy breakeven cost worksheet that walks through the analysis in detail, available at extension.psu.edu.

The Wisconsin Center for Dairy Profitability has benchmarking tools that compare your numbers against more than 500 farms, accessible through the UW-Madison Division of Extension.

University of Minnesota Extension offers financial planning worksheets through their farm management program.

Your local extension dairy specialist can often sit down with you and work through the numbers—that’s exactly what they’re there to help with. Don’t hesitate to reach out.

For DMC specifically, the USDA Farm Service Agency maintains a decision tool on their website at fsa.usda.gov.

Five Questions to Answer This Week

If you take nothing else from this piece, sit down sometime in the next few days and work through these:

What’s your true all-in cost of production? Not the number you’ve been carrying in your head. The real figure, including debt service, family living, and depreciation.
What’s your actual liquidity runway at current prices? Cash on hand plus remaining credit, divided by monthly losses. Be honest about what you find.
What would need to change for your operation to cash flow at $16 milk? Is that achievable, or would it require changes that aren’t realistic?
When did you last have a substantive conversation with your lender about your financial position? If it’s been more than 90 days, that conversation is overdue.
What does your best realistic outcome look like two years from now? Not the hopeful scenario—the one you’d actually bet money on.

The Road Ahead

If your position is strong, use this time wisely—secure favorable feed costs, strengthen processor relationships, and maintain discipline on growth decisions.

If you’re in that middle ground, recognize that the window for preserving equity through a managed transition is perhaps 90 days. Earlier timing—March or April—will likely yield better outcomes than waiting until mid-summer.

If you’re facing immediate pressure, consult with professionals now, before you’re in crisis. Outcomes improve significantly when decisions are proactive rather than reactive.

The Bottom Line

The dairy industry that emerges from 2026-27 will look different from what we see today. More consolidated. Different economics of scale. That’s a difficult reality to acknowledge—these are real families, real communities, real legacies at stake.

But the market data is clear. The frameworks for decision-making are available. What remains is the hard part: making choices based on numbers rather than hope, and making them while options remain.

The producers I’ve come to respect most aren’t those who never faced difficult decisions. They’re the ones who faced them honestly, made the best choice available with the information they had, and found a way forward.

Whatever path makes sense for your operation, the most challenging choice may be making no choice at all.

KEY TAKEAWAYS

Run your numbers this week: At $15.62 Class III and $18.75 all-in costs, a 550-cow dairy loses $793/cow/year—that’s $36,350 in monthly cash burn.
Recognize this for what it is: Heifer inventories at a 47-year low, nine consecutive GDT declines, $11B in new processing capacity arriving. This isn’t a down cycle. It’s a structural reset.
Calculate your true cost of production: Include debt service, actual family draw, and depreciation. Most producers discover they’re $1.50-$3.00/cwt higher than the number they’ve been carrying.
Know your liquidity runway: (Cash + remaining credit) ÷ monthly loss at current prices = months until decisions get made for you.
Act while options remain: For operations in the $17-19 cost range with limited liquidity, the window to preserve family equity through a controlled transition is roughly 90 days. March moves beat June moves.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

The 90-Day Dairy Pivot: Converting Beef Windfalls into Next Year’s Survival – Arms you with a tactical toolkit to stack $266 per cow in immediate returns. This breakdown reveals how leveraging beef-on-dairy premiums and component bonuses can generate critical cash flow to bridge the 2026 gap.
2800 Dairy Farms Will Close This Year—Here’s the 3-Path Survival Guide for the Rest – Exposes the structural bifurcation of the industry and delivers a clear roadmap for the next 18 months. You’ll gain the strategy to choose between premium differentiation or mega-scale efficiency before market forces decide for you.
From -43% to +0.8%: The Genetic Shift Powering Dairy’s First Fluid Milk Growth Since 2009 – Reveals how the “fairlife model” is repricing every cow in your barn. Learn why the 15-year decline in fluid milk is over and how A2 and high-fat genetics can capture premiums that volume-only herds will never see.

Join the Revolution!

Categories : Dairy Markets

Tags : Class III futures, dairy farm liquidity, dairy markets, farm exit strategy, milk production costs, risk management

Why Camel Dairy Gets $35/Liter, and You’re Stuck at Blend Price

Saturday, December 20th, 2025

His camels make 6 liters/day at $35 each. Your Holsteins make 50 liters/day at blend price. You’re outproducing him 8-to-1. He’s out-earning you. Why?

Executive Summary: You outproduce camel dairies 8-to-1. They out-earn you. That’s not genetics—it’s market structure. Three walls lock conventional dairy into commodity pricing: FMMO pooling eliminates farm-level quality premiums, processor contracts surrender your pricing power, and debt loads punish transition attempts. But walls can be climbed. UW-Madison, Iowa State, and Virginia Tech research reveals specific paths: validate customers before capital investment, test demand through co-packing, and choose positioning that competitors can’t easily copy. What follows covers the economics, the barriers, and the practical playbook—plus one question mid-size operations can’t ignore. Can you survive on efficiency gains alone when mega-dairies have scale and niche players have margins you’ll never touch?

When Sam Hostetler got a phone call from a doctor asking if he could supply camel milk for patients with digestive issues, he didn’t see dollar signs. He saw a problem he could solve.

Hostetler had spent four decades working with exotic animals at his operation in Miller, Missouri. Camels weren’t new to him. But milking them commercially? Different story.

“Twelve years ago, I was contacted by a doctor to see if I would consider milking camels,” Hostetler shared in a recent interview. “I said, ‘Milking a camel? I didn’t know they milked camels in this country.’ Then she said, ‘They don’t, but I need milk for a patient.’ To which I replied, ‘Well, I’ve been known to do some crazy things. One more won’t hurt me.'”

That conversation launched Humpback Dairy—now home to about 200 camels, including roughly 100 breeding-age females.

Camel dairies generate roughly ten times more daily revenue per animal than Holstein herds despite producing a tiny fraction of the milk. This visual makes it painfully clear that genetics and feed efficiency aren’t the problem—pricing power and market structure are. For family‑scale dairies, it reframes strategy away from “more liters” toward “better positioned liters” that actually move the milk check.

Here’s the number that should get your attention: Hostetler sells milk at around $26 per liter. Meanwhile, conventional dairy farmers—managing far more animals with far more infrastructure—fight for margins at $19-21 per hundredweight.

THE BOTTOM LINE: The U.S. camel dairy market hit $1.37 billion in 2024 and is projected to reach $3.16 billion by 2034, according to Research and Markets. But this isn’t about competition. It’s about understanding where premium value goes—and why you can’t access it.

Let’s Talk Scale First

Camel dairy is tiny. We’re talking 3,000-5,000 camels across the entire country. According to CBS4, Camelot Camel Dairy in Wray, Colorado, is one of only two fully licensed camel dairies in the United States.

Compare that to 9.35 million dairy cows tracked by USDA NASS for 2024.

Production per animal? Not even close. Camels produce 1-6 liters daily according to FAO research. Your Holsteins? 30-40 liters daily for typical operations, with top herds pushing 50+ liters in well-managed TMR systems.

So why does this matter?

The Price Gap Is Staggering

Camel milk: $25-35 per liter retail. Desert Farms charges $35 per liter, according to SkyQuest market research.
Your milk: $4.39 per gallon average in 2024, per USDA AMS data. That’s regional variation from $3.29 in Louisville to $5.92 in Kansas City.
The margin story: Camel operators report 40-60% gross margins. Conventional dairy? 15-25% based on USDA ERS cost-of-production tracking.

A Wisconsin producer told me last month: “It’s not that I want to milk camels. But when I see someone getting $35 a liter, and I’m getting paid commodity price for milk that took three generations of genetic work to produce… you start asking questions.”

He’s asking the right questions.

Model	Milk price received (USD/cwt)	Net margin per cwt (USD)	Net margin per cow per year (USD)
Commodity Holstein herd	20.0	3.0	900
Premium-positioned Holstein	26.0	7.0	2,100
Difference (premium – comm.)	6.0	4.0	1,200
% Advantage of premium herd	+30%	+133%	+133%

KEY INSIGHT: The gap isn’t about production. Holstein genetics have never been better. The gap is about market positioning and who captures the margin between your farm gate and the consumer’s refrigerator.

Product	Farm value (USD)	Processing/packaging (USD)	Marketing/DTC operations (USD)	Distribution/retail profit (USD)	Total retail price (USD)
Holstein milk – 1 gallon	1.00	1.10	0	2.30	4.40
Camel milk – 1 liter	14.00	7.00	6.00	8.00	35.00

This Isn’t Disruption. It’s Segmentation.

When investors see camel dairy’s growth, they think tech-style disruption. New thing kills old thing.

That’s not what’s happening here.

Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin-Madison, has studied dairy markets for over two decades. The distinction he draws matters: disruption makes the old model obsolete. Segmentation splits the market into different value tiers.

Camel dairy isn’t replacing anything. Even at $3.16 billion by 2034, it’s a rounding error on total dairy volume.

What it IS doing: capturing margin-rich slices of the market that conventional dairy structurally abandoned.

Premium Segments Punch Above Their Weight

Look at how premium dairy has evolved:

Organic: ~7% of fluid milk volume (RaboResearch), commanding 25-30% premiums
A2 genetics: 2-3% of volume, 50-100% premiums (a2 Milk Company data)
Grass-fed: 1-2% of volume, premiums often exceeding 100% (American Grassfed Association)
Specialty products: Under 1% of volume, 300-1000%+ premiums

Conventional dairy controls most of the volume but captures a shrinking share of total market value.

That gap? It’s billions in premium revenue that most of us can’t touch.

Why You Can’t Access Those Premiums

Here’s where it gets uncomfortable.

What actually stops a well-managed operation with excellent genetics and superior milk quality from capturing premium prices?

I’ve talked to producers who tried. I’ve reviewed extension research on premium transitions. The barriers aren’t operational. They’re structural.

Structural barrier	Premium blocked (USD/cwt)
FMMO pooling	2.0
Exclusive processor contracts	2.0
High leverage/debt load	1.5

A California producer put it bluntly: “My SCC runs under 80,000, my butterfat is consistently above 4.2%, and my protein is top-tier for the region. But I get paid the same blend price as everyone else in the pool.”

Let’s break down the three walls standing between you and premium margins.

Wall #1: The Pooling System

Under the Federal Milk Marketing Order system, your milk is pooled with other milk in regional pools. Prices get set by commodity markets—cheese, butter, and powder trading on the CME.

Everyone in the pool gets essentially the same blend price. Your superior milk—better components, cleaner production, stronger genetics—earns the same per hundredweight as lower-quality milk.

The system was designed to stabilize prices. It’s done that. But the tradeoff? It eliminates individual quality premiums at the farm level.

Yes, component premiums exist for butterfat and protein. Upper Midwest operations have benefited. But there’s no mechanism to capture extra value for A2/A2 genetics, exceptional SCC, or other differentiators.

The processor captures brand premium. You get blend price.

REALITY CHECK: The FMMO system isn’t broken—it’s working exactly as designed. The question is whether that design serves your operation’s future.

Wall #2: Contract Lock-In

Over 90% of conventional operations work under exclusive supply contracts with processors. These provide real benefits: guaranteed market access, predictable pickups, and reduced marketing burden.

Tom Kriegl, who spent years as a farm financial analyst at the University of Wisconsin Extension’s Center for Dairy Profitability, has written extensively about these economics. The tradeoff is clear: you gain stability but surrender pricing flexibility.

Processors aren’t villains here—they face their own margin pressure from retailers and foodservice. But the structure concentrates pricing power away from farms.

Wall #3: Your Debt Load

This is the one nobody talks about enough.

A typical 500-cow dairy carries $3-4 million in debt, based on USDA ERS data. That debt is collateralized against assets and depends on consistent cash flow from commodity milk sales.

Want to transition to premium positioning? You’ll need capital for processing, branding, and marketing infrastructure. You’ll face production disruptions. Revenue won’t stabilize for 12-24 months.

David Kohl, Professor Emeritus of Agricultural Finance at Virginia Tech, has studied this for decades. The dynamic he describes: lenders want stable, predictable revenue. Transition uncertainty makes them nervous.

A Northeast producer told me about approaching his lender: “They said they’d need 18 months of premium sales revenue before restructuring our terms. But I couldn’t build that history without capital to get started.”

Classic chicken-and-egg. And it keeps a lot of good farmers locked into commodity production.

“The farms in the middle are getting squeezed from both ends. Very large operations have scale economics that mid-size farms can’t match. Premium niche operations have margins that commodity production can’t touch.”

— Mark Stephenson, UW-Madison

What Actually Works for Premium Positioning

Not everyone should chase premium markets. But if you’re considering it, here’s what the research shows about operations that succeed.

Get This Backwards, and You’ll Fail

Most farms considering premium positioning do it this way:

Decide to transition
Invest in infrastructure
Convert production
Search for buyers

That’s backwards.

Larry Tranel, dairy field specialist at Iowa State University Extension, has watched this play out with dozens of farms. The operations that succeed flip the sequence:

Identify customers
Validate willingness to pay
Secure commitments
THEN invest in production changes

Research in the Journal of Dairy Science found the same pattern. Farms with existing customer relationships experienced minimal disruption during organic conversion. Farms that converted first and sought markets later? Profitability problems that lasted years.

THE RULE: If you can’t get 30-50 people to put down deposits before you spend anything on infrastructure, you don’t have a market. Better to learn that early.

Why Camel Dairy Has Natural Protection

When someone pays $35/liter for camel milk, they’re not comparing it to your milk price. They’re asking if this specific product meets their specific needs.

The scarcity of camels—13-month gestation periods, two-year calving intervals, limited U.S. population, only a handful of licensed dairies—creates natural barriers to competition.

Compare that to A2 positioning. Any farm can test genetics and claim A2 certification. As more enter, premiums compress.

Durable premiums combine:

Verifiable attributes
Relationship-based customer loyalty
Some barrier to easy replication

Pure attribute claims (“my milk is A2” or “my cows are grass-fed”) get competed away faster than relationship positioning, where customers connect with YOUR specific operation.

The Customer Service Reality Nobody Mentions

Premium operations accept that customer relationship management IS the product. Not overhead. Not a distraction. The actual product.

Direct-to-consumer dairy means substantial time on order management, delivery logistics, emails, complaints, and retention.

Tranel sees this all the time: producers try direct sales for 6 months and quit. Not because the economics don’t work. Because they’re spending 15 hours a week on customer service instead of their animals.

That’s not failure. That’s recognizing that premium positioning requires different skills than production excellence. Both paths are legitimate. They’re just different paths.

Lower-Risk Ways to Test Premium Markets

If you want to explore premium positioning without betting the farm, here are approaches extension specialists recommend.

The Co-Packing Model

Skip the $30,000-50,000+ for on-farm pasteurization. Many states let you produce Grade A raw milk and contract with a licensed processor for pasteurization and bottling under YOUR brand.

Model	Startup capital required (USD)	Additional net income per year (USD)	Estimated payback period (years)	Extra weekly marketing time (hours)
Status quo commodity-only	0	0	–	0
On-farm processing/brand build-out	40,000	60,000	0.7	20
Co-packed, branded fluid milk pilot	12,000	35,000	0.3	15
Co-packed + subscription delivery tier	15,000	50,000	0.3	18

Startup cost: $6,500-15,000 for branding, packaging, cold storage, and delivery setup (extension estimates)

Timeline: 8-10 weeks to first sales in states with straightforward pathways

Find a processor willing to do small runs—usually smaller regional plants with excess capacity. State dairy associations can point you in the right direction.

This lets you test demand before committing major capital.

The Validation Sequence

Months 1-2: Research customer segments. Test messaging at farmers markets, social media, and community groups. Collect contacts. Don’t sell yet—gauge interest.

Month 3: Survey interested people. What volumes? What prices? What delivery preferences? Separate real purchase intent from casual curiosity.

Months 4-5: Request deposits. A $50 commitment separates talkers from buyers.

Months 6+: With 30-50 committed customers, consider minimal infrastructure investment.

Positioning Options Compared

Positioning	Premium	Protection	Timeline
Organic	25-30%	Medium	5-7 years to saturation
A2 genetics	30-50%	Low	2-3 years
Grass-fed	50-100%	Medium	3-5 years
Regenerative	30-50%	Medium-High	5-10 years
Hyper-local branded	40-80%	High	Ongoing investment

The pattern: Premiums last longer when you combine verifiable attributes with relationships and real barriers to replication.

Regulations: Check Before You Build

State rules on on-farm processing and direct sales vary wildly. This trips up a lot of producers.

Raw milk examples:

Wisconsin: Prohibits retail sales; gray areas around farm-gate transfers
Vermont: Permits sales with minimal licensing
California: Requires extensive testing and licensing
Pennsylvania: Allows sales with appropriate permits

On-farm pasteurization pathways exist in some states (New York and California have processes) but not in others. Co-packing rules depend on location and whether products cross state lines.

Before spending anything: Contact your state Department of Agriculture’s dairy division. Ask specifically about raw milk regulations, on-farm processing licenses, and co-packing arrangements. Get it in writing.

State inspectors are more helpful when you ask before building than after.

While we’ve highlighted US examples, the trend of margin-capture vs. commodity-volume is playing out across Canada, the UK, and Australia in similar ways.

Honest Questions Before You Decide

Does customer interaction energize or drain you? Premium positioning means hours of emails, delivery coordination, and complaint handling. If that sounds exhausting, this isn’t your path.

Can you handle 12-24 months of uncertainty? Premium revenue takes time. Do you have reserves or off-farm income to bridge gaps?

Is your positioning defensible? What makes your story compelling AND hard to copy?

Is your family aligned? This changes daily work patterns. Everyone affected needs to understand and support it.

If these questions raise concerns, that’s not failure. That’s valuable information for better decisions.

The Bigger Picture

Camel dairy’s success reflects something larger: dairy markets are stratifying into distinct value tiers where margins concentrate among operations that control their positioning, customer relationships, and narrative.

The Trends Reinforcing This

Vertical integration: Fairlife (Coca-Cola-owned), a2 Milk Company, major organic cooperatives—they capture production AND brand premiums by controlling the whole chain.

Consumer willingness to pay: IFIC Foundation research consistently shows that substantial segments are willing to pay premiums for health, environmental, or local-sourcing stories. This preference has stayed stable for years.

Technology lowering barriers: Online ordering, subscription management, delivery logistics—tools that once required custom development now cost $50/month.

THE STRATEGIC QUESTION: Is efficiency-focused commodity production, competing against ever-larger operations with superior scale economics, a viable long-term path for family-scale farms?

Key Takeaways

Premium markets are real. They capture disproportionate revenue despite modest volume.

Barriers exist, but aren’t absolute. Co-packing, graduated transitions, and customer-first approaches can manage risk.

Sequencing is everything. Build a customer base before investing capital.

Customer work is core. If you hate it, premium positioning isn’t for you.

Defensibility determines durability. Attributes get copied. Relationships and complexity hold value.

Question your assumptions. “Better genetics + lower costs = eventual reward” faces structural headwinds. Operations capturing premium value succeed through positioning, not just production.

The Bottom Line

Camel dairy at $35/liter isn’t a threat. It’s a signal.

Dairy markets have stratified. Commodity production remains essential—it serves the majority of consumption. The infrastructure, genetics, and management expertise we’ve developed over generations matter.

But the assumption that production excellence alone generates adequate returns—especially for mid-size operations squeezed between large-scale efficiency and premium margins—deserves hard examination.

The question isn’t whether to milk camels. It’s whether some version of premium positioning might complement commodity production as markets continue to evolve.

The operations best positioned over the next decade will figure out how to produce excellent milk AND capture value that currently flows elsewhere.

That’s what camel dairy’s unlikely success actually demonstrates. The animal matters far less than the market structure lessons embedded in those $35-per-liter prices.

Whether the industry is ready to learn those lessons… that’s the open question.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More

Dairy Farm Profitability: It’s Not Just About More Milk – Stop chasing pounds and start chasing profit with this operational overhaul. It delivers the specific cost-analysis tools you need to identify hidden leaks in your system, ensuring every management decision on Monday morning directly improves your bottom line.
The Future of the Family Farm: Strategy Over Scale – Position your operation for the next decade by understanding the inevitable stratification of the global milk supply. This strategic guide exposes why the “get big or get out” mantra is failing and reveals how mid-size farms can reclaim their competitive advantage.
A2 Milk and Beyond: The Real ROI of Niche Markets – Evaluate the genuine ROI of emerging premium tiers before you commit your herd’s genetics. This analysis strips away the marketing hype around niche attributes, delivering the data-backed reality of which certifications actually hold their value against future market saturation.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy markets, dairy profitability, market segmentation, milk pricing, premium dairy, value capture

The $4/cwt Your Milk Check Is Missing – And What’s Actually Working to Get It Back

Thursday, December 18th, 2025

You know that moment—scrolling to the bottom of your milk statement, already doing the math in your head? Mike Boesch’s DMC said $12.29. His deposit said $8.

Executive Summary: Dairy producers everywhere are doing the math twice lately—and they’re not wrong. There’s a $4/cwt gap between what DMC margins show on paper and what’s actually hitting farm accounts. The causes stack up fast: make allowance increases that cost farmers $337 million in just three months, regional price spreads running nearly $7/cwt, and component formula changes that blindsided many operations. Milk keeps flowing despite the pressure—expansion debt doesn’t pause for soft markets, and the lowest heifer inventory since 1978 makes strategic culling nearly impossible. With USDA projecting $18.75/cwt All-Milk prices for 2026, margin relief likely won’t arrive until late 2027. The producers gaining ground are focusing on what they can control: component-focused genetics, beef-on-dairy programs built on smart sire selection, and risk management tools that most operations still aren’t using.

You know that feeling when the numbers on paper don’t quite match what’s hitting your bank account? Mike Boesch, who runs a 280-cow operation outside Green Bay, Wisconsin, put it well when we talked last month. He pulled up his December milk statement, scrolled straight to the bottom—like we all do—and there it was. His Dairy Margin Coverage paperwork showed a comfortable $12.29/cwt margin. His actual deposit? After cooperative deductions, component adjustments, and those make allowance changes that kicked in last June, he was looking at something closer to $8/cwt.

“I keep two sets of numbers in my head now. The one the government says I’m making, and the one my checkbook says I’m making. They’re not the same number.” — Mike Boesch, Green Bay, Wisconsin (280 cows)

He’s far from alone in this experience. I’ve been talking with producers from California’s Central Valley to Vermont’s Northeast Kingdom over the past few months, and I keep hearing variations of the same observation. There’s a growing disconnect between what the formulas say margins should be and what’s actually landing in farm accounts. Understanding why that gap exists—and what you can do about it—has become one of the more pressing questions heading into 2026.

The Math That Isn’t Adding Up

Year	Corn ($/bu)	Soymeal ($/ton)	All‑Milk ($/cwt)
2023	6.54	430	22.50
2024	5.10	380	21.80
2025	4.00	300	21.35

Here’s what makes this situation so frustrating for many of us. Feed costs dropped meaningfully through 2025. Corn’s been trading in the low $4s per bushel—USDA’s November World Agricultural Supply and Demand Estimates report projected $4.00 for 2025-26—down considerably from that $6.54 peak we saw in 2023. Soybean meal’s been running in the high $200s to low $300s per ton through fall. For most operations, that translates to real savings on the feed side.

But milk revenue softened faster. USDA National Agricultural Statistics Service data shows September’s All-Milk price came in at $21.35/cwt, with Class III at $18.20. That’s below what many of us were hoping for at this point in the year.

What I’ve found talking to producers and running through numbers with nutritionists and farm business consultants: even with clearly lower feed costs, the decline in milk revenue has offset—and in many cases more than offset—those feed savings. The specifics vary by operation. Your ration, your components, and your cooperative’s pricing structure all matter. But the pattern holds across a lot of different farm types.

Mike’s take stuck with me: “I saved money on feed. But I lost more on milk. The feed savings felt like winning a $20 scratch ticket after your truck got totaled.”

Where Your Money Is Actually Going

So what’s creating that $4/cwt gap between calculated margins and received margins? It comes down to several deductions that the DMC formula doesn’t capture.

The Make Allowance Shift

When the Federal Milk Marketing Order updates took effect on June 1, processors received larger deductions for manufacturing costs. American Farm Bureau Federation economist Danny Munch analyzed the impact, and his findings show the higher make allowances reduced farmer checks by roughly $0.85-0.93/cwt across the four main milk classes.

Key Finding: $337 Million Impact

Farm Bureau’s Market Intel analysis found that farmers saw more than $337 million less in combined pool value during the first three months under the new rules—that’s June through August alone.

Scenario	Pool Value ($ billions)
Without new make allowance	6.00
With new make allowance	5.66

Source: American Farm Bureau Federation, September 2025

I talked with a Midwest cooperative field rep who asked to stay anonymous, given how sensitive pricing discussions can be. His perspective added some nuance worth considering: “Nobody wanted to make allowances to go up. But processing costs genuinely increased—energy, labor, transportation. The alternative was plant closures, and that would have helped nobody. It’s a situation where producers and processors both feel squeezed.”

He raises a fair point. The processing sector faced real cost pressures, and there’s a legitimate argument that updated make allowances were overdue. That said, the timing has been difficult for producers already navigating softer milk prices.

What’s worth understanding here is that the DMC formula uses pre-deduction prices. So your calculated margin looks healthy, while your actual check reflects those higher processor allowances.

Regional Pricing Reality

DMC uses national average milk prices, but anyone who’s compared notes with producers in other states knows the spread can be significant.

The Regional Price Gap: Same Month, Different Reality

Region	Approximate Mailbox Price	Variance
Southeast (Georgia)	~$26.00/cwt	+$4.65
Northeast (Vermont)	~$22.80/cwt	+$1.45
Upper Midwest (Wisconsin)	~$21.50/cwt	+$0.15
Pacific (California)	~$20.40/cwt	-$0.95
Southwest (New Mexico)	~$19.20/cwt	-$2.15

Source: USDA Agricultural Marketing Service Federal Order mailbox prices, Fall 2025

The regional story plays out differently depending on where you’re milking cows. Upper Midwest producers deal with cooperative basis adjustments and seasonal hauling challenges. California’s Central Valley operations face water costs that have fundamentally changed their cost structure—some producers there tell me water now rivals feed as their biggest variable expense. Southwest operations running large dry-lot systems have entirely different economics.

The Component Pricing Shuffle

Here’s one that caught a lot of producers off guard: the June 2025 FMMO changes removed 500-pound barrel cheddar from Class III pricing calculations. Now, only 40-pound block cheddar prices determine protein valuations—the USDA Agricultural Marketing Service confirmed this in their final rule.

Sounds technical, I know. But when barrels were trading higher than blocks—which they were in early summer—that switch affected producer checks. The rationale was to reduce price volatility and better reflect actual cheese market conditions, though the timing meant lower payments for many during that transition period.

Stack all of these together, and you get that $4-5/cwt gap between what DMC says you’re earning and what you’re actually receiving.

The Production Paradox

One thing that keeps coming up in conversations: if margins are this tight, why does milk keep flowing?

USDA NASS data shows national production running 1-4% above year-earlier levels in many recent months. July 2025 came in 3.4% higher than July 2024, totaling 19.6 billion pounds nationally.

At the same time, we’re watching a steady structural decline in dairy farm numbers. USDA has documented this trend for years—thousands of farms exiting nationally over the past decade, with several hundred closing each year just in heavily dairy states like Wisconsin.

Expert Insight: Leonard Polzin, Ph.D. Dairy Economist, University of Wisconsin-Madison Extension

“What we’re seeing is expansion commitments made in 2022-2023 when margins looked completely different. That debt doesn’t care about today’s milk prices. Producers have to keep milking to service those loans.”

There’s also the heifer situation. Replacement heifer inventory has dropped to 3.914 million head—the lowest level since 1978, according to USDA cattle inventory reports and confirmed by Dairy Herd Management coverage. Producers who might otherwise strategically cull their way to a smaller herd can’t easily replace the animals they’d be selling.

And then there’s processing. Since 2023, substantial new cheese processing capacity has come online—much of it financed through long-term USDA Rural Development loans requiring consistent milk intake. Those plants need milk regardless of farmgate prices.

For your operation: the supply response to low prices is likely to be slower than historical patterns suggest. If you’re planning around industry-wide production cuts that are expected to boost prices by late 2026, a longer timeline may be more realistic.

Why the Export Safety Valve Is Stuck

I’ve had producers ask when China might start buying again. Honestly? That valve is essentially closed for the foreseeable future.

Between 2018 and 2023, China added roughly 10-11 million metric tons of domestic milk production—equivalent to around 24-25 billion pounds. Rabobank senior dairy analyst Mary Ledman noted that’s almost like adding another Wisconsin to their domestic supply. The result? Self-sufficiency jumped from about 70% to 85% during this period.

China’s Dairy Transformation: The Numbers

Metric	Before (2018)	After (2023)	Change
Self-sufficiency	~70%	~85%	+15 pts
WMP imports	670,000 MT/yr avg	430,000 MT	-36%
Impact on competitors	—	7% of NZ production was displaced	—

Sources: Rabobank/Brownfield Ag News

This wasn’t market fluctuation—it was deliberate government policy. And they’re not walking it back. In July 2025, China’s Dairy Association announced plans to maintain at least 70% self-sufficiency through 2030.

For U.S. producers, this represents a structural shift. Other markets—Southeast Asia, Mexico, and parts of the Middle East—continue to show growth potential. But that traditional “surplus absorption” mechanism that China provided? It’s significantly smaller than it used to be.

What’s Actually Working: Four Strategies From the Field

Enough about challenges. Let’s talk about what’s actually moving the needle on margins.

Getting Paid for Components

Sarah Kasper runs a 340-cow operation in central Minnesota that she transitioned to component-focused management three years ago. Her approach: genomic testing on every replacement heifer, sire selection emphasizing butterfat and protein over milk volume, and ration adjustments optimizing for component production rather than peak pounds.

“We dropped about 1,200 pounds of production per cow. But our component premiums more than made up for it. We’re getting paid for what processors actually want.” — Sarah Kasper, Central Minnesota (340 cows)

University of Minnesota Extension dairy economic analyses document component premiums ranging from $120 to $ 180 per cow annually for operations achieving above-average butterfat and protein levels. With genomic testing running $30-50 per animal, the return on investment can be meaningful—especially compounded over multiple generations.

What processors increasingly want is component value, not volume. April 2025 USDA data showed cheese production up 0.9% year-over-year while butter production fell 1.8%—processors are routing high-component milk toward their highest-margin products.

The Beef-on-Dairy Opportunity

This strategy has seen remarkable adoption. CattleFax data reported by Hoard’s Dairyman shows there were about 2.6 million beef-on-dairy calves born in 2022, up from just 410,000 in 2018. CattleFax projects that it could grow to 4-5 million head by 2026.

The economics are fairly straightforward. Use sexed dairy semen on your top-performing cows to secure replacements, then breed the remaining 60-70% of your herd to beef genetics. A dairy bull calf might bring $200-400. A well-managed beef cross with the right genetics and colostrum management can fetch $900-1,250 through direct feedlot relationships, according to Iowa State University Extension beef-dairy market reports.

Beef-on-Dairy Economics: Per-Calf Comparison

Scenario	Calf Value	Semen Cost	Net Advantage
Dairy bull calf	$250	$8-15	Baseline
Beef cross (average genetics)	$700	$15-25	+$435
Beef cross (premium genetics + direct marketing)	$1,100	$20-35	+$830

Note: Values vary significantly by region, genetics quality, and buyer relationships Sources: Iowa State Extension; Hoard’s Dairyman market reports

But here’s where genetics selection really matters—and where I see a lot of operations leaving money on the table.

Research published in the Journal of Dairy Science in 2025 found the average incidence of difficult calving in beef-on-dairy crosses runs around 15%. But breed selection makes a significant difference: data from the Journal of Breeding and Genetics shows Angus-sired calves had only 7% calving difficulty compared to 13% for Limousin when looking at male calves.

Beef Sire Selection: The Calving Ease vs. Carcass Quality Tradeoff

Here’s the tension every producer needs to understand: beef sires selected for ease of calving and short gestation are often antagonistically correlated with carcass weight and conformation, according to research in Translational Animal Science.

Priority 1 — Protect the Cow:

Calving Ease Direct (CED): Select from the top 25% of beef sires
Birth Weight EPD: Lower is generally safer for dairy dams
Gestation Length: Angus adds ~1 day vs. Holstein; Limousin adds 5 days; Wagyu adds 8 days

Priority 2 — Optimize Calf Value:

Frame Size: Moderate-framed bulls generally produce more feed-efficient animals
Ribeye Area (REA) EPD: Higher values improve carcass muscling
Marbling EPD: Targets quality grade premiums
Yearling Weight EPD: Predicts growth performance

Sources: Journal of Dairy Science (2025); Penn State Extension; Michigan State Extension; Translational Animal Science

A Hoard’s Dairyman survey found that most dairies currently prioritize conception rate, calving ease, and cost when selecting beef sires—but feedlot and carcass performance traits aren’t priorities for most farms yet. Michigan State Extension notes this is a missed opportunity: selecting for terminal traits that improve growth rate and increase muscling should be a priority.

The bottom line from peer-reviewed research: sire selection for beef-on-dairy should firstly emphasize acceptable fertility and birthweight because of their influence on cow performance at the dairy; secondarily, carcass merit for both muscularity and marbling should receive consideration.

Tom and Linda Verschoor, who run 1,200 cows near Sioux Center, Iowa, started their beef-on-dairy program in 2022 with this balanced approach. “We figured out we only need about 35% of our herd for replacements,” Tom explained.

They report that in 2024, they generated roughly $185,000 more revenue from beef-cross calves than they would have from traditional dairy bull calves. Results will vary depending on genetics quality, calf care, and buyer relationships. But the opportunity is real for operations set up to capture it.

Actually Using the Risk Management Tools

This is where I see one of the biggest gaps between what’s available and what producers actually use.

DMC Tier 1 coverage costs $0.15/cwt, with a $9.50/cwt margin protection on the first 5 million pounds. University of Wisconsin-Extension analysis shows that from 2018-2024, DMC triggered payments in 48 of 72 months—about two-thirds of the time. Average net indemnity ran $1.35/cwt during payment months. It’s essentially catastrophic margin insurance at minimal cost.

Scenario	Covered Milk (million lbs/year)	Net Avg Indemnity ($/cwt in pay months)	Approx. Extra Margin per Year ($)
No DMC enrollment	0	0.00	0
DMC Tier 1 at $9.50 margin	5	1.35	45,000

Beyond DMC, Class III futures and options let you establish price floors. If your break-even is $16/cwt and you can lock $17/cwt through futures, you’ve reduced margin uncertainty—even if it means giving up potential upside.

Expert Insight: Marin Bozic, Ph.D. Dairy Economist, University of Minnesota

Bozic often reminds producers at risk-management meetings that relying on prices to improve on their own simply isn’t really a strategy. Most producers are still hoping prices improve rather than locking in prices that work. That’s understandable. But hope alone doesn’t protect margins.

Finding Premium Channels

The spread between commodity milk and premium markets continues widening:

Organic certified: $33-50/cwt depending on region and buyer (USDA National Organic Dairy Report)
Grass-fed certified: $36-50/cwt with current supply shortages (Northeast Organic Dairy Producers Alliance)
Value-added processing: On-farm yogurt or cheese production can generate meaningful additional margin, though capital requirements are real

I’m hearing from processors that organic supply is currently short in the Northeast and Upper Midwest—there’s genuine demand if you can make the transition work.

Premium Channel Pathways: What’s Actually Involved

Channel	Transition Timeline	Key Requirements	Regional Considerations
Organic	36 months	USDA NOP certification; organic feed sourcing; no prohibited substances	Strong processor demand in the Northeast, Upper Midwest; fewer options in the Southwest
Grass-fed	12-18 months	Third-party certification (AWA, PCO, or equivalent); pasture infrastructure	Works best with existing grazing infrastructure; limited in western dry lot operations
On-farm processing	12-24 months	State licensing; food safety compliance; marketing/distribution capability	Strong local food demand helps; it requires entrepreneurial capacity beyond milk production

Sources: USDA Agricultural Marketing Service; Northeast Organic Dairy Producers Alliance; Penn State Extension

The transition timeline matters. Organic requires three years of certified organic land management before you can sell organic milk—and you’ll need reliable organic feed sourcing, which can be challenging and expensive depending on your region. Grass-fed certification moves faster but requires pasture infrastructure that not every operation has. On-farm processing offers the highest margin potential but demands skills well beyond dairy farming.

Whether these channels make sense depends on your land base, labor situation, existing infrastructure, and appetite for marketing complexity. They’re not right for every operation, but for those with the right setup, the premium differential is substantial.

What the Analysts Are Actually Saying About 2026

Let me share what the forecasts show, because realistic timeline expectations matter.

Producer conversations often reference recovery by “late 2026.” The analyst forecasts suggest a more gradual path.

2026 Price Outlook: Key Forecasts

Source	2026 All-Milk Forecast	Assessment
USDA December WASDE	$18.75/cwt	Down from $20.40 (Nov)
2025 Actual	$21.35/cwt	Baseline comparison
Rabobank	“Prolonged soft pricing through mid-to-late 2026”
StoneX	Production slowdown not until Q2-Q3 2026

Here’s the key difference: analysts are describing prices “bottoming out” in early to mid-2026. That means the decline stabilizes—not that prices bounce back to 2024 levels. Most forecasts suggest meaningful margin recovery is more likely a late-2027 development.

This isn’t cause for panic. Markets are cyclical, and conditions will eventually improve. But it does suggest planning for an extended timeline.

The Conversation Worth Having

For producers with potential successors, this margin environment brings important conversations into focus. University of Illinois Extension notes that less than one in five farm owners has an estate plan in place. The Canadian Bar Association found 88% of farm families lack written succession plans.

Expert Insight: David Kohl, Ph.D. Professor Emeritus, Virginia Tech

Kohl emphasizes that families starting succession talks early navigate transitions more smoothly than those who wait until circumstances force the conversation.

His framework:

Know your actual numbers — true break-even, debt maturity, realistic equity position
Find out what your kids actually want — not what you assume
Lay out options honestly — status quo, restructuring, strategic exit, or succession

You’re not solving everything in one meeting. You’re getting information on the table.

The Bottom Line

“I’m not pretending the math is good right now. But I’ve stopped waiting for someone else to fix it. We enrolled in DMC at the $9.50 level, we’re breeding 60% of our herd to Angus, and we had that kitchen table conversation with our son over Thanksgiving. First real talk about whether he wants this place.”

He paused. “I’d rather know where we stand than keep guessing. At least now we’re making decisions instead of just hoping.” — Mike Boesch

That’s really the choice in front of all of us right now. The margin environment is challenging—that’s just the reality for the foreseeable future. But producers who understand the dynamics, assess their positions honestly, and implement available strategies aren’t just getting through this period; they’re succeeding. Some are building advantages that will serve them well when conditions improve.

The math is difficult. It’s not impossible. The difference comes down to whether you’re making decisions based on information or just waiting to see what happens.

Key Takeaways

The $4/cwt gap is real—and it’s not your math. Make allowances, regional spreads, and formula changes explain why your milk check doesn’t match your margins.
$337 million left producer pockets in 90 days. June’s make allowance increases pulled that from the pool values before summer ended.
Plan for a long haul. USDA projects $18.75/cwt for 2026—a meaningful margin recovery likely won’t show up until late 2027.
Don’t count on production cuts to save prices. Expansion debt keeps cows milking, and the lowest heifer inventory since 1978 limits strategic culling.
The wins are in the details. Component premiums, smart beef sire selection, and actually enrolling in DMC at $9.50—that’s where producers are finding margin.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The Beef-on-Dairy Wake-Up Call: What Some Farms Are Still Missing – Provides a tactical roadmap for using genomic testing to identify high-value beef-cross candidates while avoiding the “purity trap,” helping producers turn a potential liability into a six-figure revenue stream.
The 90-Day Dairy Pivot: Converting Beef Windfalls into Next Year’s Survival – Explores the strategic math behind hitting a $1.25/cwt component bonus and leveraging record-high cattle prices to navigate market volatility and secure the liquidity needed to survive a low-margin cycle.
Unlock Hidden Dairy Profits Through Lifetime Efficiency: How Modern Genetics and Strategic Nutrition Can Cut Feed Costs by $251 Per Cow – Reveals how precision breeding for Residual Feed Intake (RFI) can slash feed expenses by $251 per cow annually, offering a data-driven path to offset the structural margin gaps in today’s economy.

Join the Revolution!

Categories : Dairy Markets

Tags : 2026 dairy outlook, beef-on-dairy genetics, Dairy Farming, dairy profitability, dairy risk management, farm efficiency, Milk Production

The Week Every Dairy Market Crashed Together- and Why Record Exports Couldn’t Stop It

Monday, December 15th, 2025

Dec 15: Germany’s butter -9.3%. Chicago cheese at 18-month low. NZ powder is falling. Every dairy market crashed the same week—despite record exports. What broke, and what’s next for your operation

Executive Summary: Record dairy exports should lift prices—instead, every global market crashed simultaneously the week ending December 15, 2025, revealing that fundamental pricing mechanisms have broken. U.S. cheese shipments hit all-time highs while CME prices fell to 18-month lows; European butter dropped 5.8%; powder weakened globally. The paradox persists because cheap feed costs ($4.40 corn) enable production growth despite distressed milk prices—the normal supply response isn’t working. Worse, processors worldwide are simultaneously shifting from butter into cheese, creating concentrated inventory that will mature in Q2 2026 precisely when the spring flush arrives—a collision that could severely pressure spot milk prices. This signals a structural reset, not a cyclical downturn: operations must rebuild for sustained viability at $15-16 milk through cost efficiency, component optimization, balance sheet strength, and strategic feed hedging. The industry emerging from this transition will operate under fundamentally different economics than those of the past decade.

You probably felt it in your milk check before you saw it in the data. But here’s what actually happened the week ending December 15, 2025: butter futures crashed 3.6% in Leipzig to €4,314. EU physical butter dropped 5.8% to €4,313. Whole Milk Powder on the Global Dairy Trade fell to $3,230 per metric tonne. And CME Cheddar blocks hit $1.345 per pound—the lowest since July 2023. When every major commodity tanks simultaneously across every major exchange, we’re not looking at another rough patch. We’re watching the global dairy industry reset itself in real time.

Market/Product	Price (Week of Dec 15)	Weekly Change	Significance
German Butter	€4,150/tonne	-€425 (-9.3%)	Steepest weekly crash
EU Physical Butter (avg)	€4,313/tonne	-€251 (-5.8%)	18-month low
CME Cheddar Blocks	$1.345/lb	-4.1%	Lowest since July 2023
Global Dairy Trade WMP	$3,230/tonne	-3.8%	Sustained weakness
Dutch Butter	€4,070/tonne	-€250 (-5.8%)	Export benchmark falls
EEX Butter Futures (Leipzig)	€4,314/tonne	-3.6%	Futures signal no recovery
EU Young Gouda	€2,961/tonne	-34.3% YoY	Near five-year lows
EU Mild Cheddar	€3,248/tonne	Just €4 above 5-yr low	Testing historical floor

Here’s the part that should really get your attention: U.S. cheese exports hit 116.5 million pounds in September—up 34.5% from the previous year and representing the highest daily average on record, according to the U.S. Dairy Export Council. Record exports should be lifting prices, not coinciding with an 18-month low. That mechanism just broke, and understanding why matters for every decision you’re making about 2026.

Month	U.S. Cheese Exports (Million lbs) – Left Axis	CME Cheddar Blocks ($/lb) – Right Axis
Mar 2025	95.2	$1.62
Apr 2025	98.7	$1.58
May 2025	102.3	$1.54
Jun 2025	107.8	$1.49
Jul 2025	110.5	$1.46
Aug 2025	113.2	$1.41
Sep 2025	116.5	$1.38
Dec 2025	118.8 (est)	$1.345

A Brief Look Back: Context for What We’re Seeing

Before diving into current dynamics, it’s worth understanding that synchronized global dairy price collapses of this magnitude are relatively rare. The last time we saw coordinated weakness across multiple regions and products simultaneously was during the 2014-2016 period, when a combination of Russian import bans, a slowdown in Chinese demand, and the removal of European quotas created a global surplus that took nearly two years to work through. That episode saw U.S. Class III milk drop from over $24/cwt in 2014 to under $14 in 2016.

What eventually resolved that situation was a combination of weather-driven production disruptions (the 2016 New Zealand drought), gradual demand recovery in Asia, and ultimately, many smaller farms exiting the industry entirely. The recovery wasn’t quick, and the industry that emerged on the other side looked structurally different—more consolidated, more efficient, and arguably more vulnerable to the kind of dynamics we’re seeing today.

When the Safety Valves Stop Working

For as long as most of us have been in this industry, global dairy markets have operated with a kind of built-in equilibrium. When prices drop in one region, traders buy there and sell elsewhere, which lifts the cheap market and cools the expensive one. If a U.S. product is discounted, exports surge until domestic prices align with international benchmarks. It’s the arbitrage mechanism that keeps regional markets from getting too far out of whack.

What’s striking about mid-December is how that mechanism appears to have stopped functioning.

Looking at the data from European exchanges, German physical butter crashed by €425 in a single week—that’s a 9.3% drop—settling at €4,150. The weekly EU dairy quotations showed Dutch butter at €4,070, down €250. Yet French butter actually firmed €200 to €4,720. So you’ve got a €650 per tonne spread between French and Dutch butter, which shouldn’t persist in an integrated market.

At the same time, the Singapore Exchange was seeing pressure across its dairy complex despite solid trading volumes of 18,915 tonnes for the week. And back in the States, CME Cheddar blocks are sitting at $1.345 per pound—the lowest we’ve seen since summer 2023.

When these markets all move down together like this, it tells you the buyers are either already full or they’re waiting for even lower prices. That’s a fundamentally different dynamic than we’re used to seeing. What we’re watching is the global dairy complex running out of capacity to absorb current production levels at anything close to recent historical prices.

Why Production Keeps Growing Despite Terrible Prices

In a typical cycle, you’d expect falling prices to trigger pretty predictable responses. Farmers cull marginal cows, dial back feed inputs where it makes sense, and overall production gradually contracts. That supply reduction creates scarcity, and prices eventually recover. It’s the classic pattern the industry has relied on for generations.

That’s not what’s happening, and here’s why it matters.

The USDA’s December World Agricultural Supply and Demand Estimates held 2025 U.S. milk production steady at 115.70 million tonnes—still up 2.4% from 2024. They lowered the 2026 projection slightly, from 117.15 to 117.05 million tonnes, citing reduced dairy cow inventory offsetting per-cow production gains. But even with that downward revision, we’re still looking at 1.2% growth in 2026.

Think about that for a minute. Even with prices at distressed levels across multiple product categories, American milk production is forecast to keep expanding.

And if you want to understand why, take a look at what’s happening in feed markets. The December USDA grain outlook shows March 2026 corn futures trading around $4.405 per bushel, with projected ending stocks of 2.03 billion bushels. That’s the highest level in seven years and 32% greater than last season. The agency actually raised its corn export forecast to 3.2 billion bushels—that’s up 12% from last year’s record—yet domestic supplies remain massive. Soybean meal closed the week at $302 per ton, down $5.40.

What this creates is production that stays high because historically cheap feed costs insulate producers from the full pain of low milk checks. When you run the income-over-feed-cost calculations—and I know most of you do this weekly if not daily—many operations can still pencil out positive margins even with Class III in the mid-$15s. That math keeps marginal cows in the herd even when finished product prices are screaming oversupply.

I was looking at numbers from a 500-cow Wisconsin operation recently that illustrates this perfectly. With corn at $4.40, their feed costs are down 18% from last year. That keeps their IOFC positive at $16.50 milk, even though that’s $3 below what they budgeted for 2025. So the economic signal telling them to cut back gets overwhelmed by the reality that they’re still cash-flow positive on a monthly basis.

Period	Feed Cost	Other Costs	Milk Price	IOFC Margin
Q4 2023	$10.20	$7.50	$19.80	$9.60
Q1 2024	$9.80	$7.60	$18.50	$8.70
Q2 2024	$9.20	$7.70	$17.90	$8.70
Q3 2024	$8.90	$7.80	$17.20	$8.30
Q4 2024	$8.40	$7.90	$16.80	$8.40
Q1 2025	$7.80	$8.00	$16.20	$8.40
Q4 2025	$7.20	$8.10	$15.90	$8.70

Here’s something else worth noting: the USDA report mentions explicitly that winter weather isn’t the constraint it used to be, particularly in the Midwest. Modern housing systems mean operations in Wisconsin, Michigan, and Minnesota can maintain high production levels regardless of what’s happening outside. Better ventilation, more sophisticated environmental controls—which is great for consistency and animal welfare, but it also makes production less responsive to price signals.

The Export Picture Gets Complicated

Here’s where things get really interesting, and why the volume numbers deserve a closer look.

September numbers from the U.S. Dairy Export Council showed cheese exports up 34.5% year-over-year to 116.5 million pounds—the highest daily average shipments on record. Butter exports were 2.7 times larger than the previous year. Whey powder exports hit their highest level since March 2023, up 8.3%.

You’d think those export numbers would support domestic prices. When foreign buyers aggressively purchase U.S. products, that should create competition for available inventory. But that’s not what we’re seeing. Strong export volumes are coinciding with some of the weakest domestic prices in years.

What this tells you is that the industry is exporting what it has to produce to keep processing plants running at capacity. These modern cheese plants have massive fixed costs and debt service obligations. You can’t afford to run at 70% capacity—your cost per unit skyrockets. So you run full-throttle and discount product to move volume into export channels.

And here’s where the story gets more nuanced. While cheese exports are at record levels, nonfat dry milk exports collapsed 18.5% year over year in September, hitting an eight-month low. Even sales to Mexico—and Mexico has been one of our most reliable powder markets—dropped 17.3%. When you can’t move powder to Mexico, that tells you demand is genuinely soft across categories.

The cheese export story breaks down in interesting ways by region. Mexico remains the dominant market, which makes sense given proximity and trade relationships. But what’s notable is that Australia has become the third-largest destination for U.S. cheese. USDEC data shows Australia has already imported more U.S. cheese in 2025 than in any previous year on record, and we’ve still got three months of shipments to count.

This matters because it represents a shift in the Australian dairy sector. Chronic drought conditions and herd contraction have pushed Australia from being a dairy-surplus nation to one that’s increasingly dependent on imports. U.S. cheese is essentially backfilling the gap left by shrinking Australian milk production.

The challenge with this dynamic is sustainability. Mexico is buying finished U.S. cheese because, at current prices, it’s cheaper than importing powder and manufacturing cheese themselves. Australia is buying because they don’t have enough domestic milk. Neither situation represents organic demand growth driven by expanding consumption—they’re opportunistic purchases driven by price dislocations and supply shortfalls elsewhere.

When those conditions change—and at some point they will—it raises legitimate questions about where all that U.S. cheese production capacity is directed.

Europe’s Markets Fragment Under Pressure

The European physical spot markets during the week of December 10 showed how extreme stress can break down normally efficient trading systems, and it’s worth understanding these dynamics because they affect global price relationships.

The weekly EU dairy quotations showed the aggregate butter index down 5.8% to €4,313. But that overall number hides some significant regional variations. German butter crashed €425 per tonne in a single week—that 9.3% decline—settling at €4,150. Dutch butter, which tends to serve as a key pricing benchmark for export markets, fell €250 to €4,070. Yet French butter actually firmed €200 to €4,720.

So you’ve got a €650 per tonne spread between French and Dutch butter. That’s roughly a 16% price difference for essentially the same commodity in neighboring countries with no trade barriers. Under normal circumstances, traders would move product to capture that arbitrage opportunity, and the spread would compress.

The persistence of this spread likely reflects panic selling in the German and Dutch markets—processors liquidating inventory to generate cash flow—while France’s unique regulatory structure (particularly the Loi EGalim laws that protect farmer margins) and strong domestic preference for high-quality branded butter with protected designations create price support that can’t be easily arbitraged away.

Meanwhile, the European cheese complex is testing historical support levels. The EEX European Weekly Cheese Index shows Mild Cheddar trading at €3,248—just €4 above its five-year low. Cheddar Curd sits at €3,221, €27 above its five-year floor. Young Gouda has fallen to €2,961, down 34.3% year-over-year.

When you’ve got multiple cheese varieties simultaneously trading within pennies of multi-year lows during what should be a seasonally firm period—pre-holiday demand, typically lower winter milk production—it signals fundamental oversupply rather than temporary weakness. The market is grinding against production costs, and may already be below them for higher-cost operators.

The Strategic Pivot Creating Future Pressure

One pattern emerging from the data that has real implications for 2026 is a simultaneous shift by processors across multiple countries away from butter production and toward cheese.

UK production statistics from DEFRA for October 2025 tell the story: butter production down 15.4% year-over-year while cheese production increased 0.6%, with Cheddar specifically up 4.0%. You’re seeing similar dynamics in U.S. processing facilities—milk diverted from volatile butter markets into cheese vats.

The logic makes sense on paper. Butter is highly price-sensitive and difficult to store long-term without incurring significant cold-storage costs. Cheese, particularly aged varieties like Cheddar, can sit in inventory for 6 to 12 months as it matures. From a processor’s perspective, cheese acts as a kind of financial buffer—you can convert today’s surplus milk into a solid commodity and hope that by the time it’s ready for market, prices will have improved.

The complication is that when processors in the U.S., UK, and EU all make the same decision simultaneously, they shift oversupply in time and concentrate it into a single product category.

All that cheese being produced right now in December 2025 will mature and need to move to market in mid-2026—right around the time the Northern Hemisphere spring flush begins, bringing another seasonal surge in milk production. If export warehouses in key markets like Mexico and Australia are already well-stocked from late 2025’s record shipments, buyer demand could slow just as supply peaks.

Month	U.S. Cheese Production	EU Cheese Production	UK Cheese Production	Total Industry Production
Oct 2025	520	380	45	945
Nov 2025	540	395	47	982
Dec 2025	565	410	52	1,027
Jan 2026	580	415	53	1,048
Feb 2026	590	420	54	1,064
Mar 2026	605	435	48	1,088
Apr 2026	630	455	50	1,135
May 2026	655	475	52	1,182
Jun 2026	670	485	53	1,208

This creates what you might call borrowed demand—the cheese you’re making today to avoid the butter price collapse will need to clear the market in six months. If prices haven’t recovered by then, given the volume being produced across multiple regions, you’ve delayed the problem and possibly intensified it by concentrating everyone’s surplus into the same product at the same maturity window.

What Futures Markets Are Signaling

Despite the physical market’s weakness, there’s a notable divergence in how futures markets are pricing the outlook for different milk classes, and it’s worth understanding what that spread reveals about traders’ expectations.

CME Class III futures for December 2025 fell 12 cents during the week to settle at $15.90 per hundredweight. But deferred 2026 contracts showed some resilience. The market seems to be betting that somewhere around the $15.50-16.00 range represents something close to a floor—that at these levels, demand will kick in enough and production will slow enough to stabilize things.

Class IV futures—driven by butter and nonfat dry milk prices—remain stuck in the mid-$13s through early 2026. The futures curve doesn’t show Class IV climbing above $14 until March at the earliest.

This spread reveals how traders are thinking about clearing mechanisms for different product categories. They’re betting that cheese can be cleared through aggressive export pricing, despite concerns about inventory. The record U.S. shipment volumes support that view. But they see no similar clearing mechanism for butter and powder, where domestic consumption is relatively fixed, and export competition from New Zealand and Europe remains intense.

Month	Class III Futures	Class IV Futures
Dec 2025	$15.90	$13.45
Jan 2026	$15.75	$13.50
Feb 2026	$15.65	$13.60
Mar 2026	$15.80	$14.05
Apr 2026	$16.10	$14.20
May 2026	$16.35	$14.40
Jun 2026	$16.55	$14.65
Jul 2026	$16.75	$14.85

Another factor supporting Class III that is often overlooked is the relative strength in the dry whey market. While butter and cheese prices are under serious pressure, whey is showing some resilience. The EU weekly quotation showed whey firming €15 to €989 per tonne, now up 12.6% year-over-year—making it the only major dairy commodity showing positive year-over-year performance in European markets. U.S. whey powder exports jumped 8.3% in September, with strong sales to China and Vietnam.

Because the Class III formula includes both cheese and whey components—specifically cheese price times 9.6 plus whey price times 5.9—the strength in whey provides a mathematical floor that Class IV doesn’t have. Even if cheese prices stay depressed, firm whey values help support the overall Class III calculation.

The question is whether futures traders are correctly assessing the inventory risk. If those strong cheese export numbers reflect stockpiling by buyers taking advantage of low prices rather than genuine ongoing consumption demand, then the apparent clearing mechanism could weaken in Q2 2026, just when the spring flush and all that aged cheese hit the market simultaneously.

The Feed Cost Variable Worth Watching

While most market signals point toward continued pressure through early 2026, there’s one variable that could shift the equation, and it’s worth keeping on your radar: what happens in grain markets.

The current dairy situation is enabled by historically low corn and soybean meal prices. As long as those input costs stay depressed, the income-over-feed-cost margins for many operations remain positive enough to justify maintaining production even with low milk prices.

But grain markets can turn quickly. The USDA is forecasting massive corn ending stocks, but those projections assume reasonably normal weather conditions. If drought develops in Brazil or Argentina during their growing season—December through March—grain prices could spike. The soybean complex, in particular, is trading with skepticism about Chinese demand. U.S. commitments to export soybeans through early November were running 40% lower than the prior year.

If China steps back into the market aggressively, or if South American weather turns problematic, soybean meal could rally from current levels near $300 per ton to $350 or higher fairly quickly. That kind of move would change the feed cost equation that’s currently supporting milk production despite low prices.

A grain rally might trigger a supply response driven by economics rather than operational necessity. If feed costs spike while milk prices stay low, you’d see the cull rate accelerate. That would tighten milk supplies before the spring flush, which might prevent some of the more challenging scenarios being discussed for Q2.

The complication, of course, is that this kind of adjustment through higher input costs isn’t exactly a rescue—it would address the oversupply by further pressuring margins. But it might be one of the few mechanisms left that can trigger a meaningful supply response.

Looking Ahead to Spring 2026

As we look toward the next few months, there are several scenarios worth considering, and I think it’s important to think through both the optimistic case and the more challenging possibilities.

The optimistic case would be that export demand continues absorbing U.S. cheese at roughly current volumes, European production contracts modestly as various forecasts suggest, New Zealand’s season ends normally, and the market finds a new equilibrium at these lower price levels without major disruption. Farmers who can operate profitably at Class III in the $15-16 range continue; those who can’t gradually exit through normal business cycles. It’s a slow grind, but it avoids a crisis.

The challenge with that scenario is that it assumes multiple things align favorably simultaneously, and it doesn’t fully account for the inventory dynamics building in the cheese complex.

A more complete assessment acknowledges that we’re heading into Q2 2026 with several risk factors converging. The spring flush will bring seasonal increases in production—that’s biology; you can’t avoid it. Cheese produced in late 2025 and early 2026 will be maturing and needing to move to market. And if export warehouses in key markets are already well-stocked from late 2025’s record shipments, buyer demand could slow as supply peaks.

In that scenario, cold storage space becomes a limiting factor. Processors would face pressure to either move product into lower-value channels—such as converting aged cheese into processed cheese ingredients—or implement supply management measures. Spot milk prices could come under significant pressure in some regions.

Whether these dynamics develop into a more serious situation depends on variables we can’t yet fully predict—export demand patterns, weather affecting production, and policy responses. But the risk is substantial enough that operations should plan for various scenarios rather than assume conditions will improve on their own.

What This Means for Your Operation

So, where does all this leave us? I think there are some practical considerations worth thinking through, and they vary depending on your role in the industry.

For Producers:

The evidence suggests we’ve moved beyond a typical cyclical downturn. Relying on historical price recovery patterns to guide current decision-making carries real risk.

The most important focus right now is cost structure. In a market where establishing a lower baseline price, efficiency matters more than production volume. A realistic assessment of your operation’s true breakeven point is critical. If your business model requires $18-19 milk to be profitable, fundamental changes may be necessary because the market is signaling that $15-16 could be the range for extended periods.

Component quality is becoming increasingly important in compressed markets. When commodity prices are under pressure, the premiums for high-protein, high-fat milk become proportionally more valuable. Fresh cow management, ration formulation, and genetic selection decisions that maximize components—all of this can add meaningful value when the base price is low. I’ve seen operations in the Upper Midwest boost their component checks by 80 cents to a dollar per hundredweight through focused attention to butterfat and protein levels, and that differential matters more than ever in this environment.

Strategy	Specific Action	Potential Impact	Priority Status
Cost Structure Optimization	Conduct fresh breakeven analysis; identify and eliminate non-essential costs; renegotiate vendor contracts	Lower breakeven $1.50-2.00/cwt	Critical Action
Component Premium Maximization	Focus fresh cow management; optimize rations for fat/protein; select genetics for components	Add $0.80-1.20/cwt to milk check	High Priority
Balance Sheet Resilience	Build working capital reserves; defer non-critical capital projects; restructure high-interest debt	Survive 6-12 months low prices	Critical Action
Feed Cost Management	Forward contract 50-60% of corn/soy needs through summer 2026 at current lows ($4.40 corn)	Lock controllable cost advantage	High Priority
Risk Management Tools	Implement Dairy Revenue Protection or LGM; set minimum price floors for Q2-Q3 2026	Protect against worse-case scenarios	Recommended

Balance sheet resilience will be critical heading into 2026. Operations with stronger working capital and lower debt service obligations will be better positioned to navigate extended low prices. This may not be the optimal time for major expansion projects or capital spending that increases fixed costs. I know that’s difficult advice when you’ve got planned improvements or a son or daughter wanting to come back to the farm, but timing matters.

Feed cost management deserves attention. With corn and soybean meal at multi-year lows, locking in favorable input costs for at least a portion of needs provides one of the few controllable variables in the current environment. Even partial coverage—50-60% of expected needs—can provide meaningful protection if grain markets rally. Some Northeast operations I’m familiar with are forward contracting corn through summer 2026 to remove at least that uncertainty from their planning.

For Processors:

Inventory management has moved from routine practice to strategic necessity. The industry-wide shift toward cheese production requires realistic planning for when and where that inventory will clear. Frank conversations with customers about forward commitments and careful evaluation of speculative inventory positions are warranted, given uncertainty about the timing of price recovery.

Export channel diversification matters more in volatile markets. Heavy reliance on one or two markets—particularly those that may be engaging in stockpiling rather than steady consumption—creates vulnerability if buying patterns shift.

Processing flexibility offers strategic advantages. Assets that can shift between products as market conditions change provide more options than single-purpose facilities in volatile environments. I recognize that’s easier said than done when you’ve got specialized equipment and a trained workforce, but it’s worth considering in future capital planning.

For the Broader Industry:

The synchronized weakness across global markets raises questions about coordination and supply discipline. Without mechanisms to better align supply with realistic demand expectations, these boom-bust cycles may become more frequent and severe. This doesn’t necessarily mean government intervention, but it might involve processors implementing more structured base-excess programs or cooperatives taking stronger action to manage supply.

Export infrastructure and market development will become increasingly critical if the U.S. continues to position itself as a large-scale global supplier. This means sustained investment in logistics, market access, technical assistance to importing countries, and trade relationships that can reliably absorb substantial volumes.

Better market intelligence and information sharing could help prevent simultaneous strategic pivots that amplify imbalances. If processors in different regions had better visibility into global production decisions, they might make different product-mix choices. Industry associations and market data services have a role in providing that transparency.

The Bottom Line

The week of December 15, 2025, may mark a transition point—when global dairy markets shifted from familiar cyclical volatility into something more structural and challenging to navigate.

The traditional mechanisms that historically dampened these cycles are evolving. Smaller farms that used to exit during downturns and help tighten supply represent a declining share of production. Regional markets that operated somewhat independently are increasingly interconnected and moving together. Feed costs, which tend to move inversely with milk prices and provide a natural hedge, are currently low, removing that counterbalance.

What’s emerging is a more consolidated, more efficient production system that responds to price signals differently than in previous decades. Large operations with modern facilities and low per-unit costs can remain profitable at price levels that would have historically triggered widespread exits. That’s economically efficient in many ways, but it also means markets may need to fall further and stay low longer to trigger the supply response needed to rebalance.

For all of us navigating this transition, the fundamental challenge is to build operations and business models that remain viable at these new baseline prices rather than relying on assumptions of a return to historical averages. The traditional wisdom that low prices eventually cure low prices still holds. The cure is working—you can see it in the data. But the adjustment period may be longer than in previous cycles required.

These are sending clear signals about the current supply-demand balance. The question facing every operation is how to adapt business strategies and risk management approaches to this evolving reality while maintaining the flexibility to capitalize on opportunities as they develop.

Market data referenced in this analysis comes from the European Energy Exchange (EEX), Singapore Exchange (SGX), Global Dairy Trade platform, CME Group, USDA World Agricultural Supply and Demand Estimates (WASDE), U.S. Dairy Export Council (USDEC), UK Department for Environment, Food & Rural Affairs (DEFRA), and European Commission weekly dairy quotations for the period ending December 15, 2025.

Key Takeaways:

The Export Paradox: Record U.S. cheese exports (+34.5%) met 18-month price lows as every global dairy market crashed simultaneously the week of December 15—revealing fundamental pricing mechanisms have broken.
Why Supply Won’t Self-Correct: Cheap feed ($4.40 corn, $302 soy meal) keeps income-over-feed-cost positive at $15-16 milk, preventing the production cuts that normally cure oversupply.
Q2 2026 Inventory Collision: Processors globally are shifting from butter to cheese simultaneously. This inventory matures in spring 2026, precisely when the flush hits—creating a potential crisis for spot milk prices.
This Is a Reset, Not a Cycle: Class III holding near $16 while Class IV languishes in mid-$13s signals new baseline economics. Operations must be built for sustained viability at these levels, not temporary survival.
Immediate Producer Priorities: (1) Cost structure over production volume, (2) Maximize component premiums—they matter most in compressed markets, (3) Strengthen balance sheets before spring, (4) Lock feed costs now via forward contracting.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Boost Your Dairy Farm’s Efficiency: Easy Protocol Tweaks for Big Results – Provides immediate, low-cost strategies to tighten operational protocols and reduce waste, essential for protecting margins when milk prices drop to the $15-16 range referenced in the market analysis.
Slight Dip in Year-End Milk Prices: What Dairy Farmers Need to Know from October 2024 WASDE Report – Delivers foundational context on the USDA forecasts that preceded the current crash, helping producers understand the long-term supply trends and import dynamics reshaping 2025-2026 pricing.
FEED EFFICIENCY BOMBSHELL: Yeast Additives Expose the Truth About High-Starch Dairy Diets – Reveals how to leverage specific additives to maximize cheap corn inputs and boost income-over-feed costs, a critical tactic for maintaining viability during periods of “profitless production.”

Join the Revolution!

Categories : Dairy Markets

Tags : cheese export analysis, Class III Milk prices, Dairy Farm Profitability, dairy feed management, global dairy market crash, milk price forecast 2026

Weekly Global Dairy Market Recap Dec 15th, 2025: The “Wall of Milk” vs. The Heifer Shortage (Why 2025 is Different)

Monday, December 15th, 2025

Every major dairy region is producing more milk—at the exact same time. That almost never happens. And prices are showing it.

Executive Summary: The world is awash in milk. The U.S., Europe, New Zealand, and South America are all growing production simultaneously—a rare alignment that almost never occurs and has crushed the Global Dairy Trade index by 4.3%, with butter plunging 12.4% in a single auction. U.S. cheese exports are setting records, yet spot cheddar sits at just $1.35/lb; America has become the world’s bargain supplier. RaboResearch analysts don’t see meaningful price recovery through 2026, given relentless production growth. But here’s the structural twist worth watching: CoBank reports dairy heifer inventories at 20-year lows, with an 800,000-head deficit baked into the system from beef-on-dairy breeding decisions made in 2022-2023. Biology may ultimately accomplish what price signals haven’t. For farmers navigating this extended trough, the priorities are clear: cost control, component premiums, and cash reserves.

Something unusual is happening across the global dairy landscape right now—every major milk-producing region on earth is growing production at the same time. That almost never happens. And it’s reshaping price expectations heading into 2026.

Typically, when American parlors are running full, New Zealand deals with drought. When Europe expands, South American margins collapse. But as we close out 2025, that natural counterbalancing act has broken down entirely—and the market is feeling it.

“Milk output is growing in all key exporting regions, which is not common,” explained Lucas Fuess, senior dairy analyst at RaboResearch, in a December 2025 analysis. “Typically, at least one part of the world is dealing with a limiting factor that is reducing milk growth—either weather, disease, margins, or something else. Now, the U.S., EU, New Zealand, and South America are all seeing growth—simultaneously.”

What this means practically is that the usual relief valves aren’t working. When everyone’s producing, someone has to buy—and right now, demand simply isn’t keeping pace.

For the first time since 2018, all four major exporting regions are growing production simultaneously. Historically, drought in New Zealand or margin collapse in South America provided natural relief valves. Not this time. South America’s relentless 3.2% growth (red line) combined with New Zealand’s seasonal surge is flooding global markets—and that’s before we factor in the U.S. becoming the world’s discount cheese supplier.

Global Dairy Trade: What the December Numbers Show

The Global Dairy Trade price index fell 4.3% at the most recent auction, with most product categories posting declines. Butter took the hardest hit—down 12.4% in a single event. Only cheddar (+7.2%), lactose (+4.2%), and buttermilk powder (+1.8%) managed gains.

While the headline GDT index dropped 4.3%, the December auction revealed massive divergence: butter collapsed 12.4% in a single event, extending a five-month slide from May highs, while cheddar actually firmed +7.2%. This matters because it signals where global buyers see value—and where they don’t.

What strikes me about these numbers is the divergence between commodities. Butter has been sliding since May, when it reached five-year highs. Meanwhile, cheddar actually firmed at the latest auction. That kind of split tells you something important about how global buyers are thinking—they’re not avoiding dairy, they’re just getting selective about where they source it and what they’re buying.

Why U.S. Butter Became the World’s Bargain in 2025

Here’s something that deserves more attention: U.S. butter prices have sat well below European and New Zealand prices throughout all of 2025. That gap created an opportunity that global buyers noticed—and acted on.

“The US butter price has been well below the EU and NZ price throughout all of 2025,” Fuess noted. “This has driven global buyers to procure product from the US instead of other regions to recognize the value in US product.”

John Hallo, procurement business partner at Maxum Foods, offered additional context on the New Zealand correction: “New Zealand pricing had been running at a premium from the USA/EU for four months, so I could argue their price was overinflated. Along with peak season supply of NZ fat, we have inevitably seen the correction.”

The practical implication? That American price advantage is narrowing as global prices converge downward. Farmers who’ve been benefiting indirectly from strong export demand should watch these spreads closely heading into 2026.

U.S. Dairy Exports 2025: Record Cheese Volumes Meet Softening Spot Prices

The American export picture presents an interesting paradox. CME spot cheddar blocks closed the week of December 8-12 at $1.35 per pound, with butter averaging $1.4785/lb. Class III futures for December settled around $15.88/cwt, with Class IV hovering in the mid-$13s—hardly inspiring numbers for the milk check. (Daily Dairy Report, December 12, 2025)

And yet, U.S. cheese exports are having a record year. September shipments jumped 35% year-over-year, putting year-to-date volume at 453,076 metric tonnes. That’s already more cheese shipped abroad in nine months than in any full calendar year except 2024. The U.S. Dairy Export Council projects we’ll likely top 600,000 MT for the full year. (USDEC, December 11, 2025)

What I find telling is that we’re moving record cheese volumes at the exact moment spot prices are hitting 18-month lows. That disconnect reveals how global buyers think—they’re responding to relative value, not absolute price levels. When an American product is cheap compared to alternatives, they buy American. Simple as that.

U.S. cheese exports are on track to exceed 600,000 MT in 2025—a record—while spot cheddar sits at $1.35/lb, down nearly 30% from mid-2024 peaks. This isn’t competitive excellence; it’s competitive desperation. Global buyers are choosing American cheese because we’re cheap, not because we’re better.

Katie Burgess, dairy market advising director with Ever.Ag raised an important concern at the Oregon Dairy Farmers Convention earlier this year: “If we can’t get the cheese exported, and we’re making a lot of it, it means we’re going to need to eat a lot more cheese.”

What University Research Is Showing About Milk Solids

Leonard Polzin, dairy markets and policy outreach specialist at the University of Wisconsin-Madison, has been tracking something important: production efficiency gains are outpacing headline milk volume. Despite modest total production growth, calculated milk solids production has increased more substantially because butterfat and protein tests keep climbing. (UW Extension Farms, 2025 Dairy Situation and Outlook)

For context, back in 2020, the average butterfat test was 3.95% and the protein test was 3.181%. Today’s tests are running notably higher than usual. This matters because it means the industry can meet demand for milk solids more quickly than raw production numbers suggest—processors get more usable product per hundredweight than they did five years ago.

Additionally, UW-Madison research highlights that Federal Milk Marketing Order reforms taking effect are expected to decrease the All Milk Price by approximately $0.30/cwt, with a more pronounced impact on Class III prices. (UW Extension Farms, February 2025) That’s not a dramatic hit, but it’s another headwind for margins already under pressure.

The Heifer Constraint Nobody’s Talking About Enough

Here’s what makes the current situation genuinely unusual: despite soft milk prices, there’s a structural ceiling on how fast production can actually grow. Talk to producers across the Upper Midwest, and you hear the same story—replacement heifers are scarce and expensive.

According to CoBank’s August 2025 sector analysis, U.S. dairy replacement heifer supplies have fallen to their lowest levels in twenty years. The research projects heifer inventories will shrink by approximately 800,000 head over the next two years before beginning to recover in 2027. (CoBank/Wisconsin Ag Connection, August 2025)

CoBank’s research reveals an 800,000-head deficit already baked into the system—the direct result of beef-on-dairy breeding decisions made during 2022-2023’s high beef prices. Here’s what makes this genuinely different: even if milk prices doubled tomorrow, you can’t breed your way out of a heifer shortage when the calves weren’t born three years ago.

That 800,000-head deficit is already baked into the system based on breeding decisions made during 2022 and 2023 when beef-on-dairy crossbreeding surged. Biology dictates timing here—you can’t simply buy your way out of a heifer shortage when the calves weren’t born.

What this means practically: even if milk prices rose tomorrow and every producer wanted to expand, the replacement animals aren’t there to support rapid growth. It’s one reason why the supply response to current low prices may be slower than historical patterns would suggest—and why some analysts see eventual price support emerging from the supply side rather than demand.

The Bullvine Breeder’s Takeaway

The 800,000-head heifer deficit changes the math on your genetic inventory. Here’s what that means for breeding decisions:

Your heifer pen is now a gold mine. Verified high-genomic females will likely command premium prices through 2026 as processors compete for milk to fill new capacity.
Stop culling lightly. With replacements at 20-year lows, that “marginal” cow might be worth keeping for one more lactation.
Inventory as asset class. Heifers are no longer just a cost center—they’re increasingly liquid assets in a supply-constrained market.
Rethink beef-on-dairy. If you swung 70%+ to beef semen in 2023, review your genetic strategy immediately. The market is signaling a need for replacement purity, and premiums for verified dairy replacements are likely within 12 months.

European Dairy 2025: Less Milk, More Cheese

The EU situation offers its own set of complexities. USDA GAIN reports forecast milk deliveries at 149.4 million metric tonnes in 2025—down 0.2% from 2024. Low farmer margins, environmental regulations, and disease outbreaks continue pushing smaller producers out.

But here’s the nuance that matters: European processors are deliberately prioritizing cheese over butter and powder. EU cheese production is forecast to rise 0.6% to 10.8 million metric tonnes, even with less total milk available. They’re making a strategic choice about where to allocate their milk supply—and cheese is winning.

For American producers competing in export markets, this means European cheese will remain a competitive threat even as their overall milk production contracts.

New Zealand and Fonterra: Strong Collections, Cautious Outlook

New Zealand’s dairy sector continues performing well, though Fonterra’s latest forecast signals caution about where prices are heading. The cooperative narrowed its 2025/26 farmgate milk price range from NZ$9.00-$11.00 per kgMS down to NZ$9.00-$10.00 per kgMS in late November, with the midpoint dropping from NZ$10.00 to NZ$9.50. (Fonterra, November 25, 2025)

At the same time, Fonterra increased its milk collection forecast for the 2025/26 season from 1,525 million kgMS to 1,545 million kgMS—reflecting strong on-farm production conditions. Season-to-date collections through October were running 3.8% above last season. (Fonterra Global Dairy Update, November 2025)

CEO Miles Hurrell noted the cooperative has seen strong milk flows this season, “both in New Zealand and other milk-producing nations,” resulting in seven consecutive price drops at recent Global Dairy Trade events. Fonterra’s cooperative structure provides some insulation from spot-market volatility that investor-owned processors don’t enjoy, but its price guidance suggests it’s not expecting quick relief from current conditions.

China: Modest Import Recovery on the Horizon

After a brutal 17% decline in dairy imports through the first eight months of 2024, Rabobank forecasts Chinese dairy imports will improve by 2% year-on-year in 2025. Chinese farmgate milk prices have fallen to near 10-year lows, forcing herd reductions and farm exits that are constraining domestic supply. (Tridge/Rabobank, November 2024)

That said, a 2% increase helps at the margins but won’t fully absorb the global surplus on its own. The AHDB notes that most import growth is expected in the latter half of 2025 as domestic stocks weaken. (AHDB, February 2025) It’s a positive signal, not a rescue.

Feed Costs 2025: The One Clear Bright Spot

There’s genuinely good news on the cost side. March corn futures settled around $4.405/bu in mid-December, while January soybean meal closed near $302/ton. These represent meaningful relief for ration costs heading into 2026.

The catch—and there’s always a catch—is that feed savings don’t help if milk revenue falls faster. Margins are being compressed from the revenue side right now, not the cost side. Strong feed conversion efficiency and component production matter more than ever when the milk check is lean.

Cost/Revenue Component	Mid-2024 Average	Dec 2025 Average	Change per Cow/Year
Corn ($/bu)	$4.85	$4.41	-$96 (savings)
Soybean Meal ($/ton)	$365	$302	-$142 (savings)
Total Feed Cost per Cow/Year	$3,420	$3,182	-$238 (savings)
Milk Price per Cwt (Class III avg)	$18.20	$15.88	-$522 (loss)
Annual Milk Revenue per Cow	$4,368	$3,811	-$557 (loss)
Net Margin Impact (Revenue – Feed)	—	—	-$319 per cow

The Price Signal That Hasn’t Triggered Supply Response

What farmers are finding, according to Fuess, is that milk prices simply haven’t dropped far enough to trigger the supply response markets typically need.

“Milk prices have declined in the US, but total dairy farmer income likely remains higher than the cost of production for most farmers, meaning there has not yet been a strong enough price signal to tell farmers to cull cows or cut production.”

This creates a frustrating dynamic. Prices are low enough to hurt, but not low enough to force the contraction that would eventually support recovery. We may be stuck in this uncomfortable middle ground for a while—though the heifer shortage could ultimately do what price signals haven’t.

2026 Dairy Price Outlook: What Analysts Are Watching

Both Rabobank and Maxum Foods expect Europe to slip into a meaningful contraction next year, which should help ease the current oversupply.

“For the EU, there is a lag in falling farmgate price and reduction in milk production,” Hallo explained. “Coming off the back of good market conditions for farmers, the farms still produce good quantities despite falling commodity prices. This may look to correct itself mid-2026.”

For U.S. producers, Fuess offered a more sobering assessment: “While volatility is never gone from the market, it is unlikely that US milk prices will see significant growth in 2026 due to the continually growing production.”

Practical Considerations for Your Operation

Every farm faces different circumstances, but several themes emerge from the current market environment:

Cost management becomes your primary lever. With corn affordable and milk prices soft, feed efficiency and labor productivity matter enormously. Every dollar saved drops directly to the bottom line. This isn’t the time for sloppy ration management or deferred maintenance.
Component premiums over raw volume. High-protein, high-butterfat milk commands better prices at most plants. The Pennsylvania Dairy Producer Survey found that “increasing milk components” ranked among the highest-rated priorities across the state’s dairies in 2025. (Center for Dairy Excellence/Penn State Extension, 2025 Survey Results)Chasing volume into a surplus market amplifies the problem for everyone.
Beef-on-dairy revenue remains strong. With beef prices at historic highs, strategic terminal breeding can supplement dairy income while managing replacement inventory. The sustained strength in beef has made this supplementary income stream increasingly important to overall farm profitability—though it’s worth remembering that heavy beef breeding during 2022-2023 contributed to the heifer shortage now constraining expansion.
Build cash reserves for an extended trough. Futures markets suggest sub-$16 Class III and sub-$14 Class IV through early 2026. That’s not a dip—that’s a prolonged soft period. Make sure your balance sheet can absorb six more months of tight margins, because the market isn’t signaling quick relief.

One important caveat: margin pressures vary significantly by region and operation size. Upper Midwest operations face different feed cost structures than Western dry-lot dairies, and component premiums differ by processor. What works for a 150-cow grazing operation in Vermont won’t necessarily apply to a 3,000-cow confinement dairy in Texas. Consult your nutritionist, your lender, and your local extension economist about your specific situation.

The Bottom Line

The global dairy market is sending a clear message: there’s more milk than buyers need right now, and sustained low prices will likely be required to rebalance supply and demand. Some analysts believe we’re approaching a floor. History suggests inflection points are notoriously difficult to call.

What’s interesting is that biology may ultimately accomplish what price signals haven’t—the 800,000-head heifer deficit documented by CoBank creates a hard ceiling on expansion that capital alone can’t override. By 2027, when $10 billion in new processing capacity needs filling, the cows to supply it may simply not exist.

Operations focused on efficiency, component quality, and cost discipline will be best positioned to weather this period—and to capitalize when conditions eventually turn.

Margin Strategy	Estimated Impact per Cow/Year	Implementation Difficulty	Works Best For	What this means
Component premium focus	+$180-$320	Medium	All herd sizes	“Non-negotiable. Volume into a surplus is suicide.”
Feed efficiency optimization	+$140-$220	Low-Medium	Herds >100 cows	“Low-hanging fruit. Audit your ration immediately.”
Strategic beef-on-dairy	+$250-$400	Low	Herds with replacement flexibility	“Beef prices won’t save you, but they’ll soften the blow.”
Heifer inventory as asset	+$150-$500	High	Herds with genomic programs	“Your heifer pen is now a gold mine. Stop culling verified genetics.”
Cash reserve building	N/A (protects survival)	Medium	All farms	“Six months operating capital. Non-negotiable for 2026.”
Cull rate discipline	+$80-$180	Low	Herds facing heifer shortage	“That ‘marginal’ cow is worth one more lactation.”

Editor’s Note: Market data in this analysis comes from CME Group, Global Dairy Trade platform, USDA FAS reports, University of Wisconsin-Madison Extension, Penn State Extension, CoBank sector research, and industry analyst commentary from RaboResearch, Maxum Foods, and Ever.Ag (December 2025). National and regional averages may not reflect your specific operation’s circumstances. Feed and milk prices vary significantly by region, management practices, and market access.

Key Takeaways

Rare synchronized surplus: U.S., Europe, New Zealand, and South America are all growing milk production simultaneously—a phenomenon that almost never occurs and is crushing prices globally
December market snapshot: GDT index down 4.3%, butter plunged 12.4% in one auction, spot cheddar at $1.35/lb, Class III futures hovering near $15.88/cwt
America’s export paradox: U.S. cheese exports are setting records precisely because we’ve become the world’s cheapest supplier—though that advantage narrows as global prices converge
The 800,000-head constraint: Dairy heifer inventories have hit 20-year lows; this structural deficit from beef-on-dairy breeding may eventually limit supply when price signals alone haven’t
2026 outlook and action items: RaboResearch sees no meaningful recovery until European contraction mid-year; prioritize cost control, component premiums, and cash reserves to weather an extended trough

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Is Beef-on-Dairy causing America’s Heifer Shortage? – Reveals the structural root of today’s replacement crisis, detailing how the aggressive shift to beef-on-dairy created a biological lag that no amount of capital can quickly reverse.
11 Proven Strategies to Lower Feed Costs and Boost Efficiency on Your Dairy – Provides actionable tactics for reducing feed waste and optimizing rations, helping producers defend margins against the volatility highlighted in the market recap.
From Milk Machines to Component Champions: How Genomics and Sexed Semen Are Remaking the Dairy Cow – Explains the genetic pivot from volume to solids, offering a roadmap for using sexed semen and genomic tools to capture the component premiums now driving milk checks.

Join the Revolution!

Categories : Dairy Markets

Tags : 2025 dairy market outlook, beef-on-dairy impact, Dairy Farm Profitability, genomic inventory strategy, heifer inventory shortage, milk price forecast

£10,000 a Month in the Red: Why UK Dairy Margins Collapsed – And What’s Actually Working

Saturday, December 13th, 2025

When processor profits climb while your milk check drops, it’s not a coincidence. It’s a message. And once you understand what that message is telling you about how the modern dairy supply chain works, you can stop second-guessing yourself and start making strategic decisions.

Executive Summary: A 200-cow UK dairy loses roughly £10,000 every month when milk price sits 8-10ppl below cost of production. Right now, that describes most operations. AHDB’s April 2025 data shows just 7,040 producers remaining in Great Britain—down 2.6% in a single year—while First Milk’s operating profit climbed 22% to £20.5 million. Retail discounters now command nearly 20% of UK grocery spend, and post-Brexit policy lacks the milk-specific safety nets that cushioned the 2015-2016 crisis. This isn’t farm failure. It’s market structure. Three approaches are delivering real results for producers fighting to stay viable: strategic culling of the bottom 15% of the herd, precision feed management with qualified nutritionist support, and capturing beef-cross calf premiums through targeted breeding. Combined, these strategies can reduce monthly losses by £7,000-8,000—buying time to explore processor alternatives and the collective engagement approaches already producing results in Ireland.

I’ve been talking with UK dairy farmers a lot lately, and you know what keeps coming up? This quiet worry that maybe they’re just not good enough at this anymore. That somehow the losses they’re seeing reflect something they’re doing wrong.

Here’s what I want to say to that: if you’re running a technically sound operation—decent yields, reasonable cell counts, professional management—and you’re still hemorrhaging money, that’s not farm failure. That’s market structure. And there’s a real difference between those two things.

Let me walk you through what I’m seeing.

The Numbers Behind the Frustration

So let’s start with the processor side, because that’s where this story begins.

First Milk’s Annual Financial and Impact Report for the year ending March 2025 shows turnover of roughly £570 million and operating profit around £20.5 million—up from £16.8 million the previous year. That works out to an operating margin just over 3.5%. The cooperative points to higher product volumes and the full integration of BV Dairy as key drivers.

Metric	2023/24	2024/25	Change
First Milk Operating Profit	£16.8 million	£20.5 million	+22% ↑
First Milk Operating Margin	~3.2%	~3.6%	+0.4pp ↑
GB Dairy Producers	~7,240	7,040	-2.6% ↓
Farms Exited	n/a	~200	-200 farms ↓

Meanwhile, AHDB’s producer numbers survey from April 2025 shows we’re down to about 7,040 dairy producers in Great Britain. That’s around 160 fewer than the previous survey in October, and nearly 200 fewer than a year ago—a 2.6% annual decline. The exits tend to cluster ahead of winter housing, which makes sense when you think about the capital and workload involved in bringing cows inside.

Here’s what’s interesting, though. Even as farm numbers drop, total milk production keeps climbing. AHDB data shows the GB milking herd continuing its gradual decline, but litres per farm keep rising. Fewer farms, bigger herds, more milk per unit. That pattern’s been consistent for decades now.

And the cost picture? The Dairy Group’s September 2024 newsletter pegs the UK cost of production for 2023/24 at around 45 ppl, with their forecast for 2024/25 at approximately 44.2 ppl. Their analysis suggests it’s “extremely unlikely” we’ll see costs drop back below 40 ppl anytime soon.

So when farmgate prices sit in the mid-30s and the cost of production hovers in the mid-40s, you’ve got a gap of roughly 8-10 ppl. For a 200-cow herd producing about 1.5 million litres annually, that works out to something like £120,000 a year—close to £10,000 a month just to stand still.

***The £10,000 gap that’s killing UK dairy farms isn’t about bad management—it’s about market structure.***

Now, every farm pencils out differently. But consultants I’ve spoken with say these kinds of numbers line up pretty closely with what they’re seeing in real accounts.

Why This Cycle Feels Different

If you’ve been farming through previous downturns, you’re probably thinking about 2015-2016 right now. Similar oversupply pressures, similar price corrections. But something feels different this time, and I think that instinct is worth exploring.

During the 2015-2016 crisis, Brussels stepped in with a €150 million EU-wide scheme—created through Delegated Regulation 2016/1612—that paid farmers voluntarily to reduce milk deliveries for a few months. According to the European Court of Auditors’ special report on the EU’s response to the milk market disturbances, aid was set at €14 per 100 kg of milk to reduce deliveries by around 1.1 million tonnes. It wasn’t a perfect solution, but it was something.

Since leaving the EU, the UK hasn’t had a like-for-like replacement for that specific tool. Support has tended to come through broader environmental schemes and general farm payments rather than milk-specific production incentives. When processors announce cuts today, there’s less cushion. And it’s worth noting that devolved agricultural policies mean Scottish and Welsh producers face different support landscapes than those in England—something that adds another layer of complexity when comparing notes with neighbours across borders.

The retail landscape has shifted, too. Kantar’s December 2025 grocery data shows Aldi holding about 10.5% of the UK market and Lidl at 8.1%. Together, discounters now account for close to a fifth of all grocery sales—up from around 13.6% just five years ago. That buying power inevitably influences how hard they push wholesale prices, including dairy prices. It’s not that traditional supermarkets don’t care about farmgate sustainability—many genuinely do—but it’s harder to hold that line when your competitors are focused purely on cost.

And then there’s the processor balance sheet question. First Milk and others have taken on debt for capacity investments and acquisitions. When leverage ratios are around 3x and debt service coverage needs to be protected, there’s real pressure to maintain margins. I don’t think farmers should dismiss these constraints as excuses—they’re genuine business realities that boards have to navigate.

What producers are discovering is that the support architecture from the last major crisis has changed. Understanding that helps you think more clearly about your options.

Three Approaches That Are Actually Working

Understanding the market is useful, but you need actionable steps. I’ve been tracking what’s delivering results for farms navigating this environment, and three approaches keep coming up in the operations that are extending their runway.

Taking a Hard Look at the Herd

Here’s something that sounds counterintuitive but makes good financial sense: thoughtful culling can improve your monthly position even while reducing production.

You probably know this already, but the bottom 15% of most herds—cows with persistent cell counts above 400,000, yields consistently below 20 litres daily, or chronic fertility challenges—consume similar feed, labour, and veterinary resources as top performers while generating less revenue meaningfully. We’ve understood this principle for years, but current market conditions make acting on it more urgent.

I recently spoke with a consultant who walked through the numbers with a 200-cow client in northern England. They identified about 30 chronically under-performing cows—high cell counts, repeated fertility issues, cows that had been given plenty of chances—and sold them into a solid cull market at roughly £650 a head. That brought in close to £20,000 in cash.

Financial Component	Calculation (200-cow herd)	Impact
Bottom 15% Identified	30 chronically under-performing cows	High SCC, low yield, poor fertility
Immediate Cull Revenue	30 cows × £650/head	£19,500 cash
Monthly Feed Savings	Reduced ration costs + supplements	£2,000-3,000/month
Annual Feed Savings	£2,500/month × 12 months	£24,000-36,000/year
Total Year 1 Financial Impact	Cash + savings	£43,500-55,500

Source: Consultant case study, northern England; cull market pricing autumn 2025

More importantly, the farm cut its monthly feed bill by several thousand pounds and saw modest savings in vet and labour costs. The net effect moved them from a deeply negative monthly position to a more manageable one.

While every herd pencils out differently depending on your system, your cull market, and your costs, these are the kinds of numbers many accountants are now working through with clients. The key is being honest about which animals are genuinely contributing and which are just consuming resources. Work with your vet to ensure culling decisions account for your calving pattern and transition cow management—you don’t want to create gaps in your fresh cow pipeline that cause problems six months down the road.

With December and January typically being strong months for cull cow demand—processors need to fill orders before spring, and the beef trade tends to hold up well through winter—the timing for these decisions is actually reasonable right now.

Getting Smarter on Feed

Feed typically represents 40-60% of production costs, so even modest improvements here compound meaningfully. Two levers deserve attention, and they work well together.

The first involves precision nutrition. Advisers from groups like The Dairy Group and Kingshay regularly highlight the gap between typical and efficient operations on concentrate use—sometimes 0.50 kg per litre versus 0.41 kg per litre. That gap represents real money over the course of a lactation.

But here’s the thing—and I can’t stress this enough—closing that gap requires proper involvement from a nutritionist. Cut too aggressively without professional guidance, and you risk losing more in butterfat and protein performance than you save on inputs. I’ve seen farms try to do this on their own and end up worse off because yields or components drop. Get someone qualified involved before you change rations.

The second lever is collective purchasing. Advisers from Kingshay and The Dairy Group report that members of their buying groups can often secure noticeably better prices on straights and blends than lone buyers—sometimes shaving several pounds per tonne off the ticket price. The exact savings vary by region and by what you’re buying, but across a winter, those differences add up.

What’s encouraging is that I’m hearing about more farms in the Southwest and Midlands joining these groups this autumn. The administrative overhead is minimal, and the buying power is real.

Finding Revenue on the Margins

This is where farms can add income without major capital requirements.

In current UK auctions, it’s not unusual to see well-bred beef-cross dairy calves selling for several times the value of plain dairy bull calves. One recent market report from the South of England showed continental-cross calves comfortably into the low hundreds of pounds, while plain dairy bulls lingered at much lower values. Using sexed beef semen on cows not needed for herd replacement is a straightforward way to capture some of that premium.

Calf Type	Typical Market Value	Annual Calves (200-cow herd)	Annual Revenue	Premium vs Dairy Bull
Plain Dairy Bull	£20-40	50	£1,000-2,000	Baseline
Beef-Cross (Continental)	£100-150	50	£5,000-7,500	+£4,000-5,500
Your Opportunity	Switch 40-50 calves	40-50	+£3,200-6,000	£80-120 per calf

For a 200-cow operation with flexibility on breeding decisions for 100-plus females, targeting 40-50 beef crosses annually can add meaningful revenue without changing much else about your system.

The contracting opportunity also deserves a look. The NAAC Contracting Prices Survey for 2024-25 puts typical charges for slurry spreading with a tanker and trailing shoe at around £75 per hour, with forage harvesting operations ranging from £83 to over £200 per acre depending on the service level. For a farm with decent machinery and some spare labour capacity, doing a modest amount of contract work for neighbours can turn idle time into a few hundred pounds a month during peak seasons.

Neither of these is transformative on its own. But combined with the herd and feed work, they add up to something that can make the difference between a sustainable position and a forced exit.

44-45 ppl
Your real cost of production
According to The Dairy Group's September 2024 analysis, this is where UK operations sit today. If your milk check is in the mid-30s, you're underwater before you start.
7,040
Dairy producers remaining in Great Britain
AHDB's April 2025 survey count. That's 2.6% fewer than a year ago. The exits are accelerating, and they're concentrated in winter—right now.
£10,000/month
What a 200-cow herd loses when prices sit 8-10 ppl below cost
That's £120,000 a year just to stand still. This is the gap farms are trying to close with the strategies in this article.

The Combined Picture

When I model all three approaches together—strategic culling, feed optimisation, and revenue diversification—the financial shift becomes meaningful.

For a 200-cow operation starting at roughly £10,000 monthly losses, you might get that down to £2,000-3,000 monthly through these changes, plus a one-time cash injection from the cull animals. For larger 500-cow operations, the numbers scale accordingly.

***From crisis to breathing room in three strategic moves. This waterfall chart shows the actual financial trajectory when UK dairy farms implement***

That’s not a permanent solution—farmgate prices are still below the full cost of production. But it creates time. Time to explore processor alternatives if better prices are available elsewhere. Time to think about collective approaches. Time to restructure financing if needed. Time to plan transitions thoughtfully rather than under immediate pressure.

And that time matters more than people often realise.

What the Irish Experience Suggests

I’ve been following developments at Dairygold in Ireland because they offer an interesting case study in producer coordination.

When Dairygold announced pricing adjustments this autumn, Irish farming media reported that several hundred farmers quickly organised around concerns about pricing and attended regional meetings with detailed written questions. While the exact figures vary depending on who you talk to, producers on the ground say this collective approach helped prompt partial improvements in the farmgate price rather than further cuts.

Their approach was notably constructive—no protests or supply withholding, just organised attendance at meetings with specific questions about pricing formulas, operational costs, and capital allocation. When a meaningful share of your supplier base shows up with identical written questions, it changes the tone of the conversation.

What’s worth noting is that UK farmers actually have stronger legal frameworks available to them. Recent Defra regulations mandate pricing transparency and good-faith engagement in dairy contracts, and producer organisation structures enable collective dialogue without competition law concerns.

The barrier isn’t legal authority—it’s coordination. And the Irish experience suggests coordination doesn’t require formal structures or membership dues. It requires communication channels, commitment mechanisms, and producers willing to engage constructively with specific questions.

Looking Ahead: What the Projections Suggest

If current pricing dynamics persist, what trajectory should producers anticipate?

Based on AHDB data and Andersons’ outlook analysis, the consolidation pattern we’ve seen for decades looks set to continue—possibly accelerate. According to the Andersons Outlook report covered by Dairy Global, authors Mike Houghton, Oliver Hall, and Tom Cratchley project that GB dairy producers could fall to between 5,000 and 6,000within the next two years. Average herd size would continue climbing, possibly toward 250 head or beyond. Total production would likely remain stable as surviving farms expand.

***In 24 months, UK dairy could lose another 1,500 farms—and average herd size will climb past 250 head.***

Exit rates will probably vary significantly by scale and region. Smaller operations—those under 100-150 cows—generally face steeper challenges because their cost structures tend to run higher. Larger operations often achieve better economies of scale on fixed costs. That’s not a judgment about who’s a better farmer; it’s just the economics of spreading overhead across more litres.

Understanding this trajectory helps you make informed decisions about your own operation and timeline.

A Word on Cooperatives

Under UK cooperative law, boards are expected to act in the long-term interests of the society and its members, which often means paying close attention to balance-sheet strength, covenants, and investment needs alongside the current milk price. In practice, management decisions sometimes lean toward protecting the co-op’s viability, even when members face short-term income pressure.

I want to be fair here—boards aren’t being malicious when they make difficult pricing decisions. They’re navigating genuine constraints and competing obligations. But fairness has limits.

Loyalty is a two-way street. If the governance structure consistently prioritizes the institution over the member’s survival, the member has to ask a hard question: Am I actually an owner here, or am I just a supplier with a liability attached?

Because there’s a difference between a cooperative that asks members to share sacrifice during difficult periods and one that protects its margins while members bleed equity. The first is partnership. The second is something else entirely.

Different cooperative models do exist internationally. Some Canadian and European structures have achieved farmgate prices meaningfully above UK equivalents through different charter provisions and member engagement approaches. Whether UK cooperatives could evolve similarly is an open question—but it won’t happen without sustained producer engagement in governance processes. Boards respond to pressure. If members don’t apply it, nothing changes.

The Bottom Line

If you’ve read this far, you’re probably thinking about what all this means for your own situation. Let me offer a few thoughts.

First, understand where your losses are actually coming from. If you’re losing money but your operational metrics—yield, cell count, fertility, labour efficiency—compare reasonably well to industry benchmarks, your challenge is primarily market structure rather than farm management. That distinction matters for how you respond.

Second, don’t wait to act on the things within your control. The herd optimisation, feed work, and revenue diversification I described aren’t heroic measures—they’re sound management practices worth pursuing regardless of market conditions. Many farms should already have been doing this work. Current conditions just make it more urgent.

Third, explore your options on processor relationships. If there are meaningful price differences between your current buyer and alternatives, those differences add up fast. A few pence per litre on a million-plus litres is real money. Understand your contract terms, your notice requirements, and what’s actually available in your area.

Fourth, consider whether collective engagement makes sense for you. The Irish example shows that coordinated, fact-based dialogue can influence how processors make decisions. You don’t need to start a movement—even talking with neighbours about what you’re seeing in your milk cheques and what questions you’d want answered can be valuable.

And finally—and this one matters—make your decisions from clear analysis rather than frustration or self-doubt. If your operation is technically sound and you’re still losing money, that’s important context. It means the problem isn’t fundamentally about you. It means there are structural market factors at work. And understanding that changes how you evaluate your options.

These are difficult times in the UK dairy industry. But difficult times also clarify what matters and what actions are worth taking. The farms that navigate this well won’t be the ones who hoped for markets to improve. They’ll be the ones who understood their situation clearly, acted on what they could control, and made thoughtful decisions about their future.

That’s within everyone’s reach.

Practical Resources

AHDB Dairy: Benchmarking tools, market data, and cost of production analysis at ahdb.org.uk/dairy
Kingshay: Dairy costings service and buying group information at kingshay.com
The Dairy Group: Technical consultancy and feed analysis at thedairygroup.co.uk
NAAC Contractor Rates: Current pricing guides at naac.co.uk

Key Takeaways

The gap is £10,000/month. That’s what a 200-cow herd loses when milk sits 8-10ppl below cost. Most UK dairies are there now.
It’s not your farming. Processor profits up 22%. Producer numbers down 2.6%. This is market structure—not management failure.
Three moves that work. Cull the bottom 15%. Tighten feed with a nutritionist. Capture beef-cross premiums. Combined savings: £7,000-8,000/month.
You’re buying time, not salvation. These strategies create breathing room—to switch processors, explore collective action, or plan transitions on your terms.
Coordination changes everything. Irish producers shifted pricing through organised, fact-based engagement. UK farmers have stronger legal tools. They just need each other.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

FEED EFFICIENCY BOMBSHELL: Yeast Additives Expose the Truth About High-Starch Dairy Diets – Reveals how specific yeast supplementation can boost feed efficiency by 7.6% and improve conception rates by 50%, offering a scientifically proven nutritional lever to widen margins when feed costs are high.
The Wall of Milk: Making Sense of 2025’s Global Dairy Crunch – Analyzes the “global supply collision” behind the current price drop, providing the macro-economic context you need to understand why this downturn differs from 2015 and how long the pressure might last.
2025 Dairy Year in Review: Ten Forces That Redefined Who’s Positioned to Thrive Through 2028 – WARNING: Before you cull heavily, read this analysis of the severe 27-month heifer shortage and new component pricing standards that are permanently reshaping replacement costs and milk value.

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Categories : Dairy Markets

Tags : beef-cross dairy calves, Dairy Farm Profitability, herd culling strategies, milk cost of production, precision feed management, UK dairy industry

Cheap Milk Is Breaking the Farm: What’s Really Hollowing Out Dairy’s Middle Class

Friday, December 12th, 2025

Too big for local markets. Too small for volume deals. The 200-1,500 cow dairies—dairy’s middle class—are disappearing fastest. Here’s why.

EXECUTIVE SUMMARY: Something doesn’t add up. Last year, 1,434 U.S. dairies exited—a 5% drop—even while margins were supposedly improving. That’s not a rough patch; it’s a structural squeeze. Mid-size family operations (200-1,500 cows) are disappearing fastest, caught between the flexibility of small herds and the leverage of mega-dairies. Ownership is aging—22% of producers are now 65 or older—while more than half of on-farm labor comes from immigrant workers, quietly reshaping the traditional family farm model. The economics keep tightening too: farmers capture just 25 cents of every retail dairy dollar on average, yet absorb rising input and compliance costs that never show up in the milk check. With Chapter 12 bankruptcies in 2025 already exceeding last year’s full total, the warning signs are impossible to ignore. This analysis breaks down what’s really driving these exits—pricing structures, policy gaps, regulatory burdens, succession cliffs—and provides concrete early-warning indicators and financial benchmarks to help you evaluate what comes next.

Here’s a number that should give every dairy producer pause. The United States now has roughly 24,800 licensed dairy herds, down about 5% from just a year ago—that’s according to Progressive Dairy’s 2024 statistics and confirmed by USDA’s milk production reports. And if you zoom out further, we’ve lost close to 95% of our dairy farms since the early 1970s. Back then, over 648,000 operations were milking cattle. Today? Fewer than 25,000.

And yet—here’s what’s puzzling—national outlooks for 2024 and into 2025 have talked about “improving” margins. Feed costs came down a bit. Wholesale prices firmed up. Analysts started using phrases like “cautious optimism.” So why did roughly 1,400 more dairies still exit last year? Why are so many families I talk with saying they’re drawing down equity just to keep the lights on?

I’ve had versions of this conversation with producers from small tie-stalls in Vermont to large dry lot operations out West and mid-size freestalls across Wisconsin. And what’s becoming clear is that we’re not just dealing with another bad price year in one region. We’re looking at something more structural: the collision of 365-day biology, equipment, and regulatory realities, cheap-food expectations, reactive subsidy programs, and a market structure that has steadily shifted bargaining power away from the farm gate.

The goal here is to unpack those pieces and pull them together into something practical—warning signs to watch, questions to ask, and options to consider, whatever your herd size or region.

Where We Really Stand: Fewer Farms, More Milk, and Thinner Buffers

Let’s start with the big picture, because it sets the stage for everything else.

USDA economists have been documenting this shift for three decades now. According to their consolidation research, about 65% of the nation’s dairy herd now lives on operations with 1,000 cows or more—Rabobank’s analysis puts it even higher, around 67% of total U.S. milk production. Average herd size keeps climbing in almost every region, while total farm numbers decline between censuses.

Analysis of the 2022 Ag Census showed the same pattern in sharper detail: fewer dairy farms, higher total output, and production increasingly concentrated in states that favor large confinement or dry lot systems—California, Idaho, Texas, and parts of the High Plains.

Recent 2024 statistics added some granularity: about 1,434 dairies closed between 2023 and 2024, a reduction of roughly 5%, even though total U.S. milk production ticked up thanks to gains in per-cow output. Those gains are coming from exactly the things many of you have invested in—better forage quality, more consistent fresh cow management, tighter reproduction programs, and genetics that support higher butterfat performance.

Who’s Actually Leaving—and Who’s Staying

There’s a demographic story underneath these numbers that’s worth understanding. According to the USDA’s 2022 Census of Agriculture dairy highlights, 99% of dairy farm producers are white, and while dairy producers skew younger than farmers overall—averaging 51.4 years compared to 58.1 for all U.S. producers—22% are already 65 or older. That’s a significant portion of the industry approaching retirement age.

Here’s what makes this particularly challenging: the exits are heavily concentrated among older operators who lack identified successors. When you combine aging ownership with the capital intensity of modern dairy, you get a widening gap between who holds the farm titles and who actually does the daily work.

The 2024 Farmworker Justice report and National Milk Producers Federation research—going back to their 2014 labor survey and confirmed by more recent industry estimates—tell the other half of this story: more than half of all dairy labor is now performed by immigrant workers, predominantly Hispanic and Latino. Cornell University’s Richard Stup, who studies dairy labor extensively, puts the figure at 50-60% in the Northeast and Midwest, and closer to 80% in the Southwest and Western states. On large operations, especially, the workforce keeping those herds milked, fed, and managed looks very different from the families whose names are on the deeds.

These dynamics play out differently depending on the operation type as well. Large confinement dairies and dry lot systems in the West tend to have higher reliance on hired immigrant labor, while smaller grazing-based operations in the Northeast and Upper Midwest often still depend more heavily on family labor—though even many of those have shifted toward hired help for milking and feeding as family members pursue off-farm careers.

This isn’t a criticism—it’s a structural reality. What we used to call “the family farm” is increasingly becoming a “family-owned, diverse-labor-managed” operation. And that shift has real implications for how we think about equity, succession, and the long-term sustainability of dairy communities.

The Consolidation Math

From a national efficiency standpoint, these structural shifts have lowered average costs per hundredweight by spreading fixed investments—parlors, manure systems, feed centers—over more cows. From a family-business standpoint, the picture looks different. Mid-size operations in the 200 to 1,500-cow range have been exiting at significantly higher rates than very small lifestyle herds or the very largest facilities.

Attribute	Small Operations (<200 cows)	Mid-Size Operations (200-1,500 cows)	Large Operations (1,000+ cows)
Herd Size	50-200 milking cows	200-1,500 milking cows	1,000-10,000+ milking cows
Labor Model	Primarily family labor; occasional part-time help	Mixed family + hired labor—high wage pressure, management complexity	Fully professionalized hired workforce; structured HR systems
Capital Intensity	Lower fixed costs; older facilities often fully depreciated	High fixed costs with inadequate scale to spread them; deferred cap-ex common	Very high fixed costs, but spread over large volumes; access to institutional capital
Milk Marketing Leverage	Can pivot to direct sales, on-farm processing, local co-ops	Too large for niche markets; too small for volume premiums or bargaining power	Strong negotiating position; dedicated hauling; premium access
Revenue Diversification	Agritourism, farmstead cheese, direct retail, CSA models viable	Limited flexibility—committed to commodity production without scale advantages	Vertical integration opportunities; partnerships with major processors
Fixed Cost per CWT	$9-12/cwt (higher per-unit, but lower total exposure)	$11-15/cwt—worst of both worlds: high per-unit costs + large total debt load	$8-10/cwt (economies of scale in feed, facilities, management)
Primary Vulnerability	Succession risk; aging infrastructure; isolation from supply chain	Caught in structural vise: can’t pivot like small farms, can’t compete on cost like large farms	Regulatory exposure; environmental permits; commodity price swings
Exit Rate Trend	Stable or slowly declining (lifestyle/legacy farms)	Exiting fastest—5-7% annual decline in many regions	Growing slowly; acquiring exiting mid-size operations

In the Upper Midwest, where processing infrastructure has consolidated significantly over the past decade, this dynamic plays out in real time. When a regional cheese plant closes, or a co-op consolidates routes, the ripple effects hit mid-size operations hardest—they’re too big to pivot to direct marketing easily, but not big enough to justify dedicated hauling arrangements or negotiate volume-based premiums.

You know, I was talking with a group of extension economists recently, and one of them put it pretty well: from a national efficiency standpoint, consolidation looks neat and tidy on paper. From a family business standpoint, it often looks like the ladder is missing a few crucial rungs in the middle.

That’s worth sitting with for a moment.

Dairy’s 365-Day Biology: Why Downtime Hurts More Than It Looks on Paper

When we start talking about regulations, equipment costs, or subsidy programs, the conversation can drift into abstractions pretty quickly. Let’s bring it back to the cows for a minute, because that’s where the rubber meets the road.

Row-crop producers manage a biological asset that, once harvested, becomes inventory. Corn can sit in a bin for months without changing its metabolic state. Dairy is fundamentally different. A high-producing Holstein or Jersey in early lactation is closer to a marathon runner than a pallet of grain—her rumen pH, energy balance, and immune function can swing quickly if feed timing or quality shifts even modestly.

The research on transition periods and feeding behavior is pretty consistent on this. Even moderate disruptions in feeding time or abrupt ration changes can reduce dry matter intake, bump up subacute ruminal acidosis risk, and depress milk yields for days, particularly in fresh cow groups. Poorly timed or executed silage harvest—chopped too wet or too dry, packed insufficiently—reduces fiber digestibility and energy density. That can cost you one to several pounds of milk per cow per day for as long as you’re feeding that forage.

And inadequate manure scraping or holding capacity? That leads to longer standing times in wet alleys or stalls, which correlates with higher lameness, digital dermatitis, and elevated somatic cell counts.

Here’s what I’ve noticed in talking with producers across different regions: any disruption that delays feeding, degrades forage quality, or compromises cow comfort quickly becomes more than today’s problem. It affects the entire lactation curve and, through reproduction, the next generation of calves.

That’s as true on a 120-cow freestall in upstate New York as it is on a 3,000-cow dry lot in west Texas.

So when your feed mixer won’t start before the morning milking, it doesn’t just shuffle your chore schedule. It upsets the biology of every cow in that pen. When a chopper breakdown pushes corn silage harvest half a week later than planned, the economic cost isn’t just the repair bill—it’s tied directly to metabolism for the next twelve months.

DEF Systems: When Compliance Technology Meets the Feed Alley

This brings us to diesel exhaust fluid, or DEF. If you’ve spent any time around dairy operations or rural trucking in the last few years, you’ve probably heard the stories: tractors, TMR mixers, or milk trucks derating or shutting down because of DEF-related faults, even when the engine itself was mechanically sound.

These problems typically involve sensors, heaters, or software in the DEF system triggering power reductions or full shutdowns meant to enforce emissions compliance—but doing so at exactly the wrong moments.

In August 2025, the EPA responded to these sustained concerns. According to the agency’s official announcement, confirmed by DieselNet’s technical coverage, EPA Administrator Lee Zeldin—speaking at the Iowa State Fair—announced revised guidance requiring engine and vehicle manufacturers to update software and control strategies. The goal was to prevent many DEF failures from causing sudden power loss or stalls, especially in conditions critical to agriculture and freight.

The EPA’s own documentation acknowledges what many of us have experienced firsthand: “widespread concerns from farmers, truckers, and other diesel vehicle operators about a loss of speed and power, or engine derates.”

Looking at this development, a couple of things stand out.

The original implementation of DEF shutdown logic didn’t fully account for the continuous, time-sensitive nature of dairy operations—particularly around feeding and harvest logistics. The economic burden of those design choices has been borne primarily by producers and rural businesses, not by those who designed the regulatory framework or the equipment.

From an environmental perspective, the general scientific consensus is that tailpipe emissions from individual farm machines constitute a relatively small portion of dairy’s total greenhouse gas footprint, compared with enteric methane, manure storage, and feed production. That doesn’t mean emissions controls don’t matter. But it does suggest the highest climate return per dollar for dairy likely comes from investments in manure management—lagoon covers, digesters—along with improved feed efficiency and methane-reducing feed additives, rather than from single-point exhaust controls alone.

What’s encouraging is that some of the most forward-thinking farms are pushing on both fronts now. They’re advocating for uptime-aware emissions policy and equipment accountability, while simultaneously exploring digesters, improved covers, and ration strategies that can generate new income streams where the economics pencil out. It’s still early days for many of these technologies, but the direction is promising.

The Hidden Cost of “Cheap” Milk

Let’s talk about what happens between your bulk tank and the supermarket shelf, because this is where much of the producer frustration comes from—and it’s worth understanding the dynamics clearly.

USDA’s Economic Research Service tracks price spreads from farm to consumer, and the numbers are revealing. According to their 2024 data, the share of the retail dollar that actually reaches the farm varies dramatically by product. What jumps out from this data is the extent of variation across products. Butter returns the most to producers at 57 cents on the dollar—partly because it’s less processed and has fewer intermediary steps. Whole milk comes in around 49 cents. But once you get into cheese (32 cents) and the overall dairy basket average (just 25 cents), you’re looking at a system where three-quarters of what consumers pay goes to processing, packaging, transportation, wholesale and retail margins, and marketing.

So when you hear figures about farmers getting “30 cents on the dollar,” the reality depends a lot on what’s being measured. For fluid milk, it’s closer to half. For the processed products that dominate grocery dairy cases, it’s considerably less.

Meanwhile, consumer research tells an interesting story. A 2024 PwC Voice of the Consumer survey—and this has been widely reported—found that respondents were willing to pay about 9.7% more for products they considered genuinely sustainable, even amid inflationary pressures. Studies on dairy specifically suggest that animal welfare and local sourcing claims can raise stated willingness to pay in survey environments.

Here’s the disconnect, though. When input and compliance costs rise—energy, labor, animal care programs like the National Dairy FARM Program, new traceability requirements—processors and retailers can often pass some of those higher costs into the shelf price. Farm-gate prices, though, remain heavily anchored to commodity values for cheese, powder, and butter that respond to global supply and demand, not necessarily to local regulatory costs.

The net result? A lot of the cost of “better” milk—documented welfare practices, carbon tracking, rigorous food safety systems—gets absorbed as thinner producer margins and greater income volatility, rather than being fully and transparently reflected in retail pricing.

I was talking with a producer group in the Northeast recently, and one of them made a point that stuck with me: consumers think paying 50 cents more for a gallon is lining the farmer’s pockets. In reality, we’re often the last ones to see that extra dime.

For many family dairies, that’s exactly where the feeling comes from that they’re subsidizing cheap milk with their own balance sheets.

Subsidies, Bridge Payments, and Why the Math Still Feels Tight

When farm incomes come under pressure, federal policy typically reaches for supplemental payments. Over the past several years, we’ve seen quite a few.

The Market Facilitation Program responded to trade tensions in 2018 and 2019. Coronavirus Food Assistance Program rounds during the pandemic provided significant support to dairy producers. Dairy Margin Coverage kicks in when national milk-over-feed margins fall below elected trigger levels, and Dairy Revenue Protection offers another insurance layer.

Here’s the thing about government payments, though—and this is where context matters. According to the USDA’s Economic Research Service, direct government payments are forecast at about $40.5 billion for 2025. But that’s an exceptional year with significant emergency support programs. In 2024, government payments across all of agriculture were considerably lower—in the range of $9 to $11 billion, according to USAFacts analysis of federal farm subsidy data.

During pandemic years like 2020, payments were dramatically higher, and yes, at those peak moments, government support did represent an unusually large share of net farm income. But those were crisis-response situations, not the normal baseline.

The pattern most producers experience is that these tools are reactive and temporary by design. They kick in when margins drop below certain levels or when specific events—such as tariffs, pandemics, or droughts—trigger relief. They don’t kick in when long-term cost structures gradually drift out of alignment with average prices.

Once prices recover above a DMC trigger or an aid window closes, payments stop—even if interest, wages, insurance, and environmental compliance costs remain elevated.

Policy researchers have noted that while such subsidies can stabilize incomes in the short run, they don’t rewrite the underlying pricing rules. They can even encourage more leverage and land-cost inflation if they’re treated as permanent rather than emergency measures.

That’s part of why many mid-size dairies feel like they’re always one interest-rate move or one equipment breakdown away from serious trouble. The safety net might catch a fall, but it doesn’t rebuild the ladder’s rungs.

The Structural Squeeze: Consolidation Isn’t an Accident

Here’s an important point that sometimes gets lost: today’s dairy structure isn’t random drift. It’s the outcome of long-running economic forces that have shaped investment patterns, technology adoption, and market relationships for decades.

Larger herds tend to have lower fixed costs per hundredweight for parlors, manure systems, feed centers, and management overhead—at least up to a point. New technologies like automated milking and feeding systems, fresh cow monitoring tools, and advanced reproductive programs often deliver their best returns when spread over more cows.

As a result, the “median” efficient herd size in cost-of-production data has marched steadily upward, and many risk-management tools, co-op contracts, and lender products have been quietly built around that larger baseline. A recent Dairy Global overview noted that access to technology and capital intensity now create a sharper divide between operations able to keep reinvesting and those that struggle to maintain core infrastructure.

It’s worth stressing that large doesn’t automatically mean “bad,” and small doesn’t automatically mean “good.” I’ve visited well-run 5,000-cow dry lot operations out West that manage cow comfort, reproduction, and butterfat performance exceptionally well, with sophisticated fresh cow protocols and strong employee training programs. I’ve also seen 80-cow tie-stall herds in the Northeast that are profitable and deeply connected to local markets—and others struggling in outdated facilities with no clear successor.

The challenge many 200 to 1,200-cow family operations face is that they sit in the middle of this spectrum. They’re large enough to need hired labor, structured management protocols, and regular capital replacements. But they may not yet have the scale or bargaining leverage of the very largest units.

That’s where questions about whether the current system still works for their model become most pointed.

Early Warning Signs: Is This a Tough Patch or a Structural Problem?

This is one of the most important questions producers can ask themselves, and there’s no single metric that definitively answers it. But there are some early-warning signs worth watching—patterns that show up consistently in both the data and in conversations with lenders and advisers.

Local Exit Velocity

If your county or region is seeing dairy farm numbers fall 4 to 6 percent per year for several years running—similar to or worse than the national rate—that signals potential infrastructure risk. When too many mid-size herds disappear, processors may consolidate plants, haulers reduce routes, and local service providers struggle to justify coverage. That can increase costs and vulnerabilities for those who remain.

Bankruptcies Ticking Up Again

This one’s getting attention. According to American Farm Bureau Federation data, farm bankruptcies declined after 2019, and 2020—2023 was actually the lowest since 2008. But they’ve started climbing again. Nationwide, 216 farmsfiled Chapter 12 bankruptcy in 2024, up 55% from the previous year, according to industry coverage of the court data.

And here’s what’s concerning: the Farm Trader reported in July 2025 that 361 Chapter 12 cases were filed in just the first half of this year—already exceeding the entire 2024 total. When legal filings increase while analysts are talking about “decent” average margins, it often suggests that structural factors such as debt levels, interest costs, and local market concentration are pushing some operations into distress.

Chronic Cap-Ex Deferral

If you and neighboring farms have delayed major barn repairs, parlor upgrades, manure storage expansions, or equipment replacements for multiple years—not because the investments aren’t needed, but because cash flow simply won’t stretch—that’s a warning sign. Extension economists describe “feeding dead-weight debt” when working capital is used to service old loans rather than maintaining productive capacity. That pattern often precedes forced restructuring.

Milk Check Lagging the Headline Number

If the announced All-Milk price suggests healthy margins, but your blended check—after basis, hauling, quality adjustments, and pooling—runs consistently $1.50 to $3.00 per hundredweight lower, it’s worth asking why. Sometimes the answer involves legitimate differences in product mix or quality. Other times, it may reflect processing concentration, contract structures, or transportation arrangements worth revisiting through your co-op or buyer relationships.

Debt and Stress Moving Together

This one’s harder to quantify but may be the most important. Studies on rural mental health consistently link financial stress, high debt burdens, and a sense of powerlessness to increased depression and suicide risk among farmers. When rising debt-to-asset ratios, tight interest coverage, and burnout all show up simultaneously, that’s more than a rough patch. That’s usually when it pays to bring in a broader advisory team—lender, accountant, extension specialist, sometimes a counselor—to help clarify options.

Looking Over the Fence: What Other Systems Are Teaching Us

Producers often look north to Canada because it offers a fundamentally different model operating in real time.

Canada’s dairy sector operates under a supply-management system that combines production quotas with administered farm-gate prices based on cost-of-production formulas. The Canadian Dairy Commission regularly reviews cost data from representative farms—feed, labor, energy, capital—and recommends support prices implemented through provincial marketing boards.

According to Agriculture and Agri-Food Canada’s official dairy sector profile, there are about 9,256 dairy farms in Canada as of 2024. Dairy Farmers of Canada puts the average at roughly 105 milking cows per farm—considerably smaller than the U.S. average, but operating with much lower year-to-year price volatility at the farm level. The sector remains dominated by family operations with relatively stable debt levels and a higher rate of successful intergenerational transfers.

Canadian economists and policy analysts are also clear about the trade-offs. Consumers pay somewhat higher prices on certain products. Trade commitments constrain export opportunities. And significant capital is tied up in quotas, which new entrants must finance—creating barriers to entry that the U.S. system doesn’t.

In Europe, the 2014 to 2016 milk market crisis prompted the EU to deploy crisis reserve funds and voluntary supply-reduction schemes within the Common Agricultural Policy. Evaluations suggest these tools helped reduce some volatility but also highlighted challenges with targeting and timeliness.

None of these models can simply be transplanted into the U.S. context. But here’s what they do demonstrate: policy design—how prices are set, how supply is managed, how bargaining power is structured—has real impact on how risk and reward are shared across the chain.

That’s a useful lens to keep in mind whenever we hear that current outcomes are purely the inevitable result of “the market.”

There are signs of experimentation closer to home, too. Some U.S. cooperatives are pushing for more flexible, transparent federal milk pricing and stronger collective bargaining tools. Others are investing in value-added channels and direct-to-retail partnerships to capture a larger share of the consumer dollar for producers. Early days, but these efforts hint at ways the rules might evolve.

Succession, Identity, and the Hardest Questions on the Table

Behind all the economics and policy discussions are families deciding what comes next. This is where the numbers meet real life.

Surveys from Progressive Dairy and land-grant extension programs suggest that a majority of producers hope to pass their farms to the next generation. Yet only a minority have written, formal succession plans. Broader research on family enterprises finds that only about one in six survives as a healthy business into the third generation—and farms aren’t immune to that pattern.

The demographic data makes this more urgent. With 22% of dairy producers already 65 or older according to the 2022 Census, and with exits concentrated among operators without identified successors, the next decade will see a significant wave of transitions—planned or otherwise.

Meanwhile, cooperatives like Agri-Mark have felt compelled to include suicide hotline and counseling information on milk checks, responding to real mental-health concerns in their membership. Policy briefs and studies link financial strain, long working hours, and social isolation to elevated mental-health risks in agricultural communities.

Given that backdrop, some of the most constructive conversations families are having right now revolve around three questions:

If this operation were a startup your son or daughter was considering buying—same balance sheet, same cash flow—what would you tell them?

If you could exit or significantly scale down in the next 18 to 24 months and preserve substantially more equity than waiting until a lender forces the issue, would that change how you view your options?

What does “success” really mean for your family at this stage—owning a certain number of cows, maintaining a particular way of life, or building flexible wealth and health for the next generation?

For some families, the answers lead toward doubling down: investing in scale or specialization, engaging more actively in co-op governance and policy debates, positioning the dairy to compete under whatever rules emerge. For others, a strategic sale, a shift into specialized niches like on-farm processing or direct marketing, or even a full pivot out of milking may make more sense.

What’s encouraging is that more advisers, lenders, and producer groups are normalizing these discussions. They’re emphasizing that choosing a planned exit or transition can be a strategic business decision—not a personal failure. That shift in attitude makes it easier for families to talk openly about options before they’re forced into them.

Three Numbers to Review With Your Lender This Winter

As a practical takeaway, here are three metrics worth putting on paper before your next advisory meeting:

Debt-to-asset ratio: Where are you today, and how has that moved over the last five years? Many extension resources flag ratios above 60 percent as elevated risk territory for dairy operations.

Interest coverage: How many dollars of operating income are available to service each dollar of interest expense? Rising rates over the past couple of years have tightened this metric for many otherwise solid operations.

Cap-ex backlog: What major replacements or upgrades have you deferred—parlor, manure storage, feed center, housing—and what’s the realistic cost to bring those systems up to standard over the next five to ten years?

These numbers don’t decide your future. But they make it much easier to have honest, fact-based conversations about whether to expand, hold, restructure, or plan a managed exit.

The Bottom Line

Looking across all of this, a few grounded lessons stand out.

Dairy isn’t struggling because the biology stopped working. The cows, land, and genetics on many U.S. operations are performing at remarkably high levels. The strain comes from how pricing, policy, and bargaining power are configured around that biology.

Uptime and reliability are strategic concerns now, not just repair headaches. Tracking DEF-related and other critical downtime—including downstream effects on forage quality and fresh cow performance—gives you leverage in equipment decisions and conversations about policy reform.

Knowing your true cost of production is non-negotiable. Full-cost budgets that include family labor and realistic depreciation let you evaluate milk prices, insurance tools, and investment opportunities against your actual situation—not the “average.”

Early-warning signs are already visible in many regions. Rising bankruptcies, steady annual farm losses, chronic cap-ex deferral, and milk checks that lag headline prices all point toward structural pressure, not just bad luck.

Alternative policy designs show that different outcomes are possible. Canadian supply management, EU crisis tools, and emerging U.S. discussions around federal order reform and co-op bargaining all demonstrate that rules shape results.

And succession decisions are about people as much as they are about numbers. Honest conversations about equity, risk, mental health, and family goals matter just as much as any spreadsheet when deciding whether to grow, hold, or exit.

The goal here isn’t to say there’s one correct path for every dairy. It’s to put as much of the big picture on the table as possible—so that when you sit down with your family or your team, you’re making decisions with clear eyes and solid information.

The system around dairy will evolve. It always does. The more producers understand how it works today, the more influence they can have on what it becomes tomorrow.

For tools and resources mentioned in this article, check with your state’s land-grant university extension service. Wisconsin’s Center for Dairy Profitability offers FINPACK-based financial analysis, Penn State Extension provides dairy cost-of-production worksheets, and Cornell’s PRO-DAIRY program has succession planning guides—all available at low or no cost and adaptable to your specific operation.

KEY TAKEAWAYS

Exits are accelerating despite “better” margins. One thousand four hundred thirty-four dairies closed in 2024—a 5% drop—while analysts talked of improvement. That’s not a bad year; it’s structural pressure.
Dairy’s middle class is vanishing fastest. Operations running 200-1,500 cows are caught in the squeeze—too large for niche flexibility, too small for volume leverage.
You’re keeping less than you think. Farmers capture just 25 cents of every retail dairy dollar on average, yet absorb rising costs that never reach the milk price formula.
A demographic cliff is coming. 22% of producers are 65+, few have written succession plans, and more than half of daily labor now comes from immigrant workers, reshaping what “family farm” means.
The warning signs are flashing now. Chapter 12 bankruptcies in 2025 have already exceeded last year’s total. Three numbers to review with your lender: debt-to-asset ratio, interest coverage, and deferred cap-ex.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Your 2025 Dairy Gameplan: Three Critical Areas Separating Profit from Loss – Provides immediate tactical adjustments for forage density, transition cow spacing, and amino acid use. This guide offers actionable benchmarks to protect margins on the production floor while broader structural issues play out.
2800 Dairy Farms Will Close This Year—Here’s the 3-Path Survival Guide for the Rest – Moves beyond the problem to the solution, outlining the three viable business models left for mid-size producers: scaling for efficiency, pivoting to premium differentiation, or executing a strategic exit before equity erodes.
The Tech Reality Check: Why Smart Dairy Operations Are Winning While Others Struggle – Delivers a hard look at the ROI of automation and the cybersecurity risks facing modern dairies. This article demonstrates how to evaluate technology investments based on labor savings and operational resilience rather than hype.

Join the Revolution!

Categories : Dairy Markets

Tags : cost of production, dairy farm bankruptcy 2025, dairy farm consolidation, dairy succession planning, farm equity preservation, mid-size dairy management, milk price spreads

$11 Billion Bet on Protein: Is Your Milk Check Positioned to Win?

Friday, December 12th, 2025

A structural shift in dairy economics is creating new opportunities for farms producing protein-rich milk—and understanding these dynamics can help inform decisions in the months ahead.

Executive Summary: Dairy processors just made an $11 billion bet on protein—and that changes the equation for every milk check in America. With whey protein isolate trading above $8.50 per pound and the April 2025 Net Merit revision boosting Feed Saved from 12% to nearly 18%, the industry is signaling where value is heading for the next decade. Producers combining targeted genetics with amino acid nutrition are seeing protein improvements worth $60,000-70,000 annually on 500-cow operations. The catch? Your pricing structure determines whether you actually capture that value. Farms in large pooled cooperatives often keep only a fraction of their component gains, while those on direct Class III pricing retain most of what they produce. Before investing in protein optimization, one comparison matters most: what you received per pound of protein versus the Class III protein price over your last three months. That gap reveals whether this opportunity is real for your operation—or whether you’d simply be subsidizing someone else’s premium.

You know, if you’ve been watching your milk checks closely over the past year or so, you’ve probably noticed something shifting. Back in May 2024, USDA Cold Storage data showed butter inventories climbing to nearly 380 million pounds—the highest we’d seen since 2020. That’s a lot of butter sitting in warehouses.

Metric	2020	2024	Change
Butter Cold Storage (million lbs)	282	380	+35%
Whey Protein Isolate Price ($/lb)	$5.10	$8.50	+67%
New Protein Facility Investment	$2.1B	$11.0B	+424%

And here’s what got my attention: around the same time, cheese processors across the Upper Midwest started signaling they were receiving more cream than they needed for optimal cheese production. For those of us who remember when butterfat premiums seemed like they’d climb forever, it was a notable moment.

What’s happening isn’t that butterfat suddenly lost value—it hasn’t. It’s that processors have committed serious capital to cheese and whey protein facilities, and that’s changing what they need from the milk supply. The International Dairy Foods Association announced in October 2025 that America’s dairy processors have invested more than $11 billion in new and expanded manufacturing capacity across 19 states—with over 50 projects coming online between now and 2028.

That’s not a small bet. And it tells you something about where the industry sees value heading over the next decade.

Following the Investment Money

When I’m trying to understand where dairy markets are heading, I’ve always found it useful to watch where processors actually put their capital. Talk is cheap, but $870 million facilities tell you something.

That’s what Leprino Foods committed to their Lubbock, Texas plant—a decision the Texas Governor’s office and Texas Tech Research Park both documented back in April 2022. We’re talking about an 850,000-square-foot facility designed from the ground up for integrated mozzarella and whey protein production. When you build that kind of infrastructure, you’re making a decade-long bet on where value will come from.

And Leprino isn’t alone in this. Hilmar cut the ribbon on a $600 million facility in Dodge City, Kansas, back in March 2025—Dairy Processing magazine covered the opening extensively. Fonterra invested $240 million in New Zealand mozzarella capacity a few years back. Across Wisconsin and Minnesota, regional processors have been adding whey protein recovery equipment alongside cheese expansion projects.

What’s interesting is that this isn’t just a U.S. phenomenon. You’re seeing similar capital flowing toward protein and whey infrastructure in the EU and Oceania—which suggests this shift reflects global demand patterns rather than a temporary domestic trend. When processors on three continents are making the same bet, it’s worth paying attention.

What’s different about these investments compared to previous buildouts? The explicit focus on capturing whey value. I remember hearing Dr. Mark Stephenson—who recently retired as Director of Dairy Policy Analysis at UW-Madison—make this point at an industry meeting. Modern cheese plant economics increasingly depend on monetizing both the cheese and whey streams. Processors who can efficiently convert whey into high-value protein products have developed a meaningful competitive advantage.

The pricing reflects this shift. USDA data from late 2024 showed whey protein isolate climbing above $8.50 per pound—record territory—and prices have continued strengthening into 2025. If you look at USDA Dairy Market News reports, whey protein concentrate has more than doubled in many markets from where it sat back in 2018.

Why such sustained strength? Several factors have converged globally, which is part of what makes this feel structural rather than cyclical. China remains one of the world’s largest importers of dairy ingredients, with significant demand for infant formula components. Sports nutrition markets in Asia and Europe continue expanding. Meanwhile—and this one caught most of us off guard—the rapid adoption of GLP-1 weight-loss medications has created substantial new protein demand. Industry analysts have noted that patients on drugs like Ozempic are advised to maintain high protein intake, and that’s flowing through to whey consumption in ways nobody predicted five years ago.

When processors can generate meaningful revenue from whey alone, their willingness to pay for protein-rich milk makes straightforward economic sense.

What the Net Merit Changes Tell Us

The April 2025 revision to Net Merit offers another window into where the industry sees value heading. If you haven’t looked at the updated trait weights from the Council on Dairy Cattle Breeding, they’re worth examining.

Here’s how the emphasis shifted:

Trait	Previous Weight (2021)	New Weight (2025)	Change
Feed Saved	12.0%	17.8%	+5.8%
Butterfat	28.6%	31.8%	+3.2%
Protein	19.6%	13.0%	-6.6%
Productive Life	11.0%	8.0%	-3.0%
Cow Livability	7.0%	8.0%	+1.0%
Heifer Livability	1.3%	2.0%	+0.7%

That decrease in protein weight catches people off guard at first—it seems to contradict everything we’ve been discussing about protein demand. But dig into the methodology, and it makes more sense. Protein value is now being captured through multiple pathways in the formula—feed efficiency, component relationships, and longevity factors. A bull producing efficient daughters with strong components and a good productive life captures protein value across several trait categories rather than just one line item.

What does this means practically? Bulls that looked middling under older indexes—solid on efficiency and percentages but perhaps not flashy on production—are ranking considerably higher now. I’ve talked with several producers who’ve gone back through old sire catalogs and found bulls they’d passed over now sitting in the top tier.

One Wisconsin dairyman put it well: “Same genetics, completely different economic picture. The index finally caught up with what processors want to buy.”

The Nutrition Piece

Farms seeing the strongest protein gains are generally combining genetic direction with targeted nutrition work. The approach that’s gotten the most traction centers on rumen-protected amino acid supplementation—specifically methionine and lysine.

The science here is fairly well established at this point. Research published in the Journal of Dairy Science and extension work from programs like Penn State has documented that methionine and lysine are frequently the first-limiting amino acids for protein synthesis in typical corn silage-based Midwest rations. When you can get adequate methionine past the rumen and into the small intestine, cows can convert more of their dietary protein into milk protein.

What does implementation actually look like? Based on extension recommendations from Wisconsin, Minnesota, and Cornell, most successful protocols run around 15 grams of rumen-protected methionine per cow daily, balanced with lysine at roughly a 3:1 ratio. But the amino acids aren’t magic—they work best when the underlying ration is already well-balanced.

And here’s something I’ve noticed: farms often see protein responses from improving the basics before they even add supplements. Better feeding frequency, improved bunk management, attention to fresh cow nutrition during those critical first 60 days… sometimes the fundamentals matter most.

The transition period deserves particular attention. Research from land-grant universities has shown that close-up dry cow nutrition influences early lactation performance in meaningful ways. Getting that pre-fresh nutrition right sets the table for everything that follows.

When farms execute this well, they’re typically seeing protein improvements of 0.15 to 0.25 percentage points within a month or two—though results vary depending on the baseline diet and management. Run that math on a 500-cow herd, and you’re looking at meaningful dollars—potentially $60,000-70,000 annually at current component premiums.

Of course, there’s investment required on the front end. Amino acid programs run $25,000-35,000 per year for a herd that size, plus genetic program costs. Most farms doing this well are seeing positive returns within about a year.

But—and this is important—that math depends heavily on how your milk is actually priced.

The Pricing Question That Matters Most

Here’s where individual circumstances become crucial, and where I’ve seen producers make costly assumptions.

Not all milk payment systems reward improvements to components equally. Depending on your situation, the same investment might generate very different returns.

If you’re on component-indexed pricing—straight Class III or IV federal order payments—protein improvements generally flow through to your check within a few weeks. These operations typically capture a significant portion of the commodity value from their component gains.

Pooled cooperative pricing is more complicated. When your milk blends with dozens or hundreds of other farms before payment calculations happen, individual component improvements get diluted across the pool. I spoke with a producer in central Wisconsin who learned this the hard way—invested significantly in nutrition and genetics, moved his tank from 3.05% to 3.28% protein, but his cooperative pools 94 farms, and the pool average barely budged. He got paid on the pool number, not his individual achievement.

Fixed contracts present another scenario. Multi-year arrangements may not reflect component changes until renegotiation, regardless of what’s happening in commodity markets.

⚠️ A Word of Caution for Large-Pool Operations

If you’re shipping to a cooperative that pools 100+ farms, it’s worth getting written confirmation of how your individual component improvements will be valued before ramping up amino acid spending. Ask specifically: “Will my protein be paid out above the pool average, or blended into the pool before my check is calculated?”

I’ve seen situations where producers invested $30,000+ annually but captured only a fraction of the value their cows actually produced—in some cases, by my rough math, maybe 20-30% of what they’d have received under direct component pricing. Your numbers will be different, so pull your last few settlement sheets, compare your protein line item to the Class III protein price during those months, and see what the gap actually looks like for your operation.

Get the details in writing before you write that first feed additive check.

Pricing Structure	Component Capture	Payment Lag	Annual Impact (500-cow)	Risk
Direct Class III	90-98%	2-3 weeks	+$68,000	Low
Small Pool Co-op (20)	70-85%	4-8 weeks	+$52,000	Moderate
Large Pool Co-op (100+)	25-35%	8-12 weeks	+$22,000	High
Fixed Multi-Year	0% until renewal	12-36 months	$0-$15,000	High

Before committing resources to protein optimization, have a direct conversation with your cooperative or processor. Some questions worth asking:

Questions for Your Processor

How exactly is protein valued in my payment?
What premium applies per point above baseline?
Is my pricing tied to commodity markets or fixed?
How does my individual production factor into payment versus pool averages?
Are changes to component pricing under consideration in the next few years?

Getting clear answers—ideally in writing—helps ensure your investments match your actual payment reality.

Thinking About Timing

Farms that started this work back in late 2024 have developed certain advantages—genetic progress, processor relationships, and, in some cases, contract terms that reflected the recruitment phase of new facility buildouts.

Looking at how things are unfolding: 2024-2025 represented the buildout phase, with new capacity coming online and processors actively seeking milk to fill facilities. Premium arrangements were more available during that window.

Through 2026-2027, we’ll likely see that capacity reaching target utilization. Processor relationships are solidifying, and the terms available to new suppliers may differ from what early movers secured.

By 2028-2029, assuming demand projections hold, markets should approach something like equilibrium. Premiums probably moderate from current peaks—not disappear, but normalize.

For operations starting now, this means entering somewhat behind early movers. Genetics compound over time, so there’s a gap that doesn’t fully close. But farms that begin today can still achieve meaningful improvement compared to operations that make no changes. The opportunity looks different from than it did in 2024, but it’s certainly not gone.

A Few Things Worth Thinking Through

Every strategic direction involves tradeoffs, and the protein focus is no exception. Here are a few considerations that deserve honest attention.

Component ratio balance matters for cheese manufacturing. Research from the American Dairy Products Institute indicates that most cheese production works best with protein-to-butterfat ratios in the 0.80-0.90 range. CoBank economist Corey Geiger has noted that cheesemakers strive for ratios near 0.80—anything significantly lower can affect cheese quality. Farms that substantially increase protein while butterfat falls may find their milk components less desirable for certain applications.

Input cost variability has surprised some operations. Rumen-protected amino acid prices spiked significantly back in 2021-2022 when supply disruptions hit. Building some flexibility into nutrition programs helps manage that exposure.

Genetic diversity deserves ongoing attention, too. With genomic selection concentrating breeding on popular sire families, inbreeding levels have climbed substantially over the past couple of decades—recent CDCB data shows levels exceeding 15% in some young Holstein bull populations. The costs show up in fertility and health over time, though they’re easy to overlook in the short term. Maintaining reasonable sire diversity isn’t just academic—it’s practical risk management.

Regional market variation matters quite a bit as well. Upper Midwest farms near major cheese processors are well-positioned for this approach. Operations in fluid milk markets or regions where butter production dominates may see more limited benefit regardless of their component achievements. Knowing your market matters before optimizing for it.

The Sustainability Angle

When sustainability premiums first entered industry conversations, I’ll admit to some skepticism about whether they’d actually show up at the farm level. That picture seems to be evolving.

With the EU’s Carbon Border Adjustment Mechanism set to take full effect next month, in January 2026, processors exporting cheese to Europe will face new carbon-intensity-based costs. This creates real incentive to source lower-emission milk. Paying farmers for documented carbon reductions becomes economically rational when it saves on export compliance costs.

Here’s what connects this to protein work: farms improving feed efficiency while maintaining strong milk components inherently reduce emissions per unit of output. Research from universities including Penn State and UC Davis suggests that improved efficiency translates to lower carbon intensity per pound of milk solids produced.

Done thoughtfully, component optimization and emissions reduction can complement each other rather than compete.

Several European cooperatives have already implemented farmer incentive programs along these lines. U.S. processors are developing pilot programs. This probably isn’t the primary reason to pursue protein optimization today, but it’s an increasingly relevant factor that may strengthen the case over time.

Getting Started Thoughtfully

For operations considering this direction, the first 90 days often matter more than elaborate long-term plans. Based on conversations with producers who’ve navigated this successfully, here’s a reasonable framework:

The first month should focus on understanding your actual situation. Document current milk composition—protein, butterfat, and their ratio. Have honest conversations with your processor about how components are valued in your payment. Look at your current genetics through the updated Net Merit lens.

The second month is for testing at conservative levels. Maybe start amino acid supplementation around 10-12 grams rather than full protocols. Focus on feeding fundamentals and bunk management. Track composition weekly rather than waiting for monthly tests.

By month three, you should have enough information to determine whether this fits your operation. If the response looks positive, genomic testing can identify your strongest replacement genetics. Continue building processor relationships with real data. Evaluate whether deeper investment makes sense given what you’ve learned.

This approach generates actual information before requiring major commitments.

The Bottom Line

The dairy industry is working through its most significant component value evolution in quite some time. How individual farms respond will depend substantially on their specific circumstances—pricing structure, regional market, capital situation, and risk tolerance.

A few things seem reasonably clear from the data and from conversations with producers navigating these decisions:

The underlying shift appears structural. Processor investments of $11 billion don’t respond to temporary signals. The infrastructure going in will influence economics for years.

Individual circumstances determine actual returns. Understanding precisely how your milk is priced matters enormously before committing resources.

Nutrition typically shows results faster than genetics. Amino acid work can demonstrate effects within weeks; genetic progress compounds over years. Using nutrition gains to fund genetic investment creates sustainable momentum.

Thoughtful risk management enhances outcomes. Maintaining component balance, reasonable fertility standards in genetic selection, sire diversity, and program flexibility all contribute to durable success.

Some farms will determine, after careful analysis, that their situation makes this direction less attractive. That’s genuinely useful information.

For others, there’s still an opportunity to develop a thoughtful approach aligned with where the industry appears headed. The terms differ from early mover advantages, but the fundamental economics remain sound for many operations.

Here’s your challenge: Pull your milk checks from the last 3 months this week. Calculate exactly what you received per pound of protein versus what the Class III protein price was during those months. If the gap is more than 15%, you’re losing money to your payment structure—and no amount of genetic progress or nutrition investment will close that gap until you address the pricing problem first.

The processors have placed their bets. The question is whether your operation is positioned to benefit—or whether you’re subsidizing someone else’s protein premium.

Key Takeaways

$11 billion in new facilities signals processors are betting long-term on protein—this is structural, not cyclical
Net Merit 2025 reshuffled genetics—Feed Saved jumped from 12% to 18%; some bulls you overlooked now rank at the top
Nutrition delivers faster than genetics: 15g daily methionine + 3:1 lysine ratio can boost protein 0.15-0.25 points within 60 days
Your pricing structure is everything—farms in large pooled co-ops may capture only 20-30% of component improvements
Do the math before you invest: Compare 3 months of protein payments to Class III prices—a gap over 15% means fix pricing first

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The $38,000 Question: Why Components Beat Volume in Dairy’s New Reality – Reveals the specific mathematics behind shifting from volume to components, demonstrating how hitting 4.3% butterfat targets can generate an additional $38,000 annually per 500 cows while reducing overhead costs.
$11 Billion in New Processing Capacity Is Creating Winners and Losers – Analyzes the geographic footprint of 50+ new processing facilities coming online through 2028 and provides a 6-month strategic roadmap for positioning your milk supply to capture emerging premiums.
CDCB’s 2025 Genetic Base and Merit Indices Update: Everything You Need To Know – Provides a technical deep dive into the April 2025 Net Merit formula revisions, explaining exactly how the new “Feed Saved” and component weightings impact sire selection and long-term herd profitability.

Join the Revolution!

Categories : Dairy Markets

Tags : component pricing economics, Dairy Farm Profitability, dairy herd nutrition, milk check maximization, Milk protein components, Net Merit 2025

Dairy’s National Average Is a Lie: Texas +50,000 Cows, Washington -21,000 – Your 90-Day Plan

Friday, December 12th, 2025

Here’s the thing about national averages—they can hide more than they reveal. While USDA reports 3%+ growth, one state added 50,000 cows and another lost 21,000. Let me walk you through what’s really happening and the decisions that matter most before spring.

Executive Summary: Here’s what the national dairy numbers aren’t telling you: Texas added 50,000 cows last year while Washington lost 21,000—and both get averaged into that 3% growth everyone’s celebrating. Three self-reinforcing factors explain why herds haven’t contracted despite margin pressure: heifer prices above $3,400, making culling uneconomical; beef-on-dairy breeding consuming 25% of the herd’s replacement capacity; and feed costs near multi-year lows. Add $11 billion in new processing capacity coming online through 2028—much of it potentially misaligned with where milk will actually be produced—and you’ve got an industry approaching a meaningful reset. Smart producers have a 90-day window to hedge feed costs, lock in replacement strategies, and have honest conversations with their processors and bankers. The operations that come out ahead won’t just be the best operators—they’ll be the ones who understood their regional trajectory and kept enough flexibility to move when the time came.

You’ve seen the headlines by now. Milk production up. Herd expanding. Cheese exports are hitting records.

Now here’s what those numbers don’t tell you.

There isn’t one U.S. dairy industry anymore. There are at least two, maybe three—and they’re operating under completely different conditions, facing completely different futures. A producer in the Texas Panhandle and a producer in Washington’s Yakima Valley might see similar milk prices on any given month. But you know what? They’re playing entirely different games right now.

I should mention upfront: not everyone sees it this way. I was talking with a consultant last month who made a pretty compelling case that strong export demand signals continued growth across the board. And honestly, the optimists might be right. But the regional divergence I’ve been tracking suggests the headline numbers are masking something we all need to understand.

So let me show you what I mean.

The Great Divide: Where Dairy Is Growing vs. Where It’s Shrinking

That national milk production number everyone’s quoting—up more than 3% in August according to USDA NASS—is really just the average of dramatically different regional stories.

Here’s how it actually breaks down:

Region	What’s Happening	The Numbers	What’s Driving It
Texas	Rapid expansion	+50,000 cows in 12 months	Processing built ahead of herds; lighter regulations
South Dakota	Strong growth	Valley Queen is adding capacity for 25,000 cows	Processor investment is pulling producers in
Idaho	Steady growth	Continued herd expansion	Land availability; good processing access
Wisconsin	Flat, consolidating	Production is barely above flat in 2025	Smaller farms exiting; larger ones absorbing neighbors
Minnesota	Consolidating	Steady structural change	Similar pattern to Wisconsin
California	Declining	Production down despite stable herd	H5N1 impacts; milk per cow dropping
Washington	Rapid contraction	-21,000 cows year-over-year; -8.5% output	Environmental compliance costs; EPA involvement
Oregon	Steady decline	Continued farm attrition	Air quality regulations; rising costs

Data from USDA NASS September 2025, Dairy Herd Management, Farmers Advance, and IDFA analysis

You see what’s happening here? Texas added enough cows to fill a major cooperative. Washington lost enough to empty one. And we’re calling that a “national trend.”

What’s Fueling the Growth States

I had a chance to tour a newer Texas Panhandle operation last spring, and a few things really stood out to me.

First—and this is important—the processing came before the cows. Cheese plants in Dumas, Amarillo, and Lubbock were already running when producers started expanding. That sequencing matters more than people sometimes realize. You don’t have to wonder where your milk’s going when there’s a plant down the road hungry for supply.

The feed economics work differently out there, too. Land costs and crop prices create structural advantages that are hard to replicate in traditional dairy regions. And while Texas certainly has regulations, the overall compliance burden is measurably lighter than that faced by coastal operations.

South Dakota’s telling a similar story. Dairy Herd Management reports that Valley Queen’s expansion could accommodate roughly 25,000 additional cows over 2025-2026. The processor built the capacity first. The cows are following.

What’s Driving the Contraction

Now, Washington’s situation… that’s tougher to watch.

A producer I know in the Yakima Valley—third-generation, solid operator—told me he’s spending more time with regulators than with his cows some weeks. That’s an exaggeration, but it captures something real about what’s happening out there.

The challenges are stacking up: groundwater nitrate issues have brought EPA involvement to some operations. The Washington State Department of Ecology is proposing regulations that would substantially increase costs. Labor costs run higher than competing regions. And the result, according to Dairy Herd Management, is 21,000 fewer cows in October compared to the prior year.

California’s dealing with its own complexity—H5N1 outbreaks have hit productivity in numerous Central Valley herds, contributing to declining milk per cow even while the overall herd held relatively steady. It’s a different challenge, but the direction is similar.

Producers Who’ve Made the Move

Not everyone’s standing still, though. I’ve talked with a few producers who saw the writing on the wall and made strategic relocations. One Wisconsin family I know sold their 800-cow operation two years ago and partnered with an established South Dakota dairy. They’re now managing a larger string with better margins and—here’s what surprised them—less overall stress despite the bigger numbers. “The regulatory load alone,” the son told me, “freed up 15 hours a week we used to spend on paperwork.”

That’s not the right move for everyone. Plenty of operations have deep roots, family land, and established processor relationships that make staying put the smarter play. But it’s worth noting that some producers actively choose their region rather than just accept the one they inherited.

The Math Is Broken: Why High Costs Didn’t Shrink the Herd

Here’s something that’s been puzzling economists for months now: margins got squeezed, but culling rates stayed low. The national herd actually grew when every historical pattern said it should contract.

What’s going on? Three factors, and they’re all connected.

Metric	2022	2024	2025
Replacement Heifer Price ($/head)	$2,400	$2,900	$3,400
Beef-on-Dairy Breeding Rate (%)	18%	22%	25%
Feed Cost ($/cwt)	$11.20	$10.10	$9.38
Cull Rate (%)	38%	34%	31%
Heifer Shortage Severity	Moderate	Elevated	Critical

Replacement Heifers Got Really Expensive

You probably know this already if you’ve been to an auction lately. Current prices from USDA Agricultural Marketing Service reports:

Upper Midwest: $3,200-$3,500 per head for quality replacements
Premium springers: $4,000+ at some California and Wisconsin auction barns

Mark Stephenson—he’s the director of dairy policy analysis at the University of Wisconsin-Madison—has pointed out that at these prices, payback periods on marginal replacements stretch to nearly 15 years.

I was talking with a 400-cow producer in central Wisconsin who put it pretty simply: “At $3,400 a head, I’m not culling anything that can still put milk in the tank.” And that sentiment seems widespread.

Beef-on-Dairy Changed Everything

This is the part that doesn’t get enough attention, in my view. Council on Dairy Cattle Breeding data shows roughly 25% of the dairy herd is now bred to beef genetics. Those crosses are generating $400-$600 premiums—sometimes more—for quality blacks with good conformation.

But here’s the catch, and it’s a big one: every beef-cross calf is a dairy heifer that doesn’t exist.

The heifer shortage isn’t temporary. It’s structural. And it’s self-reinforcing.

Feed Costs Hit Multi-Year Lows

The USDA Dairy Margin Coverage program calculated feed costs at $9.38 per cwt for August 2025. The Center for Dairy Excellence confirmed that figure—down nearly 50 cents from July. That’s among the lowest readings we’ve seen in years.

When feed is cheap, even that older cow in the back pen—the one you’d normally have shipped by now—can still contribute to cash flow. The economic pressure to cull just isn’t there.

And here’s the trap: These factors reinforce each other. Expensive heifers mean you keep old cows. Keeping old cows means you don’t need expensive heifers. Beef-on-dairy means fewer heifers get born anyway. And cheap feed makes all of it pencil out.

For now, anyway.

Feed Cost Outlook: Why Many Advisors Are Saying Hedge Now

Here’s what’s interesting about the forward markets. CME Group data shows that December 2026 corn futures are trading above current spot prices. The market’s signaling higher costs ahead.

Timeframe	What Corn’s Telling Us	What It Means for Feed Costs
Right now	Favorable pricing	$9.38/cwt (August DMC calculation)
Dec 2026 futures	Higher than spot	Could push toward $11.00+/cwt
Normal price swing	+$0.50-$0.75/bushel	Adds $1.50-$2.00/cwt to your feed line

Now, futures markets have been wrong before—I want to be honest about that. But the signal’s worth noting.

The window to lock in favorable feed pricing may be closing. I’ll get into specific timing in the action steps below.

Period	Feed Cost ($/cwt)	Futures Signal
Aug 2025	$9.38	Spot (Favorable)
Nov 2025	$9.50	Favorable
Mar 2026	$10.20	Rising
Jun 2026	$10.80	Elevated
Sep 2026	$11.20	High
Dec 2026	$11.40	High

The Processing Puzzle: $11 Billion in New Capacity—But Is It in the Right Places?

IDFA confirmed during Manufacturing Month that more than $11 billion in new dairy processing capacity is coming online through 2028 across 19 states. That’s cheese plants, butter facilities, powder operations, and fluid processing. It’s a massive investment that reflects real confidence in American dairy’s future.

But here’s the question worth asking: Is it being built where the milk will be?

The Mismatch Worth Watching:

Region	Processing Investment	Milk Supply Trend	What to Watch
Wisconsin	Major expansions underway	Essentially flat production	Where does the milk come from?
Pacific Northwest	Darigold’s $1 billion Pasco plant (8M lbs/day)	Contracting 8.5% annually	Real supply/capacity tension
Texas/South Dakota	Matched to growth	Expanding steadily	Better alignment

I don’t have a definitive answer on how Darigold plans to fill a billion-dollar facility when regional supply is declining nearly 9% annually. Their leadership clearly sees a path forward that I may not fully appreciate—and they know their market far better than I do.

But facilities built expecting 90%+ utilization that end up running at 70-75%… that financial stress eventually flows somewhere. Often, back to producers through milk payment adjustments or cooperative equity calls. It’s something to be aware of.

The Silent Partner: Why Your Banker Decides Who Survives 2026

Here’s something that rarely makes industry headlines but may matter as much as milk price or feed cost.

When margins compress—and they will at some point; they always do—the question isn’t just “Can my farm cash flow at $14 milk?” It’s “Will my lender give me time to get back to $17?”

That’s not purely an economic question. That’s a relationship question. And it might quietly decide who’s still farming in 2028.

Two producers with nearly identical cost structures can face completely different outcomes:

Producer A	Producer B
Modest leverage	Aggressive expansion of debt from low-interest years
Six months of working capital	Thin operating lines
Lender who’s been through dairy cycles	Lender with stressed ag portfolio
Gets patience when needed	Gets pressure instead

A farm financial consultant I was talking with in Minnesota made this point effectively: the best-positioned producers right now aren’t just focused on cost per cwt. They’re using this window—while milk checks are decent and lines aren’t maxed—to:

Clean up any covenant issues
Term out short-term debt into longer amortizations
Build transparent, data-driven relationships with their lenders

The operations that emerge as consolidators on the other side of any transition won’t necessarily be the best operators. They’ll often be the ones whose banks stayed in the game.

The Biosecurity Wildcard: H5N1

I’d be remiss not to mention what’s been on everyone’s mind this year.

USDA APHIS has confirmed Highly Pathogenic Avian Influenza outbreaks in dairy cattle across multiple states, including Kansas, Idaho, Texas, Iowa, and others. The virus can move between herds, particularly through cattle movements and the use of shared equipment.

The current picture: Economic damage has been contained and localized so far. Some affected dairies experience temporary production drops during transition periods and during the fresh-cow phase. Export partners are watching but haven’t acted dramatically.

The risk: If regulators move from “monitor and manage” to “contain and control,” the orderly consolidation we’ve been discussing could become something more disruptive.

What to do now: The basics matter more than ever. Review boot and clothing protocols. Tighten visitor policies. Isolate new animals before introducing them to the string. Be thoughtful about shared equipment between operations.

None of this is new advice for anyone who’s been around dairy cattle. But the stakes for following it have increased.

The Sustainability Angle: $0.75-$1.50/cwt in Potential Premiums

Let’s skip the greenwashing debate and talk about what actually matters here: money.

Global food companies—Nestlé, Danone, and PepsiCo—have legally binding 2030 emission targets they must meet. Multiple pilot programs are already paying producers premiums for:

Verified methane reductions
Documented feed efficiency improvements
Low-carbon-intensity milk tagged to specific supply chains

The math that actually matters:

A “preferred” supplier with documented feed conversion efficiency, verified practices, and tight nutrient management could capture $0.75-$1.50/cwt in stacked value—base premiums, carbon credits, sustainability bonuses, and preferential contract access.

What’s encouraging is that a well-managed 1,500-cow Wisconsin or New York operation with strong sustainability credentials could compete with a 3,000-cow commodity operation. The premium contracts change the math.

Scale isn’t the only path forward. For producers looking for differentiation that doesn’t require doubling herd size, this is worth exploring.

The 90-Day Plan: What to Do Before Spring

Given everything we’ve walked through, what should you actually be doing between now and late March? Let me get specific.

By Late January: Consider Locking Feed Costs

Target: Hedge around 40-50% of your projected 2026 grain needs
Why now: December 2026 corn futures are already pricing above spot; winter weather and planting signals will move markets further
Risk of waiting: March and April often bring less favorable terms

Worth talking through with your nutritionist and financial advisor.

By Late February: Make Your Replacement Decision

If you’ve got capital flexibility:

Establish financing now
Identify heifer suppliers
Be positioned to move fast if prices soften mid-2026

If you’re focused on efficiency:

Identify the bottom 15-20% of your string
Target chronic health cases and poor reproduction performers
Consider strategic culling Q1-Q2 while beef prices remain favorable

The key: Make a conscious choice. Operations that drift into mid-2026 without a strategy end up reacting rather than acting. And reactive decisions during stressed markets rarely work out as well.

By Mid-March: Have the Processor Conversation

Four Questions Worth Asking:

What percentage of our facility’s intake goes to export markets? Which destinations?
What’s our Mexico concentration—and how might USMCA review affect intake decisions?
If you needed to reduce intake by 15-20%, what would the notification timeline be?
If regional supply keeps changing, how does that affect sourcing and our cost structure?

These conversations are easier to have now than during a disruption. The answers tell you a lot about your actual risk exposure.

Deadline	Critical Action	Why Now	Risk of Delay
Late January	Hedge 40-50% of 2026 grain needs	Dec 2026 futures above spot	Higher feed costs locked in
Late February	Lock replacement strategy (buy or cull)	Heifer prices still elevated	Forced culling decisions
Mid-March	Processor/banker conversations	Build relationships pre-crisis	Reactive instead of proactive
April (Post-Action)	Monitor and adjust	Flexibility to pivot	Lost opportunities

What 2028-2029 Might Look Like

If current trends hold—and that’s always a meaningful “if”—here’s what seems to be taking shape:

Fewer, larger operations. U.S. dairy farms dropped from over 40,000 to under 25,000 over the past couple of decades. Generational transitions without clear successors continue to accelerate this. It’s not inherently good or bad—it’s just the reality we’re working with.

Geographic shifts. Texas, South Dakota, and Idaho are capturing share. The Pacific Northwest faces headwinds. California likely remains the largest state, but its market share is declining.

Two distinct tracks are emerging. This is the part I find most interesting. The industry’s splitting into large-scale commodity operations—think 2,500+ cows competing primarily on cost efficiency, often in lower-regulation states with favorable feed economics—and premium/specialty production commanding meaningful price premiums through organic certification, grass-fed programs, A2/A2 genetics, or verified sustainability credentials.

Production Model	Typical Herd Size	Milk Price Range ($/cwt)	Primary Strategy	Risk Level
Large Commodity	2,500+	$16-18	Cost efficiency	Commodity exposed
Mid-Size Conventional	800-1,500	$17-19	Scale up or exit	High vulnerability
Organic Certified	400-900	$26-28	Premium capture	Protected
Grass-Fed/Verified	300-800	$23-26	Direct relationships	Moderate
A2/Specialty	200-600	$22-25	Niche differentiation	Moderate

I know a 900-cow organic operation in Vermont that’s pulling $26-28/cwt consistently while their conventional neighbors struggle at $18. Different game entirely. And a grass-fed producer in Missouri who’s built direct relationships with regional grocery chains that insulate him almost completely from commodity price swings.

Both tracks can work. The challenge is being clear about which game you’re playing—and not getting stuck in the undifferentiated middle where you’re too small for cost leadership but not specialized enough for premium markets.

This isn’t a story of decline. Dairy demand remains solid. Exports keep expanding. Well-run operations build real wealth.

But it is a story of restructuring. And the producers who navigate it successfully will be those who understand the forces at play, make deliberate choices, and maintain enough flexibility to adapt.

Resources Worth Bookmarking

If you want to track the indicators we’ve discussed, a few sources are worth checking monthly—it takes maybe 20 minutes:

USDA NASS Milk Production Reports — released around the 20th
CME Group Dairy Futures — corn, soybean meal, Class III/IV signals
CoBank Quarterly Rural Economy Reports — solid dairy analysis, heifer market outlook
USDA APHIS H5N1 Updates — current outbreak status

The planning window’s open. What you do with it is up to you.

We’ll be watching these developments and keeping you informed as things unfold.

KEY TAKEAWAYS

The national average is hiding two industries: Texas +50,000 cows, Washington -21,000—both called “3% growth”
Three factors broke the old economics: $3,400+ heifers, beef-on-dairy taking 25% of replacements, and feed costs at multi-year lows
$11B in new processing capacity may be misaligned: Plants expanding where milk supply is flat or declining
Your 90-day action window: Hedge 40-50% of feed (January) → Lock replacement strategy (February) → Processor/banker conversations (March)
Your lender decides who survives: The winners won’t just be the best operators—they’ll be the ones whose banks stayed in the game

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Feed Smart: Cutting Costs Without Compromising Cows in 2025 – Provides a tactical playbook for the “feed cost hedging” strategy mentioned in your 90-day plan. Learn specific methods for forward contracting corn below $4.60 and optimizing forage digestibility to protect margins against the potential spring rally.
The Wall of Milk: Making Sense of 2025’s Global Dairy Crunch – Expands on the “24-month trap” and global supply factors currently capping milk prices. This strategic analysis explains why the U.S., EU, and New Zealand expanding simultaneously creates the specific market ceiling your banker is watching closely.
Generate $15,000+ Annual Carbon Revenue: The Dairy Producer’s Guide – Delivers the implementation roadmap for the “sustainability premiums” opportunity. Discover how to stack Section 45Z tax credits with feed additives and carbon markets to generate new revenue streams without increasing herd size.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy economics, Dairy Farm Profitability, dairy market outlook 2026, feed cost hedging, heifer replacement costs, herd management strategies, US dairy regional trends

The One-Dollar Margin: A Global Wake-Up Call from New Zealand’s Dairy Squeeze

Thursday, December 11th, 2025

A $9.50 milk price sounds great—until you see the $8.50 break-even. NZ’s one-dollar margin is a wake-up call for dairy farmers everywhere.

Executive Summary: When the world’s lowest-cost milk producers are farming on a dollar of margin, that’s a wake-up call for dairy everywhere. New Zealand’s December 2025 numbers: $9.50/kgMS milk price, $8.50 break-even, one dollar left for debt, drawings, and reinvestment. They’re not alone. Teagasc projects Irish dairy incomes dropping 42% in 2026. UK farmgate prices have fallen below production costs. Rabobank calls global output growth ‘stunning’—the very oversupply compressing margins worldwide. And China’s shift from aggressive importer to tactical buyer has removed the demand safety valve the industry once counted on. The old formula—high prices equal comfortable margins—no longer holds. The farms that make it through will be those building resilience now: feed efficiency, component focus, diversified revenue, right-sized debt. Not growth for growth’s sake. Strategic survival.

When the world’s lowest-cost milk producers are working on about one dollar of operating margin per kilogram of milk solids, that’s worth every dairy farmer’s attention.

That’s exactly where New Zealand finds itself heading into 2026.

Here’s what makes this relevant beyond the Pacific: it’s essentially a real-time stress-test of the global dairy model. From Wisconsin freestalls to Irish grass paddocks to Canterbury’s irrigated pastures, the underlying question is the same.

If New Zealand’s efficient pasture systems can’t maintain comfortable margins at these milk prices, what does that mean for the rest of us?

The narrative has shifted. It’s less about waiting for the next price spike and more about adapting to a new reality—one defined by persistent cost pressure, cautious global buyers, and markets that recover more slowly than they used to.

Understanding the One-Dollar Margin

DairyNZ’s December 2025 Economic Update paints a clear picture.

Farm working expenses have climbed 16 cents to $5.83 per kgMS. Meanwhile, Fonterra revised its 2025-26 farmgate milk price forecast down to a midpoint of $9.50 per kgMS—a notable drop from the earlier $10.00 projection.

DairyNZ puts the break-even milk price for an average reference farm at around $8.50 per kgMS.

That leaves roughly a dollar per kgMS as operating surplus. And that’s before capital repayments, family drawings, or any reinvestment.

Metric	2024-25 Season	2025-26 Season	Change
Milk Price ($/kgMS)	$10.00	$9.50	-$0.50
Break-even Cost ($/kgMS)	$8.34	$8.50	+$0.16
Operating Margin ($/kgMS)	$1.66	$1.00	-$0.66
Farm Working Expenses ($/kgMS)	$5.67	$5.83	+$0.16
Interest Costs ($/kgMS)	$1.46	$1.11	-$0.35

Tracy Brown, DairyNZ’s chair and herself a Waikato dairy farmer, offered some measured perspective in their December update: “Profit is still on the table, but the margin gap has clearly tightened, and that means every spending decision on farm needs a harder look.”

That’s a statement worth sitting with.

What This Looks Like on a Real Farm

Think about a fairly typical New Zealand herd—400 cows producing 400 kgMS each. That gives you 160,000 kgMS for the season.

At $9.50 per kgMS, gross milk revenue comes to about $1.52 million NZD. With a break-even point of around $8.50, core operating costs consume roughly $1.36 million.

That leaves approximately $160,000 NZD of operating surplus.

On paper, that’s profit. But reality includes broken gates, aging tractors, and family obligations. The buffer is much thinner than the headline suggests.

I recently spoke with a consultant who works across both New Zealand and Australian operations. His observation: for a 200-cow farm, that surplus might only be $80,000 NZD before tax and drawings. For a 2,000-cow operation, you’re looking at roughly $800,000—but spread across substantially higher fixed costs and larger teams.

Farm Size	Production (kgMS)	Gross Revenue	Operating Costs	Operating Surplus	Margin Per Cow
200 cows	80,000	$760,000	$680,000	$80,000	$400
400 cows	160,000	$1,520,000	$1,360,000	$160,000	$400
2,000 cows	800,000	$7,600,000	$6,800,000	$800,000	$400

The ratio matters more than the headline number. Whether you’re milking 200 or 2,000, everyone’s working with a narrower buffer.

The Takeaway: A $9.50 milk price sounds strong. But with $8.50 break-evens, you’re farming on a dollar of margin—and that dollar has to cover everything else.

Tracing the Cost Increases

Where exactly did those 16 cents go? Understanding the drivers makes them easier to address.

DairyNZ’s Econ Tracker identifies three primary contributors.

Cost Category	Increase (¢/kgMS)	400-Cow Farm Impact	Controllability
Feed Costs	+7¢	+$11,200	Medium – Nutrition strategy
Fertiliser	+4¢	+$6,400	Low – Global commodity
Electricity/Irrigation	+2¢	+$3,200	Low – Fixed infrastructure
Wages	+2¢	+$3,200	Low – Labour market
Repairs/Maintenance	+1¢	+$1,600	Medium – Defer vs invest
Compliance	+1¢	+$1,600	None – Regulatory
Other Operating	-1¢	-$1,600	Variable
TOTAL	+16¢	+$25,600	—

Feed costs have risen meaningfully year-on-year across most categories. Palm kernel has been somewhat more stable, but grain and purchased roughage have risen noticeably.

Fertiliser continues to pressure budgets. Phosphate and urea prices remain elevated, driven by energy market dynamics and export restrictions from major suppliers. Teagasc’s Outlook 2026 suggests costs will climb further as the EU Carbon Border Adjustment Mechanism takes effect.

Other operating costs—repairs, freight, wages, fuel, compliance—have all experienced inflation.

The encouraging news? DairyNZ reports that interest costs are easing. Payments are forecast to drop about 35 cents to $1.11 per kgMS for 2025-26.

The catch? Those interest savings are largely offset by increases elsewhere. The budget might show relief on one line, but feed, fertiliser, and operating costs are absorbing it.

For a 200-cow farm, this might mean choosing between replacing an ageing parlour component or making do with repairs. On a 2,000-cow dry-lot operation, it could be the difference between upgrading a feed mixer or deferring that decision another year.

The Takeaway: Feed and fertiliser are eating your interest rate savings before you ever see them.

The Production Paradox

This is where the situation becomes counterintuitive.

New Zealand is currently in its spring flush. DairyNZ reports national milk collections running about 3.4% ahead of last season, with August and October 2025 volumes among the highest on record.

South Island production in October was up 5.7% year-on-year. Customs data shows palm kernel imports are up significantly—a clear indicator that farmers leaned into purchased feed to boost production.

Why does this matter? Because the same pattern is playing out across multiple dairy regions simultaneously.

I’ve been following similar trends in US and European coverage. Where corn or by-products are relatively affordable, there’s considerable temptation to push cows harder to maintain cashflow. Especially when fixed obligations don’t adjust downward just because your milk price does.

At the individual farm level, this appears entirely rational. If you’ve already invested in the parlour, the effluent system, and the bank financing, pushing a few more kilograms through spreads those fixed costs.

But collectively? When New Zealand, the US, Ireland, and parts of Europe all make that same calculation simultaneously, you end up with what Rabobank’s December 2025 commentary described as “stunning” global output growth.

Region	2026 Growth Forecast	Impact on Global Supply
Argentina	+4.0%	Aggressive expansion continues
United States	+1.3%	Steady growth despite tight margins
New Zealand	+1.0%	Spring flush pushing volumes
European Union	0.0%	Only major exporter hitting brakes

That additional milk is precisely why price forecasts have moderated.

A Midwest producer I spoke with recently put it simply: “We’re not trying to grow anymore—we’re trying to survive long enough to see the other side.”

The Takeaway: What makes sense on your farm might be making things worse for everyone—including you.

Regional Perspectives

New Zealand’s experience offers the clearest current signal. But similar pressures are emerging across other major dairy regions.

Region	Current Margin (2025)	2026 Forecast	Key Pressure Point	Competitiveness
New Zealand	+$1.00/kgMS	Tight ($0.80-1.00)	Feed & fert eating savings	High — Pasture based
Ireland	€0.115/L	Severe (-45%)	Butter price collapse	Medium — Scale challenges
United Kingdom	Below cost (38.5p/L)	Further pressure	Commodity liquid pricing	Low — High costs
United States (DMC)	Above $9.50/cwt	Stable (low feed)	Production growth	Variable — Regional
European Union	Squeezed — varied	Contraction likely	China probe uncertainty	Medium — Policy support

Ireland: Preparing for a Correction

Teagasc’s Outlook 2026 projects that average Irish dairy farm incomes could decline by approximately 42% in 2026. That would take the average income from an estimated €137,000 this year to around €80,000.

Their baseline anticipates milk prices moderating from the high-40s cent per litre range back toward approximately 42 cents.

At 11.5 cents per litre, the average dairy net margin in 2026 is forecast to be down 45% from 2025 levels.

For a 70-hectare, 100-cow family farm, cash surplus after drawings and loan repayments could drop from around €80,000 to closer to €45,000.

That’s manageable if the debt is moderate. For operations that expanded aggressively, the adjustment will be sharper.

The UK: Below-Cost Production

Recent market data shows that farmgate milk prices have fallen below full production costs for many operations.

As of late 2025, Arla’s conventional price sits around 39.21 pence per litre. Müller’s Advantage price drops to 38.5ppl from January 2026.

Industry estimates place all-in production costs closer to the 40-45ppl range.

The picture varies by contract type. Producers on cheese or retailer-aligned arrangements often fare better. But in the commodity liquid segment, some operations are producing milk at a level below full economic cost.

Processors have responded by shifting toward component-based and fixed-volume contracts. Retailers continue to prioritise competitive shelf prices, putting pressure on producers’ margins.

The US: Regional Variations

The American experience differs due to policy structure—and substantial regional variation.

The Dairy Margin Coverage programme has provided meaningful support. The University of Wisconsin Extension reports that through the first ten months of 2023, DMC distributed over $1.27 billion in indemnity payments. That averaged approximately $74,453 per enrolled operation, with around 17,059 dairy operations participating.

But the experience varies dramatically by region.

In California, water costs and environmental compliance add layers of expense that Midwest operations don’t face. Wisconsin operations are navigating processor consolidation and volatility in the cheese market. Northeast producers face declining fluid milk demand and processing capacity constraints.

Larger US herds—1,000 cows and above—are increasingly relying on scale economies and diversified revenue streams. Beef-on-dairy programmes, heifer development, and energy projects are becoming standard.

The Takeaway: The squeeze is global, but every region has its own version. Know your local dynamics.

The China Factor

For two decades, much of dairy’s long-term optimism rested on a straightforward assumption: China would continue buying more.

That assumption deserves recalibration.

New Zealand Treasury’s 2024 dairy exports analysis, Rabobank’s global outlooks, and trade reports identify three meaningful shifts.

Product Category	2021 Imports (MT)	2024 Imports (MT)	Change	Trend
Whole Milk Powder	1,680,000	740,000	-56%	Domestic production surge
Milk Powder (Total)	2,580,000	1,360,000	-47%	Structural decline
Skim Milk Powder	900,000	620,000	-31%	Domestic substitution
Whey	480,000	380,000	-21%	US tariff impact
Cheese	140,000	170,000	+21%	Foodservice growth
Butter	110,000	135,000	+23%	Bakery sector expansion

Domestic production has expanded substantially. China has invested heavily in large-scale dairy operations. This is structural import substitution, not a temporary measure.

Per-capita consumption growth has moderated. Dairy consumption continues trending upward, but at slower rates than during the expansion years. The steepest part of the adoption curve appears behind us.

Purchasing behaviour has become tactical. Chinese buyers now step back when prices strengthen and increase purchases when value emerges—rather than consistently supporting auctions.

China remains a vital market. But it’s no longer the automatic release valve that absorbs surplus production.

The Takeaway: Don’t count on China to bail out oversupply anymore. That era is over.

What Farmers Are Actually Doing

When margin discussions move from conferences to kitchen tables, what are producers actually changing?

Managing Through Feed

In New Zealand, palm kernel imports are up significantly. Many farmers chose to push production while payout expectations remained near $10/kg MS.

Similar decisions are playing out in US operations where corn and by-products remain relatively affordable.

The logic is straightforward: when principal payments and family expenses don’t flex with milk price, spreading fixed costs across more production can appear to be the only short-term lever.

Strengthening Balance Sheets

New Zealand’s Ministry for Primary Industries notes that some farmers used the strong 2021-2023 payouts to reduce debt rather than adding infrastructure.

That decision is looking increasingly prudent.

On a 200-cow farm, this might translate to directing an extra $20,000 annually toward debt reduction rather than equipment upgrades. On a 2,000-cow operation, it could mean restructuring short-term facilities into longer-term arrangements.

Diversifying Revenue

Beef-on-dairy has become mainstream. Industry analyses suggest crossbred calves can add $100-200 per cow annually, depending on local markets.

Sustainability-linked premiums are emerging as processors develop payment structures tied to documented environmental outcomes.

Even modest additional revenue streams—$50,000-$100,000 annually on a mid-sized operation—can make a meaningful difference when the milk cheque alone isn’t covering the spread.

The Takeaway: Smart operators aren’t just cutting costs. They’re restructuring debt and finding new revenue.

Strategy	Short-Term Cashflow	Margin Impact	Risk Level	Best For
Push Production (Palm Kernel)	Improved	$0.85/kgMS	High — Adds to oversupply	High debt, large scale
Cut Costs Aggressively	Preserved	$1.15/kgMS	Medium — Quality risks	Medium farms, low debt
Maintain Status Quo	Squeezed	$1.00/kgMS	High — Thin buffer	No flexibility
Reduce Debt First	Reduced	$1.00/kgMS	Low — Future flexibility	Strong balance sheet

Strategic Levers by Scale

Even in challenging margin environments, individual operations retain meaningful levers. They won’t shift global prices, but they determine which side of the margin line you occupy.

Feed Efficiency and IOFC

Research consistently documents substantial variation in feed efficiency—both between herds and within individual herds.

Progress typically comes from:

Forage quality management—harvest timing, processing, storage, feedout
Fresh cow protocols that establish strong intake patterns during those critical first 30-60 days
Active use of income over feed cost metrics as management tools, not retrospective reports

Getting started: On smaller operations, work with a nutritionist to develop simple IOFC reporting by production group. On larger TMR operations, establish monthly review rhythms to identify underperforming groups.

Component Value Capture

As payment systems emphasise solids over volume, butterfat and protein percentages deserve strategic attention.

The value ranges from 75 cents to $1.25 per hundredweight in many component-based systems, even at equivalent volume.

Getting started: Talk with your AI representative about reorienting sire selection toward fat and protein kilograms. Pair that with a nutritionist input on optimising rumen health, not just energy delivery.

Beef-on-Dairy Integration

This has evolved from a niche strategy to standard practice.

Getting started: Begin with market research. Talk with calf buyers about which terminal breeds and calving ease profiles actually command premiums in your area.

Financial Structure

What research keeps showing—across EU and Latin American farms alike—is that how you structure debt often matters as much as how efficiently you produce.

Getting started: Have proactive lender conversations before cash flow challenges emerge. Walk through three-year projections under multiple price scenarios.

The Takeaway: You can’t control global milk prices. But you can control feed efficiency, component focus, revenue diversity, and debt structure.

Strategy	Immediate Impact	1-Year Margin Gain	Resilience	Capital Required
Feed Efficiency Focus	Moderate — Slow gains	+$0.10-0.20/kgMS	High — Permanent	Low — Nutrition/management
Component Optimization	Moderate — Genetic lag	+$0.15-0.25/kgMS	High — Permanent	Low — Semen/consulting
Beef-on-Dairy Integration	High — Instant revenue	+$0.08-0.15/kgMS	Medium — Market dependent	Low — Contract only
Aggressive Debt Reduction	Low — Reduces cashflow	$0/kgMS	Very High — Future flexibility	High — Requires surplus
Volume Push (Status Quo)	High — Spreads fixed costs	-$0.05 to +$0.05/kgMS	Low — Worsens oversupply	Moderate — Feed purchases

What Could Actually Change Things?

If current margin pressure is structural, what developments might shift the trajectory?

Genuine supply contraction would require sustained exits that actually reduce production capacity. We’re seeing accelerating consolidation in parts of Europe, the UK, and Australia. It’s unclear whether the pace is sufficient.

Emerging market demand growth offers longer-term potential in Southeast Asia, Africa, and Latin America. But developing those markets takes time.

Policy and structural changes—such as transition support, improved risk-sharing between processors and producers, and trade agreements—could shift the environment. But political processes move slowly.

None of these are quick fixes. But understanding the possibilities helps inform longer-term positioning decisions.

Key Takeaways

Price levels don’t ensure margin. A $9.50 per kgMS payout with $8.50 break-evens means strong prices can coexist with tight margins.

Volume gains require margin verification. More production can support cashflow while contributing to oversupply. Check IOFC, not just output.

Input decisions carry strategic weight. Feed and fertiliser now warrant careful analysis, not routine repetition.

Revenue diversification has moved mainstream. Beef-on-dairy and sustainability premiums are standard elements, not experiments.

Financial structure shapes survival. Operations that reduced debt during good years enter this period with more flexibility.

Opportunity persists, but looks different. More competition, more selective buying, more scrutiny. Adapt or get squeezed.

The Bottom Line

No individual farm can resolve global oversupply. No policy will quickly restore previous comfort levels.

But careful attention to what New Zealand’s numbers reveal—and thoughtful application regardless of region or scale—can improve the odds of staying on the right side of that one-dollar margin line.

The farms that thrive in 2030 are making decisions right now. Not necessarily to get bigger. But to get more resilient, more diversified, more intentional about where margin actually comes from.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Beyond the Milk Check: How Dairy Operations Are Building $300,000 in New Revenue Today – Reveals immediate financial strategies for 2025, detailing how silage management, targeted DMC coverage, and efficiency protocols can generate six-figure returns when milk prices alone fall short of break-even costs.
The Wall of Milk: Making Sense of 2025’s Global Dairy Crunch – Provides a deep dive into the “24-month trap” of global oversupply, explaining why export records aren’t saving prices and how to position your operation against the structural shift in Chinese demand.
Dairy Wins, Beef Loses: Inside the 18-Month Window Where $1,400 Calves Meet Record Component Premiums – Demonstrates how to capture the current $1,400 beef-on-dairy premiums while simultaneously breeding for the high-component milk that processors are demanding, effectively decoupling your revenue from liquid volume volatility.

Join the Revolution!

Categories : Dairy Markets

Tags : 2026 milk price forecast, beef-on-dairy strategy, Dairy Farm Management, Dairy Farm Profitability, Global Dairy Trends, income over feed cost, milk production costs

The Cycle Isn’t Coming Back: A Structural Shakeout Is Picking Dairy’s Winners Now

Thursday, December 11th, 2025

Why this downturn is different—and the brutal math deciding which operations survive

EXECUTIVE SUMMARY: The dairy cycle you’re waiting for isn’t coming back. China added 22 billion pounds of domestic production since 2018, permanently closing a market that absorbed half of global import growth. Meanwhile, American dairying is migrating: Texas gained 46,000 cows last year while Wisconsin lost 455 farms, and $11 billion in new Southwest processing capacity is cementing this shift for the foreseeable future. The economics have turned existential. Operations above $20 per hundredweight are hemorrhaging cash, while larger dairies at $16-17 are building war chests for acquisition. Beef-on-dairy bought time, but created a replacement crisis—heifer inventories at 20-year lows, prices hitting $4,000. This structural shakeout accelerates through 2027. The market doesn’t care about your heritage. It cares about your production costs. Do the math now, or the bank will do it for you.

Stop waiting for the cycle to turn.

Economists tracking dairy markets are increasingly using a word we don’t often hear: structural. This isn’t 2009 or 2018. The game board has changed.

The FAO’s November numbers tell the story: the Dairy Price Index recorded its fifth consecutive monthly decline, dropping to 137.5 points—the lowest since September 2024. Global food prices have fallen for three straight months. But what’s making veteran producers uneasy isn’t just the price decline. It’s what’s driving it.

The forces reshaping this market aren’t cyclical headwinds that will reverse when prices fall far enough. They’re structural shifts that have permanently altered the demand equation. Understanding that distinction changes everything about how we should approach the next few years.

The China Syndrome: Why the Export Dragon Stopped Roaring

If there’s one development that separates this market environment from previous downturns, it’s China’s move toward dairy self-sufficiency. We’ve heard “China is changing everything” before, and sometimes those predictions haven’t aged well. But this time? The numbers don’t lie.

Between 2018 and 2023, China increased domestic milk production by 10 million metric tonnes. Let that sink in for a moment—that’s roughly 22 billion pounds of new milk supply that used to come from exporters like us. According to the USDA Foreign Agricultural Service, they reached the 40.5 million tonne target ahead of schedule. This wasn’t gradual market evolution. It was deliberate policy execution backed by massive state investment.

The Rabobank analysts tracking this have documented the shift in brutal detail. China’s dairy self-sufficiency climbed from roughly 70% in 2018 to approximately 85% by 2023. Their whole milk powder imports got cut in half in a single year—dropping from 845,000 metric tonnes in 2022 to just 430,000 in 2023.

And the domestic farms driving this aren’t small operations. Chinese dairy farms with more than 1,000 head grew from 24% of the national herd in 2015 to 44% by 2020, with government targets pushing toward 56% by 2025. These are modern, efficient mega-dairies designed to eliminate import dependency.

Why does this matter for a dairy farmer in Minnesota or Idaho, or Vermont? Because China was absorbing roughly half of global dairy import demand growth during the 2010-2020 period. That demand engine hasn’t just stalled—it’s running in reverse.

In five years, China added over 10 million tonnes of domestic milk and pushed self‑sufficiency toward 85%. That milk used to be your outlet. Betting on a Chinese demand rebound today is like betting that a brand‑new barn will sit empty.

Industry economists point out that even optimistic forecasts project only about 2% growth in Chinese imports for 2025. That’s nowhere near sufficient to absorb the additional production coming from major exporting regions.

Could Chinese demand recover faster than expected? A severe domestic disease outbreak or major policy shift could alter the trajectory. But those mega-dairy operations represent 20-30 year infrastructure investments. They’re not going away. Building your business plan around hoping they will is a recipe for disappointment.

The Great Migration: Why the Cows Are Leaving the Heartland

While global demand dynamics shift, something equally dramatic is happening right here at home. The geographic center of American dairying is moving—and moving fast.

The USDA’s production reports tell the story. Texas added about 46,000 dairy cows between late 2023 and early 2025, increasing from about 635,000 to roughly 690,000. Texas accounted for about 56% of all U.S. herd growth during that period. Production in the state increased by more than 10% year over year. Kansas added another 29,000 head. South Dakota grew by 21,000.

What’s driving it? Processing capacity. New cheese plants are pulling production to the region like gravity.

Texas A&M AgriLife Extension has been tracking the build-out: Cacique Foods opened their cheese plant in Amarillo in May 2024. Great Lakes Cheese completed their Abilene facility late last year. H-E-B’s processing operation in San Antonio opens this summer. And Leprino Foods’ Lubbock facility reaches Phase 1 completion in early 2026.

Meanwhile, traditional dairy states are hemorrhaging farms. Data from the Wisconsin Department of Agriculture shows the state lost 455 licensed dairy farms in 2023, with monthly exits running at 87-94 operations through late 2024—94 dairies exited in October, 94 in November, and 87 in December.

Here’s the twist: total herd size stayed relatively flat at around 1.27 million cows, and production actually ticked up slightly. The remaining farms are becoming remarkably more efficient—Wisconsin producers achieved 10-pound-per-cow yield gains last year, double the national average.

California faces its own pressures—water constraints and regulatory costs have contributed to herd reductions in recent years, though the state remains the nation’s top milk producer. In the Northeast, many operations have found viability through fluid milk premiums and direct market relationships that provide some insulation from commodity swings.

The cows aren’t leaving these states entirely. They’re concentrating into fewer, larger operations. That’s consolidation, not collapse—though the distinction offers cold comfort to the families exiting the business.

Texas, Kansas, and South Dakota are quietly adding tens of thousands of cows, while Wisconsin loses hundreds of licenses. This isn’t a slow fade; it’s a rerouting of national milk supply toward steel, stainless, and dryer capacity in the Southwest.

The Brutal Math: Why Location Determines Survival

Let’s cut through the sentiment.

When you build a new dairy operation in Texas or the Southwest, you’re typically building at a 3,000-5,000 cow scale with modern facilities optimized from the ground up. Land costs range from $2,000 to $ 3,500 per acre. Feed availability is strong—corn belt proximity, regional sorghum production, steady distillers grain supplies. University extension budgets from the region suggest efficient large operations can often achieve costs of production in the $15-17 per hundredweight range.

Wisconsin operations face different math. Land costs run $6,000-8,500 per acre—two to three times Texas levels. Existing farms often average 100-300 cows. Extension analysis from the region puts the average dairy’s cost of production in the $18-21 per hundredweight range.

At current milk prices of $17-19, that cost differential isn’t just significant; it’s substantial. It’s existential.

A Texas 4,000-cow dairy optimized from scratch can show positive margins at these prices. A 200-cow dairy in the Upper Midwest at the same prices is bleeding cash every single month.

Heritage and sentiment don’t pay the bills. If you’re milking 200 cows in Wisconsin without a niche market or paid-off land, the math is working against you every single month. That’s not pessimism—it’s arithmetic.

This doesn’t mean Upper Midwest dairy is dead. Wisconsin has real advantages: exceptional forage quality, deep industry infrastructure, generations of expertise, and world-class cheese-making facilities. But the farms that thrive there will look different than the traditional model. Larger. More efficient. More specialized. The producers who recognize this and adapt will survive. The ones waiting for the old economics to return will not.

Following the Cheese: Where the Processing Money Is Going

Dairy processors are making strategic allocation decisions that favor cheese production over commodity powders. These decisions have direct implications for which farms command premium pricing.

The investment numbers are staggering. According to the International Dairy Foods Association’s October announcement, U.S. dairy processors are putting approximately $11 billion into more than 50 new or expanded facilities across 19 states, with projects coming online between 2025 and early 2028. Industry publications are calling it the largest investment wave in U.S. agricultural processing history.

The market signal is clear: cheese demand remains genuinely strong. Global cheese market projections show growth of 4-5% annually through 2035. U.S. cheese exports surged significantly in 2025. Domestic consumption continues climbing.

Powder markets tell a different story. The FAO noted that weak import demand for powders—particularly from Asia—contributed to recent price declines, with heavy butter and skim milk powder inventories in the EU adding pressure.

This creates a pricing divergence showing up directly in milk checks. Industry reports from October showed the spread between Class III and Class IV prices reaching around $2.47 per hundredweight—historically wide. For a 500-cow farm, that’s a meaningful income difference depending on how your milk gets allocated.

The guidance from dairy economists is straightforward: think carefully about component profiles and processor relationships. Farms optimizing production for cheese components—typically balanced butterfat-to-protein ratios in the 1.15-1.20 range—are positioning themselves for the products processors actually need.

The Beef-on-Dairy Trap: When Short-Term Cash Creates Long-Term Problems

Beef-on-dairy helps cash flow. No question about it. According to NAAB data, beef semen sales to dairy farms reached 7.9 million units in 2023, with 2024 showing continued growth. Farms producing 300 beef-cross calves annually at current market prices of around $1,400 per head are generating substantial supplemental income.

But beef-on-dairy creates downstream consequences that are about to bite.

CoBank’s dairy analysis team has documented what’s coming: they project roughly 357,000 fewer dairy replacement heifers available in 2025, with an additional 439,000 fewer in 2026. These shortfalls reflect breeding decisions made in 2022-2023 that can’t be reversed. It takes more than two years for a heifer calf born today to enter the milking string.

Here’s where the math gets ugly. CoBank’s analysis shows heifer inventories have fallen to a 20-year low, with prices at some auctions reaching $4,000 per head. Think about that for a moment. If you’re selling beef-cross calves for $1,400 and you need to buy replacement heifers at $3,500-$4,000, the economics of that trade look very different from than they did two years ago.

New processing capacity coming online in 2025-2026 needs milk supply now. But the heifer rebound won’t materially impact milk supply until 2027-2028 at the earliest.

“The beef check helps. But it buys time rather than solving the underlying milk price problem. What producers do with that time is the real question.”

The Scale Advantage: Why Size Matters More Than Ever

USDA’s Economic Research Service publishes cost-of-production data that shows why scale has become the critical survival factor.

For a 500-cow operation at current prices around $18 per hundredweight, total production costs often run in the $20-21 per hundredweight range. Run those numbers across annual production, and you’re looking at losses approaching $300,000 or more per year. That’s roughly $600 per cow in the red.

A 2,000-cow operation at the same milk price sees different economics. Total production costs can run closer to $16-17 per hundredweight when you spread overhead across more volume. That translates to potential profit approaching $1 million annually—$450-500 per cow in the black.

Same milk price. Opposite outcomes.

A 200‑cow Upper Midwest dairy can lose roughly $300,000 a year at $18 milk while a 2,000‑cow Southwest unit clears close to $1 million. Same mailbox price, completely different story. If you don’t know which cost bar represents your farm, you’re flying blind into this shakeout.

The cost advantage comes primarily from non-feed costs: overhead, labor, equipment, and management spread across more production. Agricultural economists note that the cost curve has gotten steeper over the past decade. The spread between high- and low-cost producers has widened, meaning price downturns hit the bottom quartile much harder than in previous cycles.

Operations losing $300,000 annually are burning through reserves. With typical liquid reserves of $50,000-150,000, these farms face 6-18 months before financial stress forces difficult conversations with lenders. The larger operation strengthens its balance sheet—positioning to weather extended weakness or acquire neighboring operations.

The Consolidation Trajectory: Where We’re Headed

According to USDA Census data, the U.S. had about 24,000 dairy farms as of 2022, down from over 39,000 in 2017. That’s a 38.7% decline in five years. During this period, total milk production grew, and the national herd stayed near 9.4 million cows. The cows didn’t disappear—they concentrated into fewer, larger operations.

Current exit rates in major dairy states are running 6-8% annually. Wisconsin and Minnesota both saw 7.4% declines in 2023 alone.

Based on current cost structures and price forecasts, industry analysts project continued consolidation through 2026-2027, with exit rates potentially moderating toward 2028-2030 as the bottom of the cost curve exits and remaining operations stabilize.

These projections could shift based on several variables, including policy changes to the Dairy Margin Coverage program, unexpected demand recovery, disease events, or significant movements in feed costs. But they represent the trajectory suggested by current economics.

What’s Working: Patterns from Farms That Are Thriving

Certain patterns emerge among operations that are well positioned for this environment. None of this is magic—it’s execution.

Component optimization. Forward-thinking operations are shifting focus from pounds of milk to butterfat and protein pounds. Producers selecting for component production and feed efficiency rather than just milk yield are seeing butterfat gains of 0.2-0.3 points and protein improvements of 0.1-0.15 points. At current component prices, that’s often worth more than chasing another 1,000 pounds of milk per cow.

Balance sheet strength. Farms that will weather extended price weakness are preserving every dollar of margin for cash reserves or debt reduction. Agricultural lenders consistently advise producers to manage as if prices were $2 lower than they actually are. The farms that build 12-plus months of operating reserves will have options. The ones operating margin-to-margin won’t.

Feed cost management. With corn prices relatively favorable—USDA projects season-average prices around $3.90 per bushel for 2025—strategic operations are securing pricing on multi-month contracts. The operation with 60% of corn needs forward-priced knows its costs precisely. That certainty creates planning ability when milk prices are volatile.

Proactive lender relationships. Farms approaching lenders early—before struggling—are presenting scenarios showing performance at $18, $17, and $16 per hundredweight. Lenders who understand an operation’s position in advance tend to be more flexible than those who discovering stress after the fact.

The Questions That Matter

As you evaluate your operation, here are the questions that will determine your future:

On your cost position: What’s your true cost of production? Not the industry average—your number. How many months can you sustain current conditions with the reserves you actually have?

On your market position: Is your milk optimized for what processors need? Do you know whether your processor has growing, stable, or declining capacity needs?

On your regional position: Is new processing capacity coming to your area? What’s happening with your neighbors—expanding, maintaining, or showing signs of exiting?

On your timeline: If you’re contemplating an exit, does acting sooner preserve more equity than waiting? If you’re committed to continuing, what specific improvements can you implement in the next 90 days?

The Bottom Line

The dairy industry that emerges from this period will feature fewer, larger, more efficient operations concentrated in regions with processing capacity and favorable cost structures. That’s the direction the data points, consistent with trends underway for decades—just compressed and accelerated.

Some farms will use this period to strengthen their position and emerge as regional leaders. Others will make the difficult but wise choice to exit while equity remains intact.

The market doesn’t care about your family history. It cares about your production costs. Do the math, or the bank will do it for you.

KEY TAKEAWAYS:

This isn’t cyclical—it’s structural. China added 22 billion pounds of domestic milk production since 2018, permanently closing a market that absorbed half of global import growth.
The cows are moving Southwest. Texas gained 46,000 head last year; Wisconsin lost 455 farms. $11 billion in new processing capacity is cementing this shift for decades to come.
Scale now determines survival. Operations above $20/cwt are hemorrhaging cash at current prices. Larger dairies at $16-17/cwt are building war chests for acquisition.
Beef-on-dairy bought time—at a price. Heifer inventories hit 20-year lows. Replacements are reaching $4,000 per head.
Act while options exist. This shakeout accelerates through 2027. Know your true cost of production—before the bank calculates it for you.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The $200K Dairy Margin Trap: What Cheap Feed Won’t Tell You About 2026 – Provides immediate tactical adjustments for cost control, revealing how weekly forage analysis and precise income-over-feed-cost (IOFC) calculations can uncover hidden margins even when feed prices look deceptively favorable.
The Wall of Milk: Making Sense of 2025’s Global Dairy Crunch – Deepens the structural analysis by explaining the “24-month biological trap,” showing why global supply collisions in the EU and Argentina are keeping prices suppressed despite strong U.S. exports.
The Beef-on-Dairy Wake-Up Call: What Some Farms Are Still Missing – Offers a strategic solution to the “heifer trap” mentioned above, demonstrating how to use genomic testing on the bottom 20% of the herd to balance beef premiums with adequate replacement generation.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy economics, cost of production dairy, Dairy Farm Profitability, dairy herd consolidation, dairy market outlook 2025, milk processing trends, structural dairy market shifts

USMCA 2026: The $200M Question – Why Only 42% of U.S. Dairy Access to Canada Gets Used

Tuesday, December 9th, 2025

USMCA gave us access to dairy markets in Canada. We’re using 42% of it. New Zealand just showed it can be fixed. The 2026 review is our window.

EXECUTIVE SUMMARY: USMCA promised U.S. dairy approximately $200 million in new annual access to Canada’s market. We’re using less than half. TRQ fill rates averaged just 42% in 2022/23, with Canada’s allocation system still favoring domestic processors—despite two dispute panels that exposed loopholes in the agreement’s original language. There’s reason for cautious optimism, though: New Zealand just pushed Canada past cosmetic adjustments through CPTPP, securing $157 million in annual export value. The 2026 USMCA review, combined with the ITC’s nonfat solids report due March 2026, gives U.S. dairy its clearest window to turn paper access into real orders. With consolidation accelerating—Wisconsin and Minnesota each lost 7.4% of their dairy farms in 2023—what happens in this review will ripple from trade policy down to your milk check. Here’s what happened, what’s possible, and what producers should watch as 2026 approaches.

You know how it goes. You’re out in the barn at 4 a.m., making sure the fresh cows are settling in, keeping an eye on that heifer that’s been off her feed. And somewhere in the back of your mind, you’re wondering what decisions being made in Ottawa or Washington might mean for next month’s milk check.

Trade deals get signed, politicians shake hands, there’s talk about “wins”—and then we wait to see if any of it actually turns into orders that need our milk.

Here’s what’s interesting about USMCA when you dig into the numbers. The University of Wisconsin Extension put out a detailed review earlier this year that adds up all the dairy tariff-rate quotas. They conclude that once everything’s fully phased in, U.S. exporters can ship up to about 3.6% of Canada’s annual dairy consumption into that market tariff-free. We’re talking milk, cream, cheese, butter, yogurt, powders—the works. Canadian trade law firms looking at the same schedules land on essentially that same number.

Now, Canada’s domestic dairy market runs around $17 billion, according to Dairy Reporter’s coverage earlier this year. So that 3.6% works out to roughly $200 million in potential new annual access for American dairy, based on Wisconsin Extension’s analysis.

And here’s the thing—total U.S. dairy exports to Canada have already climbed to an estimated $877 million in 2024, up from around $525 million back in 2021. That’s 67% growth in three years, which isn’t nothing.

But—and this is important—there’s a real difference between access on paper and orders that actually show up at the plant. That gap is where this whole story gets complicated, and honestly, where it starts to matter most for your operation.

USMCA Dairy at a Glance

Market access: 3.6% of Canada’s dairy market (~$200M in new annual access)
Total U.S. exports to Canada (2024): $877 million (up 67% since 2021)
TRQ fill rate (2022/23): Just 42% average; 9 of 14 quotas below 50%
Key date: ITC nonfat solids report due March 23, 2026
U.S. farm losses: 15,000+ dairies gone since 2017

The Spring That Changed Everything

You probably remember hearing about this, or maybe you lived through it yourself. Spring of 2017, when Canada’s policy changes stopped being something you heard about at meetings and started showing up in mailboxes.

Grassland Dairy sent letters to dozens of producers in Wisconsin and neighboring states saying their milk wouldn’t be picked up after May 1. Wisconsin Public Radio reported at the time that Grassland officially ended contracts with around 58 Wisconsin farms after giving them about a month’s notice. The Wisconsin Department of Agriculture, Trade, and Consumer Protection confirmed those numbers.

Grassland’s leadership told reporters the trigger was Canada’s new Class 7 pricing for ultra-filtered milk, which suddenly made Canadian-sourced protein ingredients cheaper and essentially squeezed out U.S. exports overnight.

What happened next showed something about our industry, though. State officials and dairy groups moved fast to line up alternatives. Dairy Farmers of America signed contracts with a significant number of the affected farms, and the Dairy Business Milk Marketing Cooperative helped coordinate other placements. By late spring, all but two of those Wisconsin herds had found new buyers—though many landed on shorter-term or trial contracts, which isn’t exactly the same as having that steady relationship you’d built over years.

I’ve spoken with producers who lived through that period, and many still describe it as a turning point. The frustration runs deep. You can do everything right in the barn—strong butterfat levels, solid fresh cow management, healthy transition periods—and then a milk pricing class in another country decides whether the truck shows up.

Stories like that are a big part of why dairy ended up so prominent in the USMCA negotiations.

What USMCA Actually Put on the Table

So what did the agreement really change?

First, Canada agreed to eliminate its Class 7 milk category—and, in some provinces, the related Class 6—and fold those volumes back into the existing pricing system. Analysis points out that this was specifically designed to prevent another situation like the ultra-filtered milk mess that had undercut U.S. exports.

Second, USMCA created new dairy tariff-rate quotas specifically for American products. Wisconsin Extension’s 2025 analysis goes line by line through the agreement and concludes that when all those TRQs are phased in over roughly six years, they add up to about 3.5–3.6% of Canada’s dairy market reserved for U.S. exporters. That covers milk, cream, cheese, butter, skim milk powder, yogurt, whey, and other products.

Now, most of us aren’t sitting around with calculators figuring out percentages of another country’s market. But here’s how I think about it: if Canada’s dairy sector runs around $17 billion domestically, and the agreement carved out roughly 3.6% for U.S. access, we’re talking about approximately $200 million a year in potential new trade value if it’s actually used. That’s real money for the processors and co-ops that handle our milk.

Canadian farmers noticed too. Dairy Farmers of Canada president Pierre Lampron called the signing of USMCA “a dark day in the history of dairy farming in Canada.” DFC’s statement said that, taken together, CETA, CPTPP, and USMCA had opened approximately 18% of Canada’s domestic dairy market to foreign competition, which they argued would destabilize supply management.

So from the U.S. side, USMCA’s dairy chapter looked like a major opportunity. From the Canadian side, it felt like one more cut into a carefully managed system. Both reactions are rooted in the same numbers—just different perspectives on what those numbers mean.

The Quota Puzzle: Access vs. Gatekeeping

Here’s where things get frustrating, and honestly, where the agreement shows its limitations.

On paper, USMCA’s dairy TRQs are pretty clear—they spell out how many tonnes of each product category can come into Canada each year at low or zero tariffs, and how those volumes grow over time. In practice, what matters just as much is who gets those quotas inside Canada.

Canada has the right to design its own TRQ allocation system, provided it complies with the agreement’s general rules. In its first go-round, Global Affairs Canada set up allocation rules that reserved a significant share of many dairy quotas for Canadian processors and “further processors.”

You can probably see where this is going. U.S. negotiators and dairy groups argued that this effectively put much of the access in the hands of companies that already had every reason to run Canadian milk through their plants, leaving less opportunity for importers, retailers, or food-service companies that actually wanted to bring in American product.

The United States requested a USMCA dispute panel. In early 2022, that panel released a report agreeing with the U.S. and Canada’s practice of reserving quota pools exclusively for processors, which conflicted with Article 3.A.2.11(b), which says countries shouldn’t limit access to allocations to processors. Hoard’s Dairyman described that panel result as an important step toward making the dairy quotas actually usable.

Canada rewrote its allocation policies. They removed the explicit processor-only set-asides and introduced “neutral” eligibility criteria based on market share and dairy trade activity. On paper, that was a shift.

In reality—and this is the part that still bothers many people—since large processors already dominate the market, they continued to receive most of the quota anyway.

The U.S. wasn’t satisfied and requested another panel in late 2022. This time, the second panel concluded that Canada’s usage of market-share calculations, while still favoring processors, didn’t technically violate the specific text of USMCA. It exposed a loophole in the original drafting of the agreement.

USTR Katherine Tai said she was “very disappointed by the findings,” and U.S. dairy organizations called the ruling a dangerous precedent.

So you end up with this real gap between a legal win and a commercial win. The first panel forced Canada to drop explicit processor-only pools, which mattered. The second panel showed that even with those pools gone, Canada can design rules that keep most of the quota in processor hands—and unless the agreement’s language is tightened, there’s not much the dispute system can do about it.

What’s the practical result? The International Dairy Foods Association reported that the average tariff fill rate was only 42% across all 2022/23 quotas, with 9 of the 14 TRQs falling below half the negotiated value. That’s a lot of access sitting unused.

The Protein Side: Export Caps and What’s Coming

Alongside TRQs into Canada, USMCA also tried to address something many of us worry about—the impact of surplus skim solids and proteins flooding world markets.

Under the agreement, Canada accepted limits on exports of skim milk powder and certain milk protein products. Reports breakdown notes that Canada agreed to cap combined exports of skim milk powder and milk protein concentrates at 55,000 tonnes in the first year and 35,000 tonnes in the second, with exports above those thresholds facing hefty charges.

For infant formula, the limits start at 13,333 tonnes in year one and rise to 40,000 tonnes in later years. The idea is to keep a supply-managed system from dumping excess solids into global markets at prices that drag down everyone’s Class IV.

In the early years after USMCA took effect, Canadian export volumes stayed under those caps—at least on paper. But Wisconsin Extension’s 2025 review points out that some processed food and blend categories containing milk solids have grown. U.S. analysts have raised questions about whether some of those flows are consistent with the spirit of USMCA’s export rules, even if they technically fit within defined product categories.

Why the ITC Report Matters

To move beyond questions and into actual evidence, USTR asked the U.S. International Trade Commission to conduct a deep dive. In May 2025, the ITC announced a new investigation into competitive conditions for nonfat milk solids covering 2020–2024. The report is due to USTR by March 23, 2026.

This is worth paying attention to. In July 2025, senior staff from the U.S. Dairy Export Council and the National Milk Producers Federation testified before the ITC, outlining how they believe foreign export policies—including Canada’s—shape global nonfat solids markets.

By the time USMCA’s formal review gets going, negotiators won’t just be leaning on anecdotes. They’ll have a thorough, independent dataset on how nonfat solids have actually moved under current rules.

What New Zealand Just Demonstrated

Sometimes, to see what’s actually possible, it helps to watch how another dairy-heavy country handled the same trading partner.

New Zealand brought a dispute under CPTPP over Canada’s dairy TRQ administration. They argued Canada’s allocation system was so restrictive that it effectively blocked much of the access promised on paper. A CPTPP panel sided with New Zealand, finding that several elements of Canada’s system breached its obligations.

At first, Canada made minimal adjustments. New Zealand officials—including Trade and Investment Minister Todd McClay—publicly said those changes didn’t go far enough and signaled they were prepared to keep pressing, including toward potential retaliatory steps.

That persistence paid off.

In July 2025, New Zealand announced it had reached a settlement with Canada. The Ministry of Foreign Affairs and Trade said Canada is committed to modify how it manages dairy TRQs, including how quota is allocated and reallocated when it goes unused. McClay stated that the agreement would deliver “up to $157 million per year in export value” for New Zealand’s dairy industry.

Cheese Reporter covered the announcement, noting that Canadian officials described the changes as “technical policy changes” that maintain the core of supply management. The modifications to Canada’s TRQ process will be published on October 1, 2025, for implementation with the 2026 calendar year quotas.

What jumps out to me in that story is the combination: clear panel rulings, solid data, and a government willing to push hard enough to get beyond cosmetic tweaks. It shows Canada can and will move further on quota administration when a trading partner builds a strong case and sticks with it.

For U.S. dairy, that’s an encouraging precedent heading into the 2026 review.

Why 2026 Is the Inflection Point

USMCA includes a formal six-year joint review. The three countries agreed to return to the table to assess how the agreement is working, where it’s falling short, and what needs updating.

That review isn’t limited to dairy—it’ll likely touch autos, labor provisions, dispute mechanisms, and supply-chain concerns tied to China.

On dairy specifically, U.S. groups have already sketched out their priorities. Looking at policy statements from the National Milk Producers Federation, U.S. Dairy Export Council, and regional organizations, a few themes keep coming up:

TRQ allocation rules that don’t effectively ring-fence most access for Canadian processors
Stronger “use-it-or-lose-it” provisions so unused quota gets reallocated in time, actually to be used
Clearer language on export disciplines so products that act like skim milk powder can’t bypass caps by shifting tariff codes
More responsive tools for resolving dairy disputes before they drag on for years

At the same time, dairy has to compete with other sectors for attention. Trade specialists note that autos and labor enforcement could dominate parts of the review.

That’s where the ITC report and farm-state congressional engagement become critical. Brownfield has reported that dairy-state lawmakers are asking for clear resolutions to cross-border disputes and signaling that they want USMCA’s renewal tied to stronger enforcement.

The Consolidation Reality Behind All This

While policy discussions play out in hearing rooms, the structure of our own industry keeps changing in ways you can see when driving from one township to the next.

USDA’s 2022 Census of Agriculture shows that U.S. farms with milk sales fell from 39,303 in 2017 to 24,082 in 2022—a loss of over 15,000 dairies in five years. Dairy Reporter’s analysis of that data, drawing on Rabobank research, notes that “almost 12,000” of those losses came from smaller operations.

Over that same period, total milk output grew, and the milking herd held near 9.4 million cows. The cows moved; they didn’t vanish.

Rabobank estimates that farms with more than 1,000 cows now produce about 67–68% of U.S. milk, up from around 60% in 2017. Reports essentially the same number. Cheese Reporter’s summary of the Rabobank work notes that the very largest operations—those with more than 2,500 cows—are a small slice of all dairies but produce close to half the milk.

In Wisconsin, the story is obvious. DATCP data shows the state lost 455 dairy farms in 2023, a 7.4% drop in licensed herds, while cow numbers and total production stayed roughly steady. That left Wisconsin with 5,895 dairies at the start of 2024.

Minnesota lost 146 dairies in the same period—also about 7.4% of its dairy farm base. Many of those exits were smaller family herds under 200 cows.

USDA’s Economic Research Service has tracked this “fewer but bigger” trend for years. Their research shows that economies of scale in feed handling, housing, and labor help explain why larger operations often have lower costs per hundredweight. Rabobank’s analysis reaches a similar conclusion and notes that newer technologies—from milking systems to data-driven management—tend to favor bigger herds that can spread the costs.

In many Midwest and Northeast communities, you can see it in the farm auction ads and the empty milk houses. In Western states, you see it in new freestall and dry-lot systems being built near export-oriented plants.

Trade policy isn’t the only driver—not by a long shot—but it’s part of the environment we’re all trying to navigate.

How It Looks from the Canadian Side

From our side of the border, Canadian supply management can look like a wall. From their side, the story has more layers.

Under supply management, Canada uses national and provincial quotas to align production with domestic demand, sets target prices through cost-of-production formulas, and relies on high over-quota tariffs—up to 300% —to limit imports, according to Dairy Reporter.

Dairy Global’s discussion of the system notes that it has historically provided more stable milk cheques than U.S. producers typically see, and it’s often credited with helping keep dairy herds across multiple provinces rather than allowing rapid regional hollowing out.

But Canadian economists have been pointing to serious weaknesses within that system.

Sylvain Charlebois, professor and director of the Agri-Food Analytics Lab at Dalhousie University, has written that Quebec now produces close to 40% of Canada’s milk even though its share of the population is just over 20%. Roughly 90% of the country’s dairy farms are concentrated in a small number of provinces.

In a column earlier this year, he warned that if current trends continue, Canada could lose nearly half of its remaining dairy farms by 2030—even with supply management—because high quota costs and structural pressures make it harder for smaller and younger producers to enter or stay in.

On the other side, Dairy Farmers of Canada and provincial organizations stress that supply management has shielded their farmers from the worst price collapses. It’s also allowed the federal government to design compensation programs tied directly to trade concessions.

Government of Canada announcements confirm that total compensation measures to dairy farmers for market access granted under CETA, CPTPP, and USMCA amount to $3.2 billion CAD—roughly $330,000 per dairy farm, according to USDA Foreign Agricultural Service analysis. DFC has argued these payments, combined with controlled borders, are essential to preserving viable dairy farms in rural communities.

As Canada heads into the 2026 review, its negotiators are trying to protect a system many producers view as vital, while also facing internal voices calling for modernization. That context matters when we think about how far they can realistically move on TRQs and export rules.

What This Means on Your Farm

From a practical standpoint, here are three things worth keeping in mind:

USMCA created real, measurable access—about 3.6% of Canada’s dairy market, worth approximately $200 million annually in new opportunities—but TRQ design has limited how fully that access gets used. Fill rates averaged just 42% in 2022/23.
U.S. dairy is consolidating fast—over 15,000 farms gone since 2017, with large herds now producing most of the milk.
Wisconsin and Minnesota’s 7.4% herd losses in 2023 show how intense the pressure remains on small and mid-size dairies, even when total production holds steady.

Smaller Herds (Under ~200 Cows)

In many Midwest and Northeast operations of this size, the daily focus is on keeping feed costs in line, managing labor, and getting fresh cows through the transition period without problems. You’re working on butterfat performance, trying to keep cows out of the hospital pen, because every health issue shows up on the milk check.

For herds this size, trade policy usually shows up as background volatility in the pay price rather than something you feel directly every week. A better-functioning USMCA can’t fix tight local basis or labor headaches, but it can help support more stable demand for cheese, powders, and butterfat—which, over time, makes planning a little easier.

It’s often helpful for operations this size to ask your buyer or co-op how much of their volume ends up in export channels, including Canada. And risk-management tools that fit your scale—such as Dairy Margin Coverage and simple forward contracts through your co-op—can help cushion the impact when global markets shift.

Mid-Size Herds (Roughly 200–800 Cows)

In Wisconsin or New York, a 400-cow freestall herd might ship somewhere around 9 million pounds of milk per year. A $0.50 per hundredweight swing in average price adds or subtracts roughly $45,000 annually; a $1.00 swing is about $90,000.

That’s the kind of money that can decide whether you move ahead with a parlor upgrade, improve transition-cow facilities, or keep nursing along older infrastructure.

Conversations I’ve had with mid-size producers across the Northeast and Upper Midwest often come back to a similar theme—they’re not big enough to ride out a bad year on volume alone, and not small enough to just tighten the belt and wait it out. A $0.75 swing per hundredweight can mean the difference between reinvesting and treading water.

For these farms, the way USMCA performs becomes a meaningful piece of the margin puzzle. Worth considering: sitting down with your lender or financial adviser and running a couple of “what if” scenarios for pay price over the next five years, especially around the 2026 review window.

And talking with your processor or co-op about how they’re currently using USMCA access and where they see Canada fitting into long-term plans.

Large Herds (800+ Cows)

In Idaho, California, the Texas Panhandle, and eastern New Mexico—large freestall and dry lot systems often ship to plants that rely heavily on exports. USDEC data and industry coverage indicate that these plants depend on markets such as Mexico, Canada, and various Asian and Middle Eastern countries to balance their solids.

Operations at this scale already treat trade policy as a central piece of their risk map, alongside water, labor, and environmental regulations.

The sentiment I hear from managers running these larger operations is that they watch USMCA the way they watch their water supply. It’s not the only thing that matters, but when it moves, it affects everything downstream.

For large herds, a stronger USMCA dairy chapter can reduce uncertainty about where incremental solids can go, encourage processors to invest in new dryers and cheese capacity that need dependable outlets, and lower the risk that policy shocks derail expansion plans.

It won’t change the need for good cow comfort or people management, but it does affect how risky that next big capital project feels.

What to Watch as 2026 Approaches

With everything else on your plate, here are three signals worth tracking—plus a few questions you can take straight to your next co-op or lender meeting.

The ITC’s Nonfat Solids Report

When the ITC releases its report, look at whether it clearly documents how foreign support and export practices—including Canada’s—are influencing nonfat solids markets.

Does it identify specific product categories that appear to be carrying milk solids in ways that don’t match USMCA’s intent? Does it quantify competitive effects on U.S. Class IV and powder markets?

The more concrete and specific it is, the more leverage U.S. negotiators will have.

Dairy-State Lawmakers’ Engagement

Brownfield and other outlets are already reporting that dairy-state legislators are asking for stronger enforcement on Canadian TRQs and export caps.

Watch for formal hearings or bipartisan letters tying USMCA’s long-term renewal to measurable improvements in dairy access.

When elected officials start using the same numbers you see in farm papers—like the 7.4% herd losses in Wisconsin and Minnesota—that’s a sign dairy is on their radar.

How Canadian Officials Frame the Review

Canadian ministers and Dairy Farmers of Canada have typically described past trade-driven dairy changes as “technical” or “administrative” adjustments while insisting supply management’s core remains untouched.

It’ll be telling to see whether they talk about the 2026 review purely as housekeeping, or whether you start hearing language about making quotas “function commercially” for trading partners—similar to the framing that emerged after the New Zealand settlement.

Questions to Ask Your Processor

To bring this closer to where your own milk truck turns in, here are three questions worth asking your plant or co-op:

How important is Canada in your current and planned export mix compared to Mexico and Asia?
Are you using USMCA dairy quotas now? If not, what would need to change—on TRQ rules or export caps—to make them worth pursuing?
If USMCA’s dairy chapter gets stronger or weaker in 2026, how would that change your investment plans over the next five to ten years?

Their answers will tell you a lot about what the review might mean for your milk check.

The Bottom Line

When you step back from all the numbers and panel rulings, the picture is reasonably clear.

USMCA did open a real, quantified slice of Canada’s dairy market—around 3.6%, worth approximately $200 million in new annual access—to U.S. exporters and forced the elimination of Class 7. Total U.S. dairy exports to Canada have grown to an estimated $877 million in 2024, up 67% from 2021. That’s genuine progress.

The first USMCA panel showed that Canada’s original processor-heavy allocation wasn’t acceptable under the agreement. The second panel showed the limits of what legal text alone can achieve when the specific wording leaves loopholes.

New Zealand’s CPTPP experience demonstrated that a combination of solid evidence, favorable rulings, and persistent follow-through can push Canada into changes with real commercial value—not just cosmetic adjustments.

At the same time, consolidation on both sides of the border is a reality, not a forecast. U.S. data show over 15,000 dairies gone since 2017, with most milk now coming from herds over 1,000 cows. Wisconsin and Minnesota’s 7.4% herd losses in 2023 are just one sharp snapshot.

In Canada, economists like Sylvain Charlebois are warning they could lose nearly half their remaining dairy farms by 2030 if nothing changes—even under supply management.

The honest takeaway is this: USMCA isn’t going to decide, all by itself, whether you milk cows next year. That still comes down to your forage program, butterfat performance, fresh cow management, your debt load, your labor situation, and the people around your kitchen table.

What this agreement can do—especially if the 2026 review delivers targeted improvements—is narrow the range of bad surprises. It can make it less likely you wake up to another shock like those Grassland letters, or find that the access that looked good in a press release never made it past the quota gatekeepers.

In a business where we’re already juggling weather, feed, labor, and regulations, having one more piece of the puzzle behave a bit more predictably is worth paying attention to.

And as many of us have seen over the years, when producers speak up—to co-ops, to farm organizations, to lawmakers—it does shape how these agreements evolve. As 2026 gets closer, it’s not a bad time to think about what you’d like this deal to do for the people who actually care for the cows, and to make sure those voices are heard.

KEY TAKEAWAYS

The Access Gap: USMCA promised U.S. dairy $200 million in new annual access to Canada. Fill rates average just 42%—more than half goes unused because of how Canada allocates quota to domestic processors
The Enforcement Limit: The first dispute panel ruled in our favor. The second exposed a loophole: Canada can design allocation rules that favor processors without technically violating USMCA’s language
New Zealand’s Playbook: Their CPTPP settlement forced Canada past cosmetic fixes, securing $157 million in annual export value. Persistent, evidence-backed pressure works
The 2026 Window: The formal USMCA review and the ITC’s nonfat solids report (due March 2026) give U.S. dairy its clearest shot at turning paper access into real orders
Your Move: Ask your processor about their Canada strategy. Run price scenarios with your lender around the 2026 timeline. Make sure dairy-state lawmakers hear from producers—not just lobbyists

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Decide or Decline: 2025 and the Future of Mid-Size Dairies – Provides a survival playbook for mid-size herds facing consolidation pressure, detailing why “standing still” drains equity and contrasting the specific ROI of expansion versus efficiency-focused technology adoption.
The Wall of Milk: Making Sense of 2025’s Global Dairy Crunch – Uncovers the disconnect between record exports and lower milk checks, helping producers understand global supply dynamics to better anticipate price volatility and adjust their risk management strategies accordingly.
AI and Precision Tech: What’s Actually Changing the Game for Dairy Farms in 2025? – Demonstrates how to combat labor shortages and tight margins with specific ROI timelines for precision feeding and AI monitoring, shifting technology from a luxury to a necessary survival tool.

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Categories : Dairy Markets

Tags : Canadian market access, dairy export strategy, dairy farm consolidation, milk price outlook, TRQ fill rates, USMCA dairy trade

Bailouts, Beef, and Butterfat: When $15K Won’t Fix a $370K Hole

Monday, December 8th, 2025

$15,000 from Washington. $370,000 in the red. The bailout’s a band-aid on a bullet wound—here’s what producers who’ll survive 2026 are doing right now.

EXECUTIVE SUMMARY: The $12 billion bailout sounds big—until you run the numbers. Dairy competes for scraps from a $1 billion ‘other commodities’ pool. A 500-cow operation might see $15,000. That covers 4% of projected annual losses exceeding $368,000. The June FMMO reforms made it worse: producers lost $337 million in pool revenue in just 90 days, according to AFBF analysis. But the dairies positioned to survive aren’t waiting on Washington. Beef-on-dairy crossbreeding is generating $90,000-$135,000 in new annual revenue. Component optimization is adding $50,000-$90,000 through butterfat gains. The bailout’s a band-aid—these moves are what separate survivors from casualties heading into 2026.

When the bailout announcement hit Monday morning, Jeff Voelker did what he’s done every month for the past year—he pulled up his spreadsheet and reran the numbers.

Voelker milks 480 cows outside of Marshfield in central Wisconsin. Good herd. Solid genetics. Third-generation operation. The kind of dairy that should be thriving. Instead, he’s been watching his working capital erode month after month, wondering how long the runway really is.

“I appreciate any help Washington sends our way,” Voelker told me when we spoke Tuesday. “But I’m not making business decisions based on that check. I’m making them based on what my cows and my land can actually do.”

That sentiment—grateful but exhausted—captures where a lot of mid-size producers find themselves this December. Because let’s be honest: after years of margin compression, trade wars, pandemic disruptions, and now FMMO reforms that took another bite out of the milk check, there’s a weariness setting in. Another bailout announcement. Another round of wondering if Washington actually understands what’s happening on the ground.

The Trump administration’s $12 billion agricultural aid package brings welcome relief. But for most dairy operations, it’s a band-aid on a bullet wound. Understanding what it actually covers—and more importantly, what it doesn’t—requires looking past the headline figures and getting realistic about what comes next.

Where Dairy Fits in This Package

Let’s be brutally honest: if you’re banking on this $12 billion to fix a structural deficit in your operation, you’re already in trouble. The check will clear, the lights will stay on for another month, but the fundamental math of 2026 hasn’t changed.

Here’s what the check actually looks like.

The bulk of the package—roughly $11 billion according to USDA program details and confirmed by the Washington Times and Forbes—flows through the new Farmer Bridge Assistance program targeting row crop producers affected by trade disruptions. Soybeans, corn, wheat. The commodities that dominate political conversations in farm states.

Dairy’s allocation comes from the remaining $1 billion designated for “other commodities”—a pool we’re sharing with specialty crops and other livestock sectors. USDA officials noted at Monday’s briefing that specific payment rates are “still being finalized.” If you’ve been around long enough, you recognize that language.

What we can do is look at precedent. During the 2018-2019 Market Facilitation Program, dairy received commodity-specific payments of $0.20 per hundredweight according to USDA Farm Service Agency program records. If something similar applies here—and that remains genuinely uncertain—we can start modeling what individual farms might expect.

Estimated payment ranges by operation size:

Herd Size	Annual Production	Likely Payment Range
100 cows	~23,500 cwt	$3,000 – $5,000
500 cows	~117,500 cwt	$12,000 – $20,000
1,000 cows	~235,000 cwt	$20,000 – $35,000
2,000+ cows	~470,000+ cwt	$35,000 – $50,000*

*The MFP had a $250,000 per person cap, with a total household cap of $500,000, which limited larger operations

These estimates assume dairy captures roughly half of that $1 billion “other commodities” allocation. That might prove optimistic depending on how specialty crop interests advocate for their share. We’ll have better clarity when USDA publishes the final rule, likely sometime in January.

The Margin Picture Heading Into 2026

To put these payments in proper context, it helps to understand where dairy margins actually stand right now. And the picture isn’t pretty.

USDA Economic Research Service projects an all-milk price around $19.25-$19.50 per cwt for 2026, which aligns with what dairy economists have been tracking. Mark Stephenson, who spent years as director of dairy policy analysis at the University of Wisconsin-Madison before his recent retirement, has been following these projections closely, and the outlook has remained stubbornly consistent.

Meanwhile, production costs for mid-size operations—those 300 to 700 cow dairies that form the backbone of states like Wisconsin, Minnesota, and Michigan—are running $21.50 to $23.00 per cwt according to University of Illinois FarmDoc analysis and USDA cost of production data. The exact number depends on your region, feed situation, and labor management.

Based on those projections, here’s what the math looks like for a representative 500-cow dairy:

📊 THE 500-COW REALITY CHECK

Category	Annual Figure
Milk Production	117,500 cwt
Gross Revenue (at $19.50/cwt)	$2,291,250
Operating Costs (at $22.64/cwt)	$2,660,200
Net Position	-$368,950
Bailout Payment	~$15,000
Bailout as % of Loss	4.1%

That potential $15,000 bailout payment represents about 0.6% of annual operating costs. It covers roughly two weeks of feed. Maybe a month of debt service. It’s meaningful as supplemental support—nobody should dismiss it. But it’s not moving the needle on a $370,000 annual loss.

What’s been consistent in conversations with producers over recent weeks is this recognition. They’re grateful for assistance, but they’ve learned not to build business plans around government payments that may arrive on uncertain timelines and in uncertain amounts. The operations weathering this period best are focused on what they can actually control.

Understanding the June FMMO Changes

This brings us to something that is still causing real frustration across the industry: the Federal Milk Marketing Order reforms that took effect on June 1, 2025.

I’ve talked with several producers who know their milk checks have changed but aren’t entirely sure why. So let me walk through this carefully.

The reforms included several adjustments, but the one generating the most anger is the increase in “make allowances.” These are the manufacturing cost credits that processors deduct from raw milk prices before pool distribution—essentially, what processors retain to cover their costs of turning your milk into cheese, butter, or powder.

Under the new rules, these allowances increased from approximately 5 cents to 7 cents per pound across cheese, butter, and powder classes according to the USDA Agricultural Marketing Service final rule. That adjustment comes directly out of producer prices before you ever see it.

Processors and cooperative leaders will tell you these updates were necessary corrections to the 2008 economics. And sure, inflation is real for everyone—manufacturing costs for labor, energy, and equipment have increased substantially over the past seventeen years. There’s some validity to that argument.

But for the producer on the receiving end of a 7-cent deduction, it feels less like an “update” and more like a wealth transfer from the milking parlor to the processing plant. It’s a bitter pill to swallow watching your milk check shrink to subsidize the processing sector, especially while some of those same processors post record earnings and cooperative patronage dividends remain flat.

The numbers tell the story. The American Farm Bureau Federation analyzed the first three months following implementation. AFBF economist Danny Munch reported in September 2025 that dairy producers collectively received approximately $337 million less in pool revenues than they would have under the previous formula. That’s $337 million out of producer pockets in just 90 days.

For individual farms, the impact varies by region and milk utilization. Operations in cheese-producing regions—Wisconsin, Idaho, parts of California’s Central Valley—appear most affected, with some producers reporting effective price reductions of $0.75 to $0.87 per cwt compared to pre-reform levels.

What this means practically: A 500-cow dairy that might have expected $2.39 million in milk revenue under the old formula could now be looking at $2.29 million—a $100,000 annual difference that makes any bailout payment look like pocket change.

The reform also returned the Class I pricing formula to a “higher-of” structure intended to benefit fluid milk producers and updated composition factors for protein and other solids. For operations in fluid-heavy markets, those changes may partially offset the make allowance impact. But for cheese-market producers—which describes most of the Upper Midwest—the make allowance adjustment dominates everything else.

The Global Context

One factor that often gets overlooked in domestic policy discussions: we’re operating in an interconnected global market, and right now, milk is flowing everywhere.

Rabobank’s quarterly Global Dairy reports show milk supply growth of around 2% across major exporting regions for the second half of 2025. New Zealand posted solid production gains despite earlier concerns about drought. The EU has been running above year-ago levels through much of the year.

This matters because global supply dynamics put a ceiling on how high U.S. prices can realistically climb. That same Rabobank analysis projects supply growth moderating to under half a percent by 2026, but continued pressure on world dairy commodity prices appears likely through at least mid-year.

The takeaway isn’t pessimism—it’s realism. Even if domestic conditions improve, global supply patterns suggest we shouldn’t expect dramatic price recovery to solve margin challenges. Which brings us to what actually might.

How Forward-Thinking Producers Are Responding

Here’s where the conversation becomes more encouraging—and more actionable.

Across the industry, I’m seeing producers treat this moment as an opportunity to accelerate changes they’d been considering. The operations that seem most confident heading into 2026 aren’t waiting for market recovery or larger government programs. They’re focused on revenue diversification and operational refinement—variables within their direct control.

Three approaches keep emerging in conversations.

Building Revenue Through Beef-on-Dairy

This might be the most significant shift in dairy economics over recent years, and if you haven’t run the numbers for your operation, you’re probably leaving serious money on the table.

With beef markets strong, verified crossbred calf values are running $350-$500 per head compared to $25-$75 for traditional Holstein bull calves. According to an American Farm Bureau Federation analysis, dairy-origin cattle account for roughly 20-28% of the annual U.S. calf crop, with beef-on-dairy crossbreds now representing an estimated 12-15% of fed cattle slaughter—and growing rapidly. A 2024 Purina survey found that 80% of dairy farmers and 58% of calf raisers now receive a premium for beef-on-dairy calves.

📊 THE BEEF-ON-DAIRY MATH (500-cow herd, 60% bred to beef)

Revenue Source	Holstein Bulls	Beef-Cross Calves
Calves sold annually	~300	~300
Value per head	$25-$75	$350-$500
Annual calf revenue	~$15,000	$105,000-$150,000
Net gain from the switch	—	+$90,000 to +$135,000

That’s not a typo. We’re talking about a potential six-figure revenue swing from a breeding decision you can make this week.

I recently spoke with Mark Hendricks, who milks 520 cows near Charlotte, Michigan. He made the transition in 2023. “It’s not complicated,” he explained. “I identified my bottom 60% on genomics, stopped using dairy semen on them, and contracted with a beef aggregator. My calf revenue went from around $15,000 to over $100,000 in one year.”

But here’s what really excites the breeder in me about this strategy: it’s not just about the calf check. When you commit to breeding beef on your bottom 60%, you’re forcing yourself only to generate replacements from your absolute best females. Every heifer that enters your milking string comes from a top-40% dam. You’re accelerating genetic progress while getting paid to do it.

Think about that for a moment. Instead of keeping mediocre replacements because you need the numbers, you’re culling harder, breeding smarter, and generating a six-figure revenue stream in the process. The economics align with the genetics in a way that rarely happens in this industry.

Key considerations if you’re exploring this approach:

Forward contracts with beef finishers typically offer $100-$200 per head premium over spot market sales
Sire selection matters significantly—calving ease scores and carcass merit both influence value
Some cooperatives now offer specific programs for verified crossbred calves
Plan breeding strategy around your herd’s actual genetic ranking, not arbitrary percentages
Work with your genetics advisor to identify the true cutoff line for dairy replacements

What’s particularly noteworthy is how quickly this has shifted from experimental to standard practice among progressive herds. Five years ago, breeding dairy cows to beef was something you did with your problem animals. Now it’s a deliberate profit center and genetic accelerator.

Optimizing for Components

The FMMO reforms reinforced something that’s been building for years: the market rewards components over fluid volume. If you’re still managing primarily for pounds of milk, you’re chasing the wrong number.

Looking at Council on Dairy Cattle Breeding data and current component pricing, each 0.1% increase in butterfat is worth approximately $0.25 per cwt. That accumulates quickly.

For a 500-cow dairy, moving from 3.8% to 4.1% butterfat—a 0.3-point improvement achievable through genetics and nutrition over 18-24 months—translates to roughly $88,000 in additional annual revenue.

Maria Gonzalez runs a 650-cow operation with her husband near Hanford in California’s Central Valley. “We stopped chasing pounds five years ago,” she told me. “Our rolling herd average dropped about 2,000 pounds, but our milk check went up $40,000. Components changed everything for us.”

What this looks like practically:

Shifting genetic selection toward Net Merit (NM$ or CM$) indexes that weight components more heavily
Working with your nutritionist on rations supporting de novo fatty acid synthesis
Making reproduction decisions based on component performance, not just production volume
Tracking Combined Fat + Protein in pounds per cow per day

Producers who do this well tend to set Combined F+P above 7 lbs/cow/day as their benchmark. That seems to be where the economics really accelerate under current pricing structures.

Evaluating Scale and Structure

This is genuinely the most difficult topic, and there’s no universal answer.

Industry economists have noted that operations with 300 to 700 cows often face particular challenges—too large to operate primarily with family labor, but not large enough to capture the fixed-cost efficiencies available to larger operations fully.

USDA Economic Research Service cost of production estimates from 2023-2024 illustrate the scale dynamics:

Under 200 cows: $24-$28/cwt
200-500 cows: $21-$25/cwt
500-1,000 cows: $19-$22/cwt
Over 2,000 cows: $17-$20/cwt

That $2-$4 per cwt cost advantage at larger scale isn’t primarily about management quality—many smaller dairies are exceptionally well-managed. It’s largely about spreading fixed costs across more production units.

This doesn’t mean mid-size dairies can’t succeed. Many do, consistently. But success at that scale typically requires exceptional operational efficiency, premium market positioning, diversified revenue, or creative approaches to capturing scale benefits.

Options worth considering:

Collaborative arrangements with neighboring operations—sharing equipment, labor, or specialized services without full merger. Several partnerships I’m aware of in Wisconsin and Minnesota involve family operations sharing nutritionists, coordinating heifer programs, or jointly owning harvest equipment. These capture meaningful efficiencies while preserving independent ownership.

Strategic expansion for operations with strong balance sheets and available resources. The numbers suggest reaching 800-1,200 cows meaningfully improves cost structure—if the transition can be managed well.

Thoughtful transition planning for producers approaching retirement without identified successors. Recognizing that exiting while asset values remain relatively strong may better serve family interests than extended losses followed by a distressed sale. That’s not failure—it’s sound business judgment.

The Cooperative Conversation

One topic that emerged repeatedly in my reporting: how cooperatives participated in the FMMO reform process.

The January 2025 referendum approving the FMMO changes passed in ten of the eleven Federal marketing orders. The voting structure itself raised questions for some producers.

Under regulations established in the Agricultural Marketing Agreement Act, cooperatives can exercise “bloc voting”—casting ballots on behalf of member producers rather than requiring individual votes. This means many producers didn’t receive personal ballots; their cooperative boards voted based on their assessment of member interests.

Reasonable perspectives exist on both sides of this structure. Cooperative leaders note that bloc voting enables efficient administration of complex decisions and that elected boards are specifically chosen to make these judgments. That’s a legitimate point, and cooperative governance has deep roots in American agriculture.

Some producer advocates, including the American Farm Bureau Federation, have proposed “modified bloc voting,” allowing individual producers to request separate ballots when they disagree with their cooperative’s position. AFBF’s October 2025 policy brief outlined several such reforms.

USDA hasn’t adopted changes, though discussions continue.

What I’d encourage: understand how your cooperative makes policy decisions and engage actively. Most cooperatives solicit member input before major votes. Participating in those forums—attending meetings, asking questions, communicating with board representatives—is the most direct way to influence decisions affecting your operation.

Succession Considerations

One aspect deserving more attention: what current conditions mean for generational transfer.

When support programs maintain elevated land and asset values despite operating losses, the mathematics for incoming generations become brutal. Young farmers looking to purchase or assume 500-cow operations face asset valuations often based on historical performance or land appreciation, but an operating reality that includes current losses requiring significant working capital.

Farm Credit Canada’s November 2025 succession report found that capital requirements now constitute the primary barrier to next-generation entry, ahead of land availability, family dynamics, or technical knowledge. That finding likely applies similarly in the U.S.

“The worst outcome is transferring an operation to the next generation based on optimistic projections that don’t materialize,” observes Jennifer Horton, a farm succession specialist with University of Minnesota Extension who works extensively with dairy families throughout the Upper Midwest. “Honest conversations about margin expectations, capital needs, and risk tolerance need to happen before transfer. The families that navigate this successfully are those willing to examine real numbers together.”

If you’re considering succession—whether within the family or through an outside sale—this period offers an opportunity for realistic planning while asset values remain relatively strong.

The Bottom Line

Where does this leave the typical mid-size producer?

The bailout represents real assistance. For 500-cow operations, payments in the $12,000-$20,000 range provide meaningful cash flow support—perhaps a month of debt service or a quarter’s veterinary and breeding costs. That matters. But it’s not a strategy.

Here’s what actually moves the needle:

On revenue diversification: If you haven’t evaluated beef-on-dairy seriously, the $90,000-$120,000 annual revenue potential warrants attention this winter. Talk to your genetics advisor and explore forward contracting options.

On components: The $50,000-$90,000 annual impact from butterfat and protein optimization is achievable for most operations. Review genetic direction and nutritional programs through a component lens.

On positioning: Be honest about your cost structure relative to the market. Whether the answer involves collaboration, expansion, efficiency, or a thoughtful transition, making clear-eyed decisions now preserves more options than waiting.

On cooperative engagement: Understand how your cooperative makes policy decisions. Your voice carries more weight than you might assume—but only if you use it.

The dairy industry has navigated challenging periods before and emerged stronger. The operations that thrive through this one will be those that make proactive adjustments based on solid information—not those that wait for Washington to write a check that fixes everything.

That’s not pessimism. It’s practical wisdom.

KEY TAKEAWAYS:

The bailout covers 4% of your loss: ~$15,000 for a 500-cow dairy against $368,000+ in annual red ink
FMMO reforms already cost producers $337 million: Cheese-region operations are down $0.75-$0.87/cwt on every check
Beef-on-dairy is a six-figure decision: Breed your bottom 60% to beef for $90,000-$135,000 in new annual revenue—and faster genetic progress
Chase butterfat, not bulk tank pounds: A 0.3% fat improvement = $88,000/year. Target: 7+ lbs Combined F+P daily.
The check won’t save you. These moves might. Lock beef contracts and revisit genetics before spring breeding.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Why Are Dairy Farmers Desperately Holding onto Their Cows in 2024? Uncover the Truth – This analysis reveals how the beef-on-dairy boom has fundamentally altered culling strategies, providing financial data on why retaining cows for beef crosses is currently outperforming traditional replacement models for cash flow.
Why Boosting Butterfat and Protein Is Key to Higher Profits – A tactical guide to the “component economy,” offering specific genetic and nutritional adjustments to capture the $6.87/cwt spread between average and high-component herds identified in current market analysis.
Discover the Future of Dairy Farming: Key Technologies Revolutionizing the Industry – Explores the ROI of automation beyond the hype, detailing how automated feeding and milking systems are helping mid-size operations overcome labor shortages while stabilizing production costs against volatility.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy crossbreeding, Dairy Farm Profitability, farm margin analysis, FMMO reform impact, genomic selection strategies, milk component pricing

4.3% Butterfat and a Shrinking Check: The 90-Day Window to Reposition Your Operation

Monday, December 8th, 2025

Record butterfat. Shrinking checks. The industry’s 25-year breeding strategy just ate itself.

Executive Summary: Here’s the paradox: U.S. dairy herds are testing 4.23% butterfat—an all-time record—yet milk checks are running $3-5/cwt below last year. The genetic industry’s 25-year push for components worked perfectly, and now everyone’s drowning in the success. Butter stocks are up 14%, Class IV prices hit $13.89/cwt in November (lowest since 2020), and the traditional cull-and-restock response is off the table with springers at $3,000+ and heifer inventory at a 47-year low. For operations in the 500-1,500 cow range carrying moderate debt, the next 90 days are decisive—DMC enrollment closes in February, DRP in March, and the choices made before spring will separate farms that reposition from those that get squeezed. Three viable paths exist: optimize for efficiency, transition to premium markets, or exit strategically while equity remains. Standing still isn’t on the list.

I’ve been talking with farmers across the Midwest and Northeast over the past few weeks, and there’s a common thread running through those conversations. A producer will mention their herd’s butterfat at 4.3%—exactly what they spent a decade breeding for—and then pause. Because that same milk is now flowing into a market where the cream premiums just don’t look like they used to.

It’s a strange place to be. You made sound breeding decisions. The genetics are performing. The components are there. And yet the check doesn’t quite reflect it.

So what’s actually going on here? And more importantly, what can we realistically do about it in the next 90 days?

[Image: Side-by-side comparison of a milk check from 2023 vs. 2025 showing component premiums shrinking despite higher butterfat test]

After reviewing the latest market data and speaking with lender advisors, farm management consultants, and producers who’ve been through similar cycles, a clearer picture emerges. This isn’t simply a temporary dip that’ll correct by spring flush. It’s a structural shift that’s been building for years—and the farms that come through it successfully will be those that understand both what’s driving it and which decisions actually move the needle.

The Component Trap: How 25 Years of Smart Breeding Created Today’s Problem

Here’s something that needs to be said plainly, even if it’s uncomfortable: the genetic industry—breeders, AI companies, genomic providers—collectively steered the entire U.S. dairy herd in one direction, and now we’re all standing here wondering what comes next.

That’s not an accusation. Everyone was following the economic signals. But the result is undeniable.

You probably know the broad outlines already, but it’s worth walking through the numbers because they’re pretty striking when you see them together. None of this happened by accident. It’s the result of pricing signals that consistently rewarded butterfat production across two and a half decades.

Consider the trajectory. The average Holstein was testing around 3.7-3.8% butterfat back in 2000, according to Council on Dairy Cattle Breeding historical data. By 2024, that figure had climbed to a record 4.23%—a substantial jump in component concentration. CoBank’s lead dairy economist, Corey Geiger, noted in his analysis last year that milkfat, on both a percentage and per-pound basis, reached an all-time high. In high-genetics herds, 4.3-4.5% is now pretty common.

***U.S. Holstein herds have steadily climbed from roughly 3.7% to over 4.2% butterfat in just two and a half decades***

This wasn’t a failure of individual breeding decisions. It was a success—of everyone doing the exact same thing at the exact same time.

[Image: Line graph showing U.S. average butterfat percentage climbing from 3.7% in 2000 to 4.23% in 2024]

Federal Milk Marketing Order formulas rewarded butterfat with premium pricing, and the industry responded accordingly. Then, genomic selection tools, which really gained traction around 2009, accelerated genetic progress dramatically. What once took 15-20 years of conventional breeding can now be achieved in roughly half that time. The April 2025 CDCB genetic base reset tells the story—it rolled back butterfat by 45 pounds for Holsteins, nearly double any previous adjustment. That’s how much progress has accumulated in the genetic pipeline.

The economics seemed compelling at the time. A farm producing 4.2% butterfat milk versus 3.8% butterfat earned roughly $0.80-1.20/cwt more on the same volume, based on component pricing formulas. For a 1,000-cow herd producing 25,000 lbs/cow annually, that translated to $200,000-300,000 in additional annual revenue. The incentives pointed clearly in one direction.

And here’s where it gets tricky.

When an entire industry simultaneously optimizes for the same trait, supply eventually outpaces demand. U.S. butter production has grown substantially over the past decade, according to USDA Agricultural Marketing Service data. Cold storage butter inventories showed elevated stocks throughout late 2024, with USDA Cold Storage data reporting September levels at approximately 303 million pounds—up about 14% from year-earlier figures.

Class IV milk futures, which price butter and powder, have reflected this pressure. USDA announced the November 2025 Class IV price at $13.89/cwt—levels we haven’t seen since 2020.

The question nobody in the genetic industry is asking publicly: Should we have seen this coming? And what does it mean for how we select sires going forward?

The Heifer Crisis: Why Your Normal Playbook Won’t Work This Time

What makes this particular cycle tricky is that some of the standard farm-level responses to low prices just aren’t available anymore. I’ve watched this play out in conversations with producers who are working through every option—and finding that familiar levers don’t pull the way they expect.

[Image: Infographic showing dairy heifer inventory decline from 4.5 million in 2018 to 3.914 million in 2025]

The Numbers That Should Keep You Up at Night

The logical response to component oversupply would be culling toward different genetics and restocking. But there’s a significant constraint worth understanding.

Replacement heifers simply aren’t available in the numbers many operations need—and the available ones have gotten expensive. The widespread adoption of beef-on-dairy breeding, which made excellent economic sense when beef prices surged, has reduced dairy heifer inventories to approximately 3.914 million head according to the January 2025 USDA cattle inventory report. That’s the lowest level since 1978.

***Replacement heifer numbers have dropped by roughly 600,000 head since 2018, driving springer prices above $3,000***

Here’s where the math gets painful. CoBank reported these figures in their August 2025 analysis:

National average springer price (July 2025): $3,010 per head
Wisconsin average: $3,290 per head
California/Minnesota top auction prices: $4,000+ per head
April 2019 low point: $1,140 per head
Price increase since then: 164%

Let that sink in. If you want to cull your bottom 50 cows and replace them, you’re looking at $150,000-$225,000 just in replacement costs—before you account for the production lag while those heifers freshen and ramp up.

This creates real tension. Operations that would like to cull more aggressively face either limited availability or elevated replacement costs. It’s a completely different calculation than we’ve seen in past downturns.

There’s also a timing consideration that’s easy to overlook. The replacement heifers entering milking strings in 2025-2026 were born and selected 2-3 years ago, when butterfat premiums were still paying handsomely. That genetic pipeline takes time to shift—meaningful changes in herd composition typically require 5-7 years, even with aggressive selection, according to dairy geneticists at the University of Wisconsin-Madison Extension.

The practical takeaway: Even if you start selecting differently today, you won’t see the results in your tank until 2030.

The Ration Workaround That Doesn’t Actually Work

Some producers have explored nutritional adjustments to modify butterfat percentage. I’ve heard this come up in several conversations, and it’s worth addressing directly.

Here’s the challenge—the rumen chemistry driving fat synthesis is interconnected with overall milk production in ways that make targeted adjustments difficult. Dairy nutritionists at Penn State and other land-grant universities have studied this extensively: adjustments that reduce butterfat typically also reduce total milk yield by 3-8%. The feed cost savings, maybe $0.30-0.50/cow/day depending on your ration costs, are often outweighed by lost milk revenue of $1.00-2.00/cow/day at current prices.

In most scenarios, ration manipulation doesn’t improve the overall financial picture. Counterintuitive, but the numbers generally bear it out.

The China Factor: The Export Valve That Closed

One element that’s amplified the current situation—and this deserves more attention in domestic discussions—is the shift in Chinese dairy import patterns.

[Image: Bar chart comparing China whole milk powder imports: approximately 800,000-850,000 MT peak around 2021 vs. approximately 430,000 MT in 2024]

For roughly two decades, China served as a significant outlet for global dairy surplus. When exporting regions overproduced, Chinese buyers absorbed much of the excess. That dynamic has evolved considerably.

China’s domestic milk production has grown substantially over the past several years, reaching over 41 million tonnesaccording to USDA Foreign Agricultural Service data. Self-sufficiency has risen from roughly 70% to around 85%, thereby reducing import demand.

The import trends tell the story clearly. Whole milk powder imports peaked at approximately 800,000-850,000 metric tonnes around 2021, according to Chinese customs data compiled by Rabobank. By 2024, that figure had declined to around 430,000 metric tonnes—a reduction of roughly 50%.

***China’s demand for imported whole milk powder has fallen by roughly 50% since its 2021 peak, closing a major export outlet***

Here’s what that means at the farm level: when 400,000 metric tonnes of powder that used to go to Shanghai starts competing for space in domestic and alternative export markets, that’s pressure that eventually shows up in your component check. Global dairy markets are interconnected in ways that weren’t true 20 years ago.

Rabobank senior dairy analyst Michael Harvey noted in their Q4 2024 Global Dairy Quarterly that Chinese imports could surprise to the upside if domestic production disappoints and consumer confidence improves. That’s a reasonable alternative scenario to consider.

Honestly? Nobody knows exactly where China goes from here. But planning as if that export outlet will suddenly reopen at 2021 levels seems optimistic at this point.

The Consolidation Accelerator

Dairy farming has been consolidating for decades—that’s well understood by anyone who’s watched their neighbor’s barn go quiet. What’s different about this period is the potential for that trend to accelerate under sustained margin pressure.

According to U.S. Courts data reported by Farm Policy News, 361 Chapter 12 farm bankruptcy filings occurred in the first half of 2025—a 13% increase over the same period last year.

Here’s an important nuance, though: milk production isn’t expected to decline in proportion to the number of farms. The operations most likely to exit tend to be smaller ones that represent a modest share of total volume. USDA projects national milk output at 231.3 billion pounds in 2026—essentially flat—even as the number of operations continues to decrease.

What this means for price recovery: Supply adjustments through consolidation happen more gradually than we might hope.

Three Directions for the Coming Months

For farmers operating in that 500-1,500 cow range—moderate scale, moderate debt, positioned to continue but facing real pressure—the next 90 days present some important decisions.

What’s been striking in conversations with experienced advisors is how consistently they point to the same priorities. The focus isn’t on finding some novel solution. It’s about executing fundamentals with careful attention during a demanding period.

[Image: Calendar graphic highlighting key deadlines: February 2026 (DMC), March 15 (DRP), March 31 (SARE grants)]

Key Dates Worth Tracking

December 31, 2025: Target for completing financial position analysis
February 2026: DMC enrollment deadline (confirm with your FSA office)
March 15, 2026: DRP enrollment deadline for Q2 coverage
March 31, 2026: SARE grant application deadline for organic transition support
Q2 2026: Period when margin pressure may be most pronounced

Priority 1: Knowing Exactly Where You Stand (Weeks 1-2)

Here’s what farm management consultants consistently emphasize: many operations lack precise clarity about their actual cost of production by component. They know their budgeted figures, but actual costs in the current environment often run $2-4/cwt higher than estimates suggest.

Consider a professional cost analysis through your lender or an independent agricultural accountant. Costs typically run $1,500-3,000, depending on scope and region—but the analysis frequently reveals $50,000-100,000 in costs that weren’t clearly showing up in standard bookkeeping. Your actual investment depends on your operation’s complexity.

Model three price scenarios for 2026:

Scenario	Class III	Class IV
Base Case	$17/cwt	$14/cwt
Stressed	$15/cwt	$12/cwt
Severe	$13/cwt	—

The key benchmark: if your debt service coverage ratio falls below 1.25x in the base case, you’re facing primarily a financing challenge rather than a production management challenge. That distinction shapes everything that follows.

Priority 2: Securing Protection Before Deadlines (Weeks 2-3)

DMC triggered payouts in August-September 2025 when milk margins compressed below coverage thresholds, according to USDA Farm Service Agency payment data. For operations that had enrolled, those payments provided meaningful cash flow support. For those that hadn’t… well, that opportunity has passed.

For a 700-cow operation, margin protection typically costs $35,000-40,000 in premiums based on standard coverage levels—though actual costs vary by operation size and coverage choices. What matters is the asymmetric protection: coverage that could preserve $200,000-300,000 in margin under severe scenarios.

[Related: Understanding DMC Enrollment for 2026 — A step-by-step walkthrough of coverage options and deadlines]

Priority 3: Choosing a Direction (Weeks 3-4)

	Efficiency Focus	Premium Markets	Strategic Transition
Best suited for	Sub-$15/cwt cost structure, solid cash position	Within 50 miles of metro market, $300K+ reserve	Age 55+, elevated debt, uncertain direction
90-day focus	IOFC-based culling, Feed Saved genetics	File organic transition, apply for SARE grants	Professional appraisal, explore sale/lease
Timeline	12-18 months	36-48 months	6-12 months
Capital required	Low to moderate	$200K-400K	Low (advisory fees)

[Image: Decision tree flowchart helping farmers identify which of the three paths fits their situation]

Path A: Efficiency Focus

The core approach remains culling the bottom 15-20% of cows ranked by income-over-feed-cost, not by volume alone. Your 50 lowest-margin cows likely cost $300-400/month more than your top 50 to produce milk. Addressing that can improve annual cash flow by $180,000-240,000.

What I keep hearing from producers who went through aggressive IOFC-based culling during 2015-2016 is pretty consistent: it felt counterintuitive at first. Some of those cows were producing 90 pounds a day. But when they ran the actual economics, those high-volume cows were undermining their cost structure. Taking them out changed everything. Many came out of that period in better shape than they went in.

Producers running large dry lot operations in the West report similar experiences. The temptation is always to keep milking cows. But when you run the numbers, the bottom 10-15% of the herd is often break-even in a good month and loses money in a bad one. Letting them go without immediately restocking—just accepting a smaller herd—can actually improve your average component check per cow. Sometimes, smaller really is more profitable.

On the genetics side, it’s worth looking at “Feed Saved” as a selection trait. CDCB introduced this in December 2020, specifically to identify animals that are more efficient at converting feed to milk. The trait’s weight in Net Merit increased to 17.8% in the 2025 update, which tells you how seriously the industry is taking feed efficiency now. The potential savings vary by herd, but for operations where feed accounts for 50-60% of costs, even modest efficiency gains can translate into meaningful dollars. Talk to your AI rep about what realistic expectations might look like for your specific situation.

Path B: Premium Market Transition

For operations within a reasonable distance of major metro markets and with capital reserves to absorb transition costs, organic conversion or specialty milk contracts offer an alternative direction.

This path involves more complexity than it might initially appear. Organic transition typically means 3-year yield reductions of 10-15% according to data from the Organic Dairy Research Institute, followed by meaningful price premiums once certified. The economics can work—eventually—but the transition period requires substantial financial runway.

What I hear consistently from producers who’ve made this transition: the middle years are harder than expected. You’re essentially getting conventional prices while operating organically. But once you reach certification, the price difference is real. NODPA and USDA Organic Dairy Market News report certified operations receiving farmgate prices ranging from the mid-$20s to $30s per cwt for conventional organic, with grass-fed premiums often running significantly higher—sometimes into the $40s or above depending on your processor and region.

If this direction fits your situation, the 90-day priorities include:

Connect with certified organic dairies in your region through your state organic association—NOFA chapters in the Northeast, MOSA in the Upper Midwest, or similar organizations in your area. Request 2-3 farm visits to understand actual transition costs and challenges. The real-world experience matters more than marketing materials.

Explore SARE grants before the March 31, 2026, deadline. These grants may provide significant cost-sharing support for organic transition—contact your regional SARE coordinator for current funding levels and application requirements, since program specifics change annually.

If you’re committed, file your transition plan with your certifier by March 1, 2026, to start the 3-year clock. Earlier starts mean earlier access to premium pricing.

[Related: Organic Transition Economics: What the Numbers Actually Look Like — Real producer case studies and financial breakdowns]

Important consideration: This path makes most sense if you have substantial equity reserves and you’re genuinely within reach of organic market demand. Not every region has processors paying meaningful organic premiums. Market research should come before commitment—talk to Organic Valley, HP Hood, or whoever handles organic milk in your region about their current intake and premium structure.

Path C: Strategic Transition

This is the path that’s hardest to discuss, but for operators over 55, carrying elevated debt, or genuinely uncertain about long-term direction, a strategic exit while equity remains may represent sound financial planning.

Here’s what farm transition specialists consistently emphasize: a farm with a 45% debt-to-asset ratio that transitions strategically today typically retains significantly more family wealth than the same farm forced to exit in 2027-2028 after extended margin erosion. The difference can easily be $300,000-500,000, depending on circumstances.

That’s not failure. That’s recognizing circumstances and making a thoughtful decision.

University of Wisconsin Extension farm transition advisors make this point regularly in producer workshops: the families who come through in the best financial shape are almost always the ones who made the call themselves, not the ones who waited until circumstances forced their hand. There’s real value in choosing your path.

The 90-day approach for this path:

Obtain a professional appraisal ($2,500-4,000 depending on operation complexity) covering real estate, equipment, herd genetics, and any production contracts.

Explore multiple options—they’re not mutually exclusive:

Direct sale to a larger operation (typically a 12-18 month process)
Lease arrangement retaining land equity
Solar lease opportunities—rates vary significantly by region, but can provide meaningful annual income on 20-30+ acres depending on your location and utility contracts
Custom heifer rearing using your existing facilities—particularly relevant given the shortage we discussed earlier

Consult with a farm transition tax advisor. How you structure an exit matters enormously for what you ultimately retain—installment sales versus lump sum, 1031 exchanges, charitable remainder trusts, and other tools can make six-figure differences in after-tax proceeds.

Regional Realities: One Market, Many Situations

One pattern that emerges from these conversations is how differently the same market dynamics play out depending on where you’re farming. The fundamentals we’ve discussed apply broadly, but the specific numbers vary considerably by region.

In Idaho and the Southwest, large-scale operations with export-oriented processing face one set of calculations. These are often dry lot systems with 3,000+ cows, lower land costs, and direct relationships with major cheese manufacturers. When Glanbia or Leprino adjusts their intake, the regional implications differ from what you’d see in Wisconsin. The scale efficiencies are real, but so is the commodity price exposure. Producers in the Magic Valley are watching Class III futures more closely than component premiums—their economics are tied to cheese demand in ways that Upper Midwest producers selling to smaller plants simply aren’t.

In Wisconsin and the Upper Midwest, you’re more likely to encounter diversified operations—500-1,200 cows, often family-owned across generations, with a mix of cheese plant contracts and cooperative relationships. The smaller average herd size means fixed costs per hundredweight run higher, but there’s also more flexibility to adapt. I’ve talked with Wisconsin producers seriously exploring farmstead cheese or agritourism as margin supplements—approaches that wouldn’t make sense at 5,000 cows but can work at 400.

In the Northeast, higher land costs and proximity to population centers create yet another calculation. Fluid milk markets still matter more here than in most regions, even as fluid consumption continues its long decline. The premium path—organic, grass-fed, local branding—tends to be more viable in Vermont or upstate New York than in the Texas Panhandle simply because the customer base is closer and the logistics work better.

Here’s the bottom line on regional differences: Conversations with farmers and advisors who know your specific market really matter. Your cooperative field staff, extension dairy specialist, or lender can help translate these broader trends into your local context. The three-path framework applies everywhere, but the details of execution—which processors are actively buying, what premiums are realistically available, how constrained the local heifer market is—vary enough to influence decisions.

The Bottom Line

The farms that navigate this period most successfully won’t be those that discovered some novel solution—there isn’t one waiting to be found. They’ll be operations that understood the dynamics early, made honest assessments of their own position, and moved decisively while flexibility remained.

The window for making these decisions is now.

For additional resources on margin protection enrollment and strategic planning, contact your local FSA office, cooperative field representative, agricultural lender, or university extension dairy specialist.

Editor’s Note: Production cost data comes from the USDA Economic Research Service 2024 reports. Heifer pricing reflects USDA NASS data through July 2025. Bankruptcy statistics are from U.S. Courts data reported by Farm Policy News. Genetic progress figures reference the CDCB April 2025 genetic base reset. Cold storage and production data are from the USDA Agricultural Marketing Service. International trade figures come from the USDA Foreign Agricultural Service and Rabobank Global Dairy Quarterly. National and regional averages may not reflect your specific operation, market access, or management system. We welcome producer feedback for future reporting.

Key Takeaways:

Record butterfat, weaker checks: U.S. herds are averaging 4.23% butterfat, but Class IV has slipped to $13.89/cwt, and butter stocks are up 14%, so the component bonuses many bred for are no longer rescuing the milk check.
Heifer math has flipped: Dairy heifer inventory is at a 47-year low (3.914 million head), and quality springers are $3,000+ per head, which means the traditional “cull hard and restock” playbook often destroys equity instead of saving it.
This is a structural shift, not a blip: Twenty-five years of selecting for butterfat, China’s reduced powder imports, and slow-moving U.S. consolidation are combining into a multi-year margin squeeze, not just another bad winter of prices.
Your next 90 days are critical: Before DMC and DRP deadlines hit in February and March, farms in the 500–1,500 cow range need a clear cost-of-production picture, stress-tested cash-flow scenarios, and margin protection in place.
You have three realistic paths: Use this window to either tighten efficiency and genetics around IOFC and Feed Saved, transition into premium/organic markets where they truly exist, or plan a strategic exit while there’s still equity to protect—doing nothing is the highest‑risk option.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Is Beef-on-Dairy Causing America’s Heifer Shortage? – Reveals the structural mechanics behind today’s replacement crisis, detailing how the aggressive industry-wide shift to beef genetics created the specific inventory gap that is now driving heifer prices to record highs.
Cracking the Code: Behavioral Traits and Feed Efficiency – Provides the tactical “how-to” for the Efficiency Focus path, explaining how wearable sensors and behavioral data (rumination/lying time) can identify the most feed-efficient cows to retain when you can’t afford to restock.
How Rising Interest Rates Are Shaking Up Dairy Farm Finances – Delivers critical financial context for the Strategic Transition path, analyzing how the increased cost of capital is compressing margins and why debt servicing capacity—not just milk price—must drive your 2026 decision-making.

Join the Revolution!

Categories : Dairy Markets

Tags : Dairy Farm Profitability, dairy heifer shortage, Dairy Margin Coverage, feed saved genetics, income over feed cost, milk component pricing

China Promised 100%. Delivered 2.7%. Here’s Your 48-Hour Defense Plan.

Monday, December 8th, 2025

They announced 12 million tons of soybeans. Shipped 332,000. That’s 2.7%—and the gap between those numbers is where farms go broke.

<a href="https://rss.com/podcasts/the-bullvine/2376099/">E434 China Promised 100%. Delivered 2.7%. Here’s Y | RSS.com</a>

Back in October, the headlines announced that China had committed to purchasing 12 million tons of U.S. soybeans. By mid-November, USDA export data told a different story: just 332,000 tons had actually been shipped. For operations making real financial commitments based on trade optimism, that gap is everything.

It’s the elephant in the room at every co-op meeting, yet nobody wants to say it out loud: the headlines are lying to us. Not maliciously, maybe. But consistently.

This isn’t a one-off. When the Phase One trade agreement was signed back in January 2020, China committed to purchasing $80.1 billion in U.S. agricultural goods over two years. The Peterson Institute for International Economics tracked what actually happened: $61.4 billion in purchases. That’s about 77% of the agricultural target and just 58% overall.

Whether that’s a freestall expansion in Wisconsin or new milking equipment out in the Central Valley—these numbers matter enormously when you’re penciling out that loan.

The Promise-Delivery Gap: 2.7% to 77%. That’s the range of what trade has actually delivered in recent years. It’s a wide spread—and it’s the reality farm financial planning needs to account for.

The 2.7% Reality: China’s trade commitments consistently fall short, with the 2025 soybean deal delivering a catastrophic 2.7% while Phase One averaged 77%—a pattern that should change every dairy farmer’s expansion calculus.

Risk Factor	Phase One (2020-2021)	China Soybean (2025)	What Farmers Assumed
Historical Delivery Rate	64-87% delivery	2.7% delivery	100% delivery
Market Dependency	Medium – diversified buyers	High – China-specific	Low – “”guaranteed deal””
Price Impact per Deal	$0.15-0.25/cwt estimated	$0.35/cwt confirmed	Price increases expected
Timeline to Farm Impact	90-180 days	30-90 days	Immediate benefit
Cooperative Protection	Absorbed losses initially	€149M losses, mergers	Co-op will handle it
Individual Farm Defense	Limited – most expanded	DMC available if enrolled	No action needed

The Pattern Nobody Talks About

Trade announcements follow a consistent pattern. Farmers who’ve watched a few cycles are starting to read them differently than the headlines suggest.

The Phase One trajectory:

2020: Deal signed with $200 billion in purchase commitments over two years
2021-2022: China’s agricultural imports from all sources surged to record levels; U.S. exports to China hit approximately $41 billion
2023-2024: Import volumes declined as Phase One commitments expired and China diversified its suppliers
2025: New tariff escalations with announced deals delivering at single-digit percentages

Here’s what makes this tricky: those 2021-2022 numbers were real. China genuinely did purchase record agricultural volumes. Processors genuinely did see elevated component prices. You probably saw the improvement in your own milk check.

The data supporting expansion decisions wasn’t fabricated—it was completely accurate for that specific window.

The question most operations didn’t ask was whether those volumes represented a sustainable baseline or a cyclical peak. That’s a hard question to ask when the current numbers look great, and your lender’s nodding along with the business plan.

Why 2022 Was a Peak, Not a Floor

The gap between black promises and red reality: Phase One targets soared to $43.6B while actual imports peaked at $41B in 2022, then collapsed—proving strong recent years were cyclical highs, not sustainable baselines for your 20-year expansion loan.

Several indicators were available in real-time. Here’s what the data was showing:

African Swine Fever recovery was completing. China’s hog population lost roughly 40% of its sow inventory in 2018-2019, according to OECD analysis. The rebuilding phase drove massive feed imports through 2021. By early 2022, Iowa State University’s Ag Policy Review documented that herd recovery was largely complete. That import surge had an endpoint built in.

Phase One commitments expired December 31, 2021. The agreement was a two-year commitment with a hard stop date. After expiration, continued purchases became voluntary.

China’s dairy self-sufficiency targets were public. The Chinese government explicitly targeted 70% dairy self-sufficiency. By 2022, according to Hoogwegt analysis, they’d reached 66% and climbing. When you’re managing your fresh cow nutrition and component production here, remember—they’re building their own capacity over there.

Economic growth projections were declining. The Asian Development Bank projected that China’s GDP growth would slow from around 8% in 2021 to 5% by 2024-2025.

These indicators were available to anyone looking. The challenge is that recent strong performance tends to overwhelm forward-looking warning signals. That’s an understandable response to good data, not poor decision-making.

How This Hits Your Milk Check

Trade policy disruptions create cascading effects that move from Washington to your milk check faster than most realize.

The 2025 tariff escalation:

When retaliatory tariffs on U.S. dairy into China escalated from 10% to 125% between February and April, the impacts were immediate:

Whey markets contracted sharply. China had been taking about 42% of U.S. whey exports according to USDEC data. When that market closed, domestic supply backed up and prices compressed. If you’ve been watching whey premiums in your component pricing, you’ve felt this.

Lactose faced similar pressure. With China holding roughly 72% of the U.S. lactose export market share, the tariff wall forced processor restructuring.

USDA revised price forecasts downward. Class III projections dropped by about $0.35 per hundredweight.

In practical terms: For a typical 1,000-cow operation producing around 26,000 pounds per cow annually, that $0.35 reduction works out to roughly $91,000 in annual revenue. That affects replacement heifer decisions, equipment upgrades, everything.

University of Wisconsin-Madison dairy economists project that net farm income across the U.S. dairy industry could decline by $1.6 to $7.3 billion over the next four years due to tariff disruptions, with individual farms facing potential income reductions of 25% or more.

Real example: Half Full Dairy in upstate New York—a 3,600-cow operation run by AJ Wormuth—got hit from both sides. Steel and aluminum tariffs added $21,000 to a barn renovation order while milk revenues fell. As Wormuth told reporters in April, they’re facing “a double challenge” in which they can’t raise prices while expenses keep rising.

Whether you’re running a 200-cow grazing operation in Vermont or a 5,000-cow dry lot in New Mexico, that squeeze feels familiar.

What’s Really Happening with Cooperatives

Common assumption: cooperative membership provides meaningful insulation from trade volatility.

Reality: cooperatives face the same structural pressures as individual farms, just with less flexibility to respond.

Case study: FrieslandCampina-Milcobel merger

FrieslandCampina reported a €149 million loss in 2023. Milcobel posted an €11.6 million loss. These weren’t management failures—they reflected a structural challenge.

The cooperative bind: They must accept all member milk regardless of market conditions. That’s the deal. But when processing capacity gets built for peak-year volumes and deliveries decline, cooperatives face rising per-unit costs with limited ability to adjust.

Unlike private processors who can exit markets quickly, cooperatives are bound by charter obligations. The result: they absorb losses to maintain member pricing, eroding equity over time. When losses become unsustainable, mergers or sales become the path forward.

We saw this with Fonterra’s 88% member vote to sell consumer operations to Lactalis this past October.

Rabobank dairy analyst Emma Higgins put it directly: “For dairy cooperatives, the challenges are even more complex, as lower milk intake generally coincides with members withdrawing capital.”

The counterpoint: Some cooperatives have navigated better. Agropur achieved a significant turnaround by aggressively restructuring its debt and refocusing on high-margin segments such as cheese and specialty ingredients. The model isn’t doomed—but it requires proactive management.

Your cooperative’s financial health directly affects your returns. Ask questions at the next annual meeting.

What Smart Operations Are Doing

Several practical approaches keep coming up:

Applying historical execution rates. Rather than planning for 100% delivery, they’re discounting based on historical performance. If Phase One delivered 77%, that becomes the planning assumption.

Stress-testing against zero deal impact. Before expansion decisions, they’re modeling, assuming the deal contributes nothing. If viability depends entirely on the deal working, that’s a different conversation with your lender and family.

Maximizing DMC enrollment. Dairy Margin Coverage provides protection when margins compress—and it doesn’t depend on trade promises. It depends on actual market prices.

Maintaining working capital flexibility. Operations that kept debt-to-asset ratios conservative have more options when markets shift. It’s not pessimism—it’s room to maneuver.

Exploring market diversification. Direct sales, specialty products like organic or A2, and regional processor relationships. Not for everyone, but it’s optionality that didn’t exist a decade ago.

Your 48-Hour Playbook for Trade Announcements

When the next deal gets announced, work through these steps:

Step 1: Check the History (30 minutes)

The Peterson Institute maintains a tracker showing the promised versus actual purchases under Phase One. Before reacting to any announcement, look at historical delivery rates.

The calculation: New promise × historical execution rate = realistic delivery estimate.

Phase One ran at 58-77%. The 2025 China soybean promise delivered 2.7%. That range gives you boundaries for scenario planning.

Step 2: Model for Zero (1-2 hours)

Have your accountant run a 12-month cash flow assuming no additional revenue from the announced deal.

Questions to answer:

What’s my debt-service-coverage ratio? (Target: 1.25+ per Farm Credit guidelines)
Can I cover debt service if export demand doesn’t materialize?
How many months can working capital sustain at reduced prices?

Document what you find. This strengthens lender conversations later.

Step 3: Verify DMC Status (45 minutes)

Contact your local FSA office and confirm Dairy Margin Coverage enrollment. If open and you’re not enrolled, evaluate immediately.

The timing trap: Trade announcements create optimism. Farmers skip enrollment. Then deals underperform, prices fall, and the window is closed. The 2025 enrollment closed on March 31.

The protection is most valuable when purchased before you think you need it.

Principles That Hold Up

Announcements are risk factors, not guarantees. The gap between announcement and execution is where farm financial planning actually lives.

Peaks aren’t baselines. Strong recent performance may represent cyclical highs, not sustainable floors. Expansion decisions financed over 10-20 years should be stress-tested across multiple scenarios.

Understand your cooperative’s position. Their balance sheet health affects your returns. Request financial information.

Maintain optionality over optimization. Operations preserving flexibility have more choices when conditions shift. There’s value in leaving room, even if it means not maximizing every metric.

Document your process. Whether you expand or hold back, a record of analysis strengthens lender conversations and demonstrates sound management.

The Bottom Line

Trade promises that deliver between 2.7% and 77% of announced targets raise legitimate questions about how agricultural trade policy functions. Whether the gap reflects deliberate choices or institutional limitations is hard to say.

What’s clear: farmers absorb the consequences while having limited ability to influence outcomes.

This doesn’t mean trade agreements lack value. U.S. dairy exports remain significant—Mexico, Canada, and other markets provide important revenue. The question is how to make sound decisions when the market outlook depends on commitments with highly variable execution.

Until the product ships and checks clear, a trade announcement is a press release, not a market.

The framework we covered—checking history, stress-testing for zero, securing DMC—provides concrete steps within 48 hours of any announcement. None guarantees good outcomes, but it positions you for realistic scenarios rather than headline optimism.

The fact that dairy farmers need a defensive playbook for government trade promises tells us something about the system. Whether by design or neglect, the pattern is clear: promises at 100%, delivery between 2.7% and 77%, farmers navigating the gap.

Until that changes, treat every announcement as a risk to manage—not an opportunity to bet the farm on.

That may sound conservative. Given the track record, it’s the smart play.

Key Takeaways:

The promise-delivery gap: 2.7% to 77%. Never 100%. Budget accordingly.
The cost: $0.35/cwt price drop = $91,000 annual loss on a 1,000-cow dairy.
Cooperatives won’t save you: FrieslandCampina lost €149M. Fonterra members voted 88% to sell.
Your 48-hour playbook: Check historical rates. Model for zero revenue. Verify DMC enrollment.
The bottom line: Until product ships and checks clear, a trade deal is a press release—not a market.

Executive Summary:

China promised 12 million tons of soybeans. They shipped 332,000. That’s 2.7%—and your lender doesn’t care about the other 97%. Phase One delivered just 58-77% of agricultural targets, and dairy farmers absorbed the gap: $91,000 in annual losses for a typical 1,000-cow operation when Class III dropped $0.35/cwt. Even cooperatives can’t escape—FrieslandCampina lost €149 million; Fonterra’s members voted 88% to sell to Lactalis. The pattern is consistent: promises at 100%, delivery between 2.7% and 77%, farmers managing the difference. Here’s your 48-hour defense plan for the next trade announcement.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Decide or Decline: 2025 and the Future of Mid-Size Dairies – Provides a concrete financial framework for mid-size operations to survive consolidation, detailing specific debt-to-asset ratio targets (<35%) and three distinct business models (Expansion, Right-Sizing, or Optimization) that protect equity during market volatility.
Trump’s Trade War: Your 9-Month Roadmap to Dairy Profitability – Delivers a strategic timeline for navigating impending USMCA reviews and trade disruptions, offering proven diversification strategies—including beef-on-dairy and renewable energy revenue streams—to insulate your milk check from political crossfire.
The Tech Reality Check: Why Smart Dairy Operations Are Winning While Others Struggle – Reveals the true ROI benchmarks for dairy automation in 2025, helping producers avoid costly implementation failures by focusing on labor savings that actually materialize and cybersecurity measures that protect operational continuity.

Join the Revolution!

Categories : Dairy Markets

Tags : agricultural trade policy, Dairy Farm Profitability, dairy farm risk management, Dairy Margin Coverage, farm financial planning, milk price volatility, US dairy exports

Your Milk Check Is at the Mercy of a Cheese Shredder: What the Great Lakes Recall Reveals About Dairy’s Broken Supply Chain

Sunday, December 7th, 2025

Perfect SCC. Elite components. Tight ship. Then a shredder in Ohio failed—and none of it saved your milk check.

EXECUTIVE SUMMARY: Great Lakes Cheese sneezed in Ohio—and dairy farms across 31 states caught pneumonia. The October 2025 recall of 250,000 cases revealed a brutal truth: in a converter supply chain, when middlemen fail, farms absorb the pain through 5-15% intake cuts regardless of milk quality or management excellence. Your perfect SCC won’t save you from quality failures at companies you’ve never heard of. The strategic response isn’t panic—it’s diversification. Beef-on-dairy with verified genetics now commands $1,000-$1,400 per calf, organic premiums reach $33-$45/cwt in undersupplied markets, and cooperative infrastructure can slash traceability costs by 60-75%. With FSMA 204 extended to July 2028, producers have a runway to reposition—and the farms that thrive will be the ones who stopped waiting for a broken system to protect them.

When a metal fragment in a cheese shredder in Ohio can hit a milk check in Wisconsin, we have a problem. The Great Lakes Cheese recall isn’t just a food safety blip—it’s a warning shot about the fragility of the modern “converter” supply chain. And your farm is the one exposed.

I’ve been having conversations with producers across the Upper Midwest lately, and a pattern keeps emerging. Farmers who had no direct relationship with Great Lakes Cheese are feeling ripple effects. Milk intake adjustments here. Some price volatility there. That unsettling realization that something happening several steps down the supply chain can show up on your bottom line.

Let’s walk through what’s actually going on.

Understanding What Happened

Great Lakes Cheese, headquartered in Hiram, Ohio, ranks among North America’s largest cheese companies. They supply roughly a quarter of all packaged cheese in U.S. retail—brands like Walmart’s Great Value, Target’s Good & Gather, Aldi’s Happy Farms. The company has been expanding steadily, including a major facility in Franklinville, New York, that Governor Hochul announced at $500 million back in 2022. Due to inflation and supply chain challenges, that project ended up costing over $700 million by the time it came online in late 2024, according to reporting from the Olean Star.

The recall itself occurred in early October 2025—the FDA publicly classified it in December—and affected over 250,000 cases of shredded and sliced cheese across 31 states. The issue was traced to metal fragments in the supplier’s raw materials.

Here’s what you need to understand about how they operate. Great Lakes functions primarily as what the industry calls a “converter.” They’re not manufacturing cheese from milk in most facilities. Instead, they purchase 40-pound commodity cheese blocks from various suppliers, then shred, slice, and package those blocks for retail.

Put bluntly: Great Lakes is essentially a middleman with a massive retail footprint. And when a middleman of that scale has a problem, they don’t absorb the pain—they pass it upstream immediately. Their suppliers get hit. Their suppliers’ suppliers get hit. And eventually, that pressure falls on the farms that produce milk.

Mark Stephenson—Director of Dairy Policy Analysis at the University of Wisconsin-Madison—notes that the converter model allows processors to source globally, optimize costs, and concentrate capital on packaging and retail relationships. From a business perspective, it makes sense. But from a risk perspective? When the Great Lakes sneezes, they don’t catch a cold. Their suppliers catch pneumonia.

When a cheese shredder fails in Ohio, your milk check drops 15%—even if you’re running a spotless operation 500 miles away. This is what “converter supply chain risk” actually looks like when it hits your bank account

How Disruptions Travel Upstream

Three weeks. That’s how long it took for a metal fragment problem in Ohio to wipe out 12% of revenue for farms that never shipped a drop of milk to Great Lakes. Notice the recovery is twice as slow as the crash—welcome to commodity dairy’s asymmetric risk model

This is where things get practical for those of us producing milk. Understanding these mechanics matters because they reveal how interconnected—and sometimes how exposed—farm-level economics really are.

When Great Lakes pulled those 250,000-plus cases from shelves, their immediate demand for incoming cheese blocks dropped. That reduced demand traveled to their commodity cheese suppliers. Those suppliers adjusted milk intake from processing facilities. And those facilities modified contracts with cooperatives and farms.

USDA Agricultural Marketing Service data shows Class III prices at $19.95 per hundredweight for November 2024—historically a decent number. But regional volatility increased in the weeks following the recall announcement, with cooperatives in affected areas reporting intake adjustments ranging from 5% to 15%, depending on their processor relationships.

What does that mean for a working operation? Consider an 1,800-cow dairy producing around 41 million pounds annually. A 12% intake reduction sustained over several months—reports I’m hearing fall in that range—represents roughly $430,000 in displaced revenue at that Class III price.

I recently spoke with a Wisconsin producer navigating exactly this situation. What struck me was his observation that excellent milk quality scores didn’t provide.

“We run a tight ship. But in a commodity system, my SCC numbers don’t protect me from problems three levels down the chain.”

That’s the reality of the converter supply chain. Your operational excellence doesn’t matter when someone else’s quality control failure determines your fate.

The Broader Context: Industry Trends Worth Watching

I’ve been following dairy consolidation for about two decades now, and the current moment feels distinct. Food safety concerns are accelerating trends already underway—traceability requirements, processor consolidation, and shifting leverage in supply relationships.

The FDA’s Food Traceability Final Rule (FSMA 204) was originally scheduled for January 2026. FDA has since extended the compliance deadline by 30 months to July 20, 2028—that extension was confirmed earlier this year. Still, processors are already adjusting supplier expectations in anticipation.

What the rule requires, regardless of final timing, is detailed record-keeping at each “Critical Tracking Event” that enables regulators to obtain data within 24 hours. For certain cheeses on the Food Traceability List, this creates real implications for supplier selection.

The consumer dimension reinforces these trends. Label Insight research from 2016 found that 73% of consumers are willing to pay more for products that offer complete transparency in sourcing and ingredients. Subsequent industry tracking has consistently confirmed that demand—if anything, it’s grown stronger, particularly among younger consumers.

What this means practically: processors and retailers are beginning to differentiate suppliers based on traceability capability. Some are offering premiums. Others are simply making it a qualification requirement. Either way, the capital needed to meet these expectations isn’t trivial.

What Traceability Systems Actually Cost

One question I kept encountering was straightforward: what does this actually cost a working dairy? I spent time examining land-grant university extension analyses and talking with operations that have made these investments.

According to the University of Minnesota Extension’s 2024 dairy technology investment analysis—with similar findings from Wisconsin and Cornell dairy programs—the picture breaks down into roughly three tiers:

Traceability Investment by Scale

This is the chart that keeps 800-cow dairy owners awake at night. Too big to ignore traceability requirements, too small to spread fixed costs efficiently. The 500-2000 cow range is where cooperative infrastructure starts making financial sense—or you’re paying $120+ per cow for systems the mega-dairies get at $85

Investment Level	Capital Cost	What It Includes	Premium Potential	Scale Threshold
Basic Compliance	$20,000–$35,000	Tank sensors, basic IoT monitoring, cloud record-keeping	Meets minimums; limited premium	Any size
Advanced Traceability	$350,000–$500,000	Individual animal sensors, RFID, blockchain integration, and real-time monitoring	Preferred supplier status; $0.50–$0.75/cwt potential	3,500+ cows
Comprehensive Digital	$1,000,000+	AI health monitoring, automated feeding, full supply chain integration	Maximum differentiation; $1.00+/cwt potential	5,000+ cows

Financing makes these numbers more challenging. Agricultural lending rates have been running 7.5-8.5% according to late 2024 Federal Reserve surveys—multi-decade highs. A $500,000 loan at those rates requires annual debt service of $65,000 to $75,000 over 10 years. For a 2,000-cow dairy with typical margins, that’s substantial.

Now, it’s worth noting that some operations view this investment differently—not just as a compliance cost but as an operational improvement that generates returns through better fresh cow management, reduced health costs, and improved efficiency across the transition period and beyond. The calculation isn’t purely about premium capture.

Strategies That Are Working

Here’s where I want to shift from analysis to practical observation, because producers are navigating these pressures in genuinely creative ways. Not every approach fits every operation, but these patterns keep emerging in conversations.

Beef-on-Dairy: Quality Genetics or Don’t Bother

The most accessible opportunity—requiring minimal capital—involves strategic use of beef genetics on dairy herds. This trend has been building for years, but current economics make it particularly compelling.

USDA data from January 2024 shows U.S. beef cow inventory at approximately 28.2 million head—the lowest since 1961. Texas A&M AgriLife has confirmed this represents historically tight supplies, and CoBank analysis suggests meaningful herd rebuilding won’t happen until 2027 at the earliest.

But here’s what I need to emphasize, and it’s something The Bullvine has been beating the drum on for years: random beef bulls don’t cut it. The premium prices everyone talks about? They’re not available to just anyone throwing beef semen at their bottom-tier cows.

Every dairy farmer hears about beef-on-dairy premiums, but most are leaving $700 per head on the table. The difference between “some random beef semen” and verified genetics with documented EPDs is the gap between a side hustle and a profit center

Straight dairy bull calves now bring $400-$600 per head at many auctions—a dramatic improvement from the $100-$150 common just a few years back. Beef-cross calves from verified, high-quality genetics (proven Angus, Simmental, or Charolais sires with documented carcass data on Holstein dams) command $1,000-$1,400 at auction today—up from $650 averages just three years ago, according to Laurence Williams, dairy-beef cross development lead at Purina. Premium calves from elite sires can reach $1,500 or more at well-managed sales.

The key word there is verified. Feedlots and calf buyers have gotten sophisticated. They know the difference between a calf sired by a proven Angus bull with marbling EPDs in the top 10% versus some random beef semen picked up cheap. The price gap between generic beef-cross calves and those from verified genetics programs can exceed several hundred dollars per head—a difference driven almost entirely by genetic documentation and buyer confidence.

National Association of Animal Breeders data shows beef semen sales to dairy operations stabilized at record levels—approximately 7.9 million units in both 2023 and 2024—following rapid growth between 2017 and 2022. This isn’t temporary. It’s become structural.

I spoke recently with a California producer who’s breeding 45% of his herd to beef genetics—but he’s meticulous about which sires he uses. His observation: “We tried the bargain-bin approach the first year. Got bargain-bin prices. Now we use verified high-accuracy sires with actual carcass data, and the difference in our calf checks is substantial. The genetics investment pays for itself multiple times over.”

Beyond genetics, calf management determines whether you capture premium prices. Operations achieving top dollar have excellent colostrum protocols (within that critical four-hour window), careful processing procedures, and established feedlot relationships. Quality genetics combined with quality management is the formula. One without the other leaves money on the table.

Organic Markets: A Regional Calculation

For operations in certain regions—particularly the Northeast—organic and grass-fed markets remain undersupplied. The Northeast Organic Dairy Producers Alliance continues tracking demand that outpaces regional supply.

Organic cooperative contracts typically pay $33-$45 per hundredweight, according to NODPA’s 2025 reporting, compared to $18-$22 for conventional contracts. The premium is substantial, though it varies considerably by region, volume, and contract terms.

The challenge, of course, is transition. USDA organic certification requires 36 months of organic management before milk qualifies for premium pricing. That’s three years of elevated costs—organic feed runs 40-60% above conventional—without premium capture.

A Vermont producer I spoke with made the transition between 2019 and 2022. Her assessment was candid: “Those middle months were hard. You’re paying organic costs, selling at conventional prices, and hoping the math works on the other side.” It did work for her operation—she’s now receiving over $40/cwt through her cooperative contract. But she emphasized that financial staying power was essential.

Geography matters enormously here. Northeast markets remain undersupplied for organic milk. Midwest and Western markets show more saturation. If you’re considering this path, regional supply-demand dynamics should drive the decision as much as on-farm capabilities.

Other Diversification Pathways

Beyond beef-on-dairy and organic, I’m seeing producers explore several other approaches worth mentioning.

A2 milk programs are gaining traction in some regions, with processors offering premiums typically ranging from $0.50 to $1.50/cwt for herds genetically tested for the A2 beta-casein variant. The investment is primarily in genetic testing ($25-$40 per animal) and, potentially, in culling or breeding decisions over time. It’s not a dramatic premium, but for operations already making genetics decisions, it’s relatively low-friction additional income.

Direct-to-consumer operations—farmstead cheese, on-farm stores, local delivery—offer meaningful margin opportunities for operations within roughly 50 miles of population centers with populations exceeding 100,000. The catch is bandwidth: you’re adding retail management, food safety compliance, and customer relationships to an already demanding operation. Producers who succeed here generally have family members or partners explicitly dedicated to the retail side.

Agritourism components can leverage dairy heritage for smaller operations near tourist corridors or suburban areas. Farm tours, educational programs, and seasonal events won’t replace milk revenue, but they can provide supplemental income while building community connections that support other direct-sales efforts.

None of these represents a universal solution, but they illustrate the range of options available beyond commodity milk production.

Cooperative Infrastructure: An Emerging Model

One development I find encouraging—though it’s still early—is the rise of cooperative approaches to infrastructure investment. The logic is straightforward: if individual 2,000-cow farms can’t justify $500,000 in traceability technology, can ten farms sharing that investment make it viable?

Several farmer groups in Wisconsin and Minnesota are exploring this model. Typical structures involve 8-12 farms forming an LLC or cooperative, pooling capital to fund shared traceability platforms, and, in some cases, shared processing capacity for value-added products.

Early indications suggest per-farm costs can decrease substantially—potentially 60-75%—while still meeting processor requirements. The trade-off is governance complexity. These arrangements require genuine trust, aligned incentives, and careful legal structuring.

A Minnesota producer involved in exploratory discussions put it this way: “You’re giving up some independence. That’s real. But competing individually against 10,000-cow operations for processor contracts has its own costs.”

It’s worth watching how these structures develop. They may represent an important pathway for mid-size operations facing scale disadvantages in technology investment.

on-dairy with verified genetics sits in the sweet spot—minimal capital, 9-month payback, $320/cow annual return. The bottom-right corner (Direct-to-Consumer) looks tempting until you realize you’re now running two businesses

Maintaining Perspective

I want to be thoughtful about framing here. This isn’t a crisis moment requiring panic. Dairy has always been cyclical. Consolidation has proceeded for decades. Many mid-size operations have successfully navigated previous transitions and will do so again.

What does seem genuinely different about the current environment is the convergence of several trends: regulatory requirements for traceability (even with the FSMA extension to mid-2028), consumer expectations for transparency, the capital intensity of compliance, and processor consolidation, which is affecting market leverage.

Dr. Marin Bozic, the dairy economist at the University of Minnesota who advises Edge Dairy Farmer Cooperative and has testified before Congress on milk pricing, captures this well: “The farms that will thrive over the next decade are those making strategic decisions now—not reactive decisions later. That doesn’t mean panic. It means thoughtful positioning.”

The Great Lakes Cheese recall didn’t create these dynamics. But it made them visible in ways worth understanding. When a quality control issue at a supplier you’ve never heard of can affect your milk revenue, it reveals something meaningful about the supply chain’s structure and risk distribution.

Thinking Through Your Situation

Rather than prescribe universal solutions—every operation differs—here’s how these considerations tend to vary by scale:

Smaller operations (under 500 cows): Comprehensive traceability systems rarely pencil out at this scale. Specialty markets—organic, grass-fed, A2, direct-to-consumer—offer more realistic pathways to premium capture. Beef-on-dairy genetics (verified genetics, not bargain semen) can supplement income meaningfully regardless of herd size. The question becomes: where can you differentiate?

Mid-size operations (500-2,000 cows): This is arguably the most challenging position currently. Large enough that specialty market pivots are difficult, but lacking scale for major technology investments to generate positive returns individually. Cooperative approaches to shared infrastructure, combined with beef-on-dairy diversification using verified genetics, represent viable near-term strategies. The extended FSMA timeline—mid-2028—provides runway to explore options.

Larger operations (2,000+ cows): Comprehensive traceability investments become more justifiable as fixed costs spread across greater production. The strategic question shifts: invest in positioning as a preferred supplier to consolidated processors, diversify revenue streams to reduce channel dependence, or both? Many larger operations are pursuing parallel strategies.

Questions Worth Considering

Before committing to any particular direction, some honest self-assessment helps clarify options:

What’s your realistic timeline? Beef-on-dairy generates returns within months. Organic transition requires years. Which matches your financial position and planning horizon?

What’s your regional market reality? Is organic milk undersupplied or saturated in your area? Are established beef-cross calf buyers accessible? What specialty processors operate within a reasonable hauling distance?

Do you have neighbors who are suitable for a cooperative investment? Shared infrastructure approaches require aligned values and compatible operations. Not every neighboring farm makes a good partner.

What does your succession plan suggest? If the next generation isn’t committed to dairy, heavy investment in long-term technology infrastructure deserves careful evaluation.

Where are your operational strengths? Some farms excel at cow comfort and health management—organic or A2 programs might leverage that. Others have strong calf-raising infrastructure that positions them well for beef-on-dairy premiums.

There aren’t universal answers. But asking these questions honestly tends to clarify which paths make sense for specific situations.

The Bottom Line

What I’ve tried to do here is present what I’m observing as clearly as possible—drawing on USDA and FDA data, land-grant university extension analysis, conversations with credentialed economists, and reports from producers navigating these conditions directly.

The Great Lakes Cheese recall was, in one sense, routine—a food safety incident identified and addressed through established procedures. The system functioned as designed.

But the recall also exposed the ugly truth about converter supply chains: the risk flows upstream while the profits flow down. Your milk quality doesn’t protect you. Your operational efficiency doesn’t protect you. Your SCC scores don’t protect you. In a commodity system feeding into consolidated converters, you’re exposed to failures you can’t see coming and can’t prevent.

The encouraging news: farmers have options. Beef-on-dairy genetics—verified, quality genetics—offer immediate revenue diversification with minimal capital requirements. Specialty markets reward quality and management in ways commodity channels don’t. Cooperative structures can distribute infrastructure costs across multiple operations.

None represent a complete solutions. All require evaluation against individual circumstances, regional markets, and operational capabilities. But they represent genuine pathways—ways to build some insulation against a system that otherwise treats your operation as a disposable input.

That positioning—concentrating on factors within your control while clearly understanding those that aren’t—strikes me as exactly the right approach. The producers I talk with who seem most confident about the future share that orientation. They’re not ignoring industry headwinds. They’re just not waiting for those winds to determine their direction.

Key Takeaways:

When Great Lakes pulled 250K cases, farms 31 states away lost 5-15% income—even though they never sold to Great Lakes. Your SCC won’t protect you from converter failures.
Beef-on-dairy with verified genetics: $1,000-$1,400/calf. Straight dairy: $400-$600. The genetics gap is worth hundreds per head.
FSMA 204 extends to July 2028, but processors are moving now. Alternative revenue streams aren’t optional—they’re insurance.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Beyond the Milk Check: How Dairy Operations Are Building $300,000 in New Revenue Today – Provides a 90-day implementation roadmap for the beef-on-dairy strategy mentioned above, detailing how to capture $1,600 calf premiums and build a diversified revenue stream that buffers against milk price volatility.
The Real Reason Dairy Farms Are Disappearing (Hint: It’s Not About Better Farming) – Reveals the structural cost disadvantages facing mid-size herds—from financing rates to volume discounts—and outlines how cooperative bargaining and strategic alliances can restore your leverage against consolidated processors.
Digital Dairy Detective: How AI-Powered Health Monitoring is Preventing $2,000 Losses Per Cow – Demonstrates the ROI of the technology investments discussed in this article, showing how 24/7 monitoring systems not only meet future traceability needs but immediately slash labor costs by 40% and prevent expensive health wrecks.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy genetics, Dairy Farm Profitability, dairy supply chain, dairy traceability systems, FSMA 204 compliance, Great Lakes Cheese recall

The €185,000 Trade: What Dairy Farmers Gain – and Give Up – in the FrieslandCampina-Milcobel Merger

Sunday, December 7th, 2025

That’s real money. But my plant is on the closure list.’ The €185,000 decision 16,000 dairy farmers face on December 16.

EXECUTIVE SUMMARY: On December 16, roughly 16,000 dairy farming families face a vote they can’t take back: merge Milcobel into FrieslandCampina and collect €185,000+ in loyalty bonuses—or walk away and keep the flexibility to leave. For some farmers, the merger offers genuine upside: scale, technical resources, and substantial payments for operations near retained facilities with sustainability practices already in place. For others, plant closures could add thousands in annual hauling costs, and Foqus planet compliance ranges from minor documentation to six-figure capital investments. History provides both warnings and encouragement—DFA’s consolidation brought in $290 million in antitrust settlements, while Irish co-op mergers helped farmers reach export markets they couldn’t access on their own. Geography and current infrastructure determine which outcome you’re likely to see. This analysis provides the framework to run your own numbers, because the right answer depends on your specific situation—and once you vote yes, you can’t vote no later.

For one Milcobel member near Antwerp, the December 16 vote isn’t about spreadsheets. It’s about whether her family’s 80-year-old dairy operation will still make sense five years from now.

She milks 95 cows on a farm her grandfather started in 1946. Been a Milcobel member for eighteen years. And like thousands of other Belgian and Dutch dairy farmers, she’s got just over a week to decide whether to merge her cooperative into FrieslandCampina—creating what Dairy Reporter is calling a “€14 billion co-op” that would rank among Europe’s largest.

“They’re offering us €8 per hundred kilos to stay three years,” she told me last week, asking that her name not be used because she’s concerned about pushback from cooperative leadership. “That’s real money. But my nearest plant is on the closure list. So what am I actually voting for?”

Financial reality check: The same merger creates four different outcomes. Geography and infrastructure determine whether €185,000 in loyalty bonuses becomes genuine profit or disappears into hauling costs and compliance investments

You know, it’s the kind of question that doesn’t have an easy answer. What’s unfolding in Belgium and the Netherlands isn’t just one cooperative merger—it’s part of a broader consolidation wave reshaping how milk moves from farm to consumer. And the dynamics here offer a useful perspective for dairy producers everywhere, whether you’re milking cows in Flanders, Wisconsin, or New Zealand.

What’s Actually on the Table

Let me walk you through what FrieslandCampina and Milcobel are proposing, because there’s quite a bit of information floating around, and some of it gets confusing.

The merger would combine both cooperatives’ member farms into one organization. According to FrieslandCampina’s official announcement from December 2024, we’re talking about approximately 16,000 member dairy farmers processing around 10 billion kilograms of member milk annually. That’s across facilities in the Netherlands, Belgium, Germany, and northern France.

The headline incentive—and this is what most farmers are focused on—is an €8 loyalty bonus per 100 kilograms for farmers who commit to the merged cooperative for three years. Dairy Reporter confirmed these terms in their December 2025 coverage.

But here’s where it gets more complicated. The merger also involves what the proposal calls “network optimization”—consolidating processing facilities to improve efficiency. Several plants have been identified for potential closure or transition, according to reporting from Dairy Reporter and the Dutch publication Veeteelt. And that changes the math considerably depending on where you’re located.

EXAMPLE FARM SCENARIO: Mid-Sized Belgian Operation

Factor	What It Looks Like
Annual production	760,000 liters
Three-year loyalty bonus	€186,000 total (about €62,000/year)
If the nearest plant closes (+47km hauling)	Significant additional transport costs
Potential basis compression	Hard to predict, but historical patterns suggest concern
Net position	Depends heavily on your specific situation

The outcome ultimately comes down to plant-closure decisions and post-merger pricing dynamics.

How Geography Shapes the Math

If your current receiving facility remains operational, the merger economics work in your favor. If your nearest plant is closing, you’re looking at a different calculation entirely. And right now, there’s still uncertainty about which facilities fall into which category.

Here’s what we know from previous consolidations—and as many of us have seen, there’s substantial experience with this from the United States and Oceania. Plant closures create real costs for affected farmers. The exact numbers vary quite a bit by region and contract structure, but the pattern is consistent: more distance means more money out of your pocket.

Dr. Marin Bozic, an assistant professor in dairy foods marketing and economics at the University of Minnesota, has extensively studied cooperative pricing dynamics. His work suggests that when farmers have multiple processors competing for their milk, basis stays tight. When options narrow, processors face less price-based competitive pressure. In regions where significant processing capacity has closed, the research indicates the basis can widen over time—sometimes meaningfully.

A farmer from West Flanders, whose nearest plant is on the consolidation list, walked me through his numbers: “The next closest facility is 47 kilometers further. That’s going to add real money to my hauling costs every year. Add potential basis compression, and I’m not sure the bonus covers it.”

Geography is destiny: The Antwerp farmer facing a 47km haul to the next plant? She’ll lose 25% of her loyalty bonus just to transport milk. At 100km, 58% vanishes – turning €185,000 into pocket change

It’s the kind of calculation that keeps you up at night.

Understanding Sustainability Compliance Costs

The merger brings Milcobel farmers into FrieslandCampina’s Foqus planet sustainability program. And you know, this is worth understanding because similar programs are becoming increasingly common across European cooperatives—and many U.S. processors are moving in this direction too.

Here’s what’s encouraging. According to FrieslandCampina’s reporting—and FoodBev covered this in June 2024—member farms received over €245 million in sustainability premiums in 2023. That’s real money flowing to farmers who meet the criteria.

The program offers up to €3.50 per 100kg for full compliance, with a €0.60 per 100kg cooperative deduction regardless of achievement level. Those numbers come directly from FrieslandCampina’s milk price documentation.

What does compliance actually cost? Here’s where things get variable, and I think this deserves more attention than it typically gets in these discussions. Industry estimates and contractor quotes from the Benelux region suggest these rough ranges:

SUSTAINABILITY COMPLIANCE: What Farmers Are Seeing

Requirement	Estimated Range	Context
Methane-reducing feed additives	€10,000-€15,000/year	For a 100-cow herd; pricing is still evolving
Grassland biodiversity programs	€5,000-€15,000	Establishment plus ongoing management
Monitoring & documentation	€2,000-€8,000	May overlap with existing herd management software
Anaerobic digestion (if required)	€500,000-€700,000+	Capital cost; not required for all farms

These are general industry estimates. Your actual costs will depend on your current infrastructure and practices.

Two Farmers, Two Very Different Situations

A 130-cow operator from the Netherlands told me he’s feeling optimistic: “I’ve already got most of the grassland practices in place, and my vet has us on a solid animal health monitoring program. We track everything from fresh cow management through the transition period. Hitting the premium tiers is realistic for me.”

His neighbor faces a completely different situation—needs a new slurry system just to get started. “We’re looking at the same merger,” the first farmer said, “but the economics couldn’t be more different.”

And that’s really the story of this whole thing, isn’t it? Same vote, vastly different implications depending on where you stand.

The sustainability trap: Maximum Foqus Planet compliance pays €3.50/100kg – but requires €60,000 annual investment. For medium-sized farms, the math doesn’t work. You’re paid to be green, but you can’t afford to get there

What Global Patterns Tell Us

One thing I’ve noticed covering dairy consolidation over the years: the patterns tend to repeat across regions. Understanding what’s happened elsewhere offers useful context—though not necessarily predictions—for farmers weighing this decision.

Dairy Farmers of America grew substantially in 2020 when they acquired 44 processing plants from bankrupt Dean Foods for $433 million, as Dairy Herd reported at the time. They now handle roughly 30% of U.S. milk production.

History’s harsh lesson: DFA has paid $290 million in antitrust settlements since 2013. The pattern reveals what can happen when cooperative consolidation eliminates competitive pressure – farmers end up suing their own co-op for suppressing milk prices

The legal record is worth knowing about. DFA has paid approximately $290 million in antitrust settlements since 2013:

Settlement	Amount	What Happened
Southeast (2013)	$158.6 million	Farm and Dairy and Hoard’s Dairyman covered the court approval
Northeast (2014)	$50 million	Confirmed by Dairy Reporter and the National Agricultural Law Center
CME price manipulation (2013)	$46 million	Dairy Reporter reported on this one
Southwest (2025)	$34.4 million	Received preliminary court approval in August—DFA contributing $24.5 million, Select Milk Producers paying $9.9 million

DFA settled each case without admitting wrongdoing—that’s standard legal practice. But the payments themselves tell you that regulators and courts found the concerns substantial enough to warrant significant compensation.

Fonterra in New Zealand offers another data point. Their farmgate payments dropped from a record NZ$8.40 in the 2013-14 season to NZ$3.90 by 2015-16—a 54% decline in just two years. CowSmo and the New Zealand Commerce Commission both documented this painful period.

And just this October, 88% of Fonterra farmers voted to sell the cooperative’s consumer brands to Lactalis for NZ$4.22 billion. Dairy Reporter covered that vote extensively. The decision reflected, at least in part, the need for capital relief after years of volatile returns.

Now, let me be direct here: I’m not suggesting FrieslandCampina will follow these exact patterns. European dairy operates in a different policy environment—the legacy of milk quotas, CAP support structures, and generally more regional processor competition than you see in parts of the U.S. or New Zealand’s highly concentrated market. But the structural dynamics—processor consolidation, farmer lock-in periods, margin pressure during downturns—are similar enough that the history is worth considering.

Consolidation begets consolidation: FrieslandCampina-Milcobel’s €14 billion merger looked massive in December 2024. Four months later, Arla-DMK announced an even bigger combination. The industry is racing toward fewer, larger players – and farmers are becoming smaller voices in bigger rooms

When Consolidation Has Actually Worked

It’s equally important to acknowledge that not every consolidation story involves the challenges I’ve described. Some have delivered genuine benefits, and that perspective deserves fair representation.

In Ireland, consolidation into entities like Glanbia and Kerry Group helped farmers access export markets and technology that would’ve been impossible at smaller scale. Farmgate prices have generally remained competitive within Europe.

A Dutch producer who went through the original FrieslandCampina formation back in 2008—when Friesland Foods and Campina merged, as Dairy Reporter covered at the time—shared his experience: “The first few years were uncertain. But over time, the scale gave us market access we wouldn’t have had otherwise. My milk price has been competitive.” His operation has grown from 85 to 140 cows since then, and he credits cooperative technical support for improving his herd’s butterfat performance and component quality.

What seems to distinguish successful consolidations? Market structure appears to be key. When the merged entity still faces meaningful competition—either from other processors or export alternatives—farmers tend to fare better. In parts of Belgium and the Netherlands, Arla, Lactalis, and smaller regional processors still compete for milk. That’s a meaningful difference from some U.S. regions where DFA dominates.

Governance at 16,000 Members

Here’s something that doesn’t get discussed enough: what “member control” actually means when cooperative membership reaches the thousands.

With 16,000+ members, each farmer’s direct influence is naturally spread thin. You’re one voice among hundreds in your district, electing representatives who are one voice among many. Some of those representatives become farmer voices on a board that also includes professional directors and relies on executive management for operational decisions.

Farmer advocacy organizations across Europe have raised questions about this dynamic. FrieslandCampina representatives counter that their district structure provides a meaningful local voice, and point to farmer-directors who actively shape major strategic decisions.

Both perspectives have merit. The question for individual farmers: what kind of influence matters most to you, and how does that factor into your decision?

Why This Is Happening Now

Understanding the timing helps contextualize what’s being proposed.

U.S. milk production surged 4.2% year-on-year in September 2025, according to the USDA NASS report—that’s 18.3 billion pounds in the 24 major dairy states. But globally, the picture is more varied. Chinese dairy imports remain well below their 2021-2022 peaks. Processors face margin pressure from multiple directions.

This merger is being proposed because market conditions are difficult and consolidation offers a path to cost reduction—not because times are good and there’s bounty to share.

That’s not necessarily bad for farmers. Cost reduction can translate to competitive milk pricing over time. But it’s worth understanding the motivation clearly.

When the Merger Might Work Well

This merger will likely work well for some farmers:

Large operations near retained facilities: The €8 bonus is largely an additive income
Farmers already meeting sustainability targets: Compliance means documentation changes, not capital investment
Operations planning to expand: Larger cooperatives often offer better access to credit and technical support
Succession situations: Three years of predictable bonus payments during transition has real value

Five Questions Worth Asking Yourself

Question	What to Think About
What’s my actual baseline?	Real farmgate price after all deductions—not the announced price
What’s my plant closure risk?	Distance to the next facility if yours closes
What will sustainability cost me?	Investment needed vs. the premium I can realistically achieve
What’s my net position?	Bonus minus added costs
What’s flexibility worth?	Once you’re locked in, your options narrow

The Part That Doesn’t Fit in Spreadsheets

The Antwerp farmer I spoke with shared something that’s stayed with me: “My grandfather started this farm because he wanted to be his own boss. My father kept it going because he believed in the cooperative model—farmers working together as equals. Now I’m being asked to vote for something so large that my individual voice becomes very small.”

That feeling deserves respect. It doesn’t override economics. But it’s not irrational either.

What It Comes Down To

Run your own numbers. Generic promises don’t translate uniformly across all operations.
Know your geography. Plant closure risk matters more than almost anything else.
Be realistic about sustainability costs. Premium programs create genuine opportunities—but so do the investments required to qualify.
Learn from history, but don’t assume it repeats. Every situation has unique elements, and European dairy markets differ meaningfully from U.S. and New Zealand structures.
Understand the trade. You’re exchanging flexibility for scale benefits and transition payments.

The Antwerp farmer will cast her vote on December 16. She’s still undecided—running numbers, talking with neighbors, trying to separate what matters from background noise.

“Once I vote yes, I can’t vote no later,” she said. “That’s worth sitting with.”

She’s right. The financial analysis matters. But so does understanding clearly what you’re being asked to exchange—and whether what you’re getting back genuinely works for your operation and your family.

Have you experience with cooperative mergers? We’d like to hear from you. Contact our editorial team at www.thebullvine.com—farmer perspectives help the entire industry better understand these decisions.

KEY TAKEAWAYS:

€185,000+ in real money: Loyalty bonuses for farmers committing three years to the merged cooperative—enough to ease debt loads, fund equipment, or smooth a succession transition
A lock-in you can’t escape: Three years committed with no exit clause, even if your plant closes, hauling costs spike, or circumstances change dramatically
Geography determines your math: Farmers near retained facilities see the bonus as additive income; those facing plant closures may watch it disappear into hauling costs and basis compression
History offers both warnings and models: DFA’s $290 million in antitrust settlements shows consolidation risk; Irish co-op mergers demonstrate that scale can genuinely benefit farmers when competition remains
Run your numbers before December 16: Plant closure risk, Foqus planet compliance costs, and current infrastructure determine your actual outcome—and once you vote yes, you can’t vote no later

Learn More:

The Great American Dairy Heist – Who Really Owns Your Milk Check in 2025? – Analyzes the “66% Rule” of dairy consolidation, exposing how mega-dairies and processor monopolies are structurally shifting leverage away from mid-sized family operations—and provides three specific survival paths for independent producers.
Why 83% of Dairy Farms Will Disappear: How to Beat the Succession Odds Before It’s Too Late – Provides a brutal but necessary roadmap for protecting family legacy, detailing the specific legal structures, asset-split strategies, and “successor trial periods” needed to prevent your farm from becoming a liquidation statistic.
How Dairy Farmers Are Finally Breaking Free From the 365-Day Grind – and Finding More Time and Profit – Breaks down the real ROI of automation beyond the hype, offering case studies on how robotic systems can cut labor costs by $95,000+ while solving the chronic staffing shortages that drive many producers to sell.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy cooperative merger, Dairy Farm Profitability, farm consolidation strategy, milk hauling analysis, milk production economics, sustainability compliance costs

The Cheap Feed Trap: Why the Wall of Milk Won’t Break and How to Protect Your Margins

Sunday, December 7th, 2025

Your cows cover their feed. Your banker’s calm. So why are the sharpest producers culling now? Because they see what’s coming.

EXECUTIVE SUMMARY: Dairy farmers worldwide are caught in a trap: record milk production, collapsing wholesale prices, yet on-farm economics that make every cow look like she’s paying her way. AHDB’s December 2025 forecast puts UK output at “uncharted levels”—13.05 billion litres, up 4.9%—while USDA projects US production hitting 229.1 billion pounds in 2026. Three factors are blocking the market’s usual self-correction: milk-to-feed ratios near 20-year highs, strong cull values that encourage waiting, and contract structures that delay price pain for weeks. The 2015-16 EU crisis offers a hard lesson—farms that survived prioritized margin over volume, kept fixed costs lean, and acted early. Those that waited often lost their operations. This feature delivers a three-step culling framework, worked financial examples, and the critical questions to ask your banker and nutritionist before the exit window closes.

Looking at global dairy markets right now, the most striking thing isn’t just that milk is plentiful—it’s how long production is holding up despite softer prices.

Great Britain’s latest milk forecast tells the story pretty clearly. AHDB’s December update has 2025/26 output reaching a record 13.05 billion litres, up about 4.9% on the previous milk year, with April–November deliveries already running 5.5% ahead of last season. Those are significant numbers for a mature market.

At the same time, AHDB’s November wholesale data paint a sobering picture: UK butter averaging £4,290 per tonne—down nearly £1,870 since June. Bulk cream is now worth almost half what it was in September 2024. And mild Cheddar has broken below £3,000 per tonne for the first time since July 2021.

What farmers are finding—in Britain, across the EU, in the US and down in Oceania—is that this doesn’t feel like a short, sharp price dip that will quietly self-correct. The usual brakes we’re used to seeing (high feed costs, weak cull prices, big government buying programmes) aren’t in the same place they were ten years ago.

Now, weather swings, animal disease, or policy shifts could certainly change the picture faster than any forecast suggests. But the smart bet right now is to plan as if this is a phase, not a quick bounce.

This feature takes a farmer-first look at the data, the history, and the on-farm decisions that matter most over the next 12–18 months.

Global Milk Production: Multiple Exporters Expanding at Once

Here’s what makes this particular cycle different: several major exporters are expanding at once, rather than one region growing while another pulls back.

In Great Britain, AHDB’s December forecast describes the situation as “uncharted levels”—their words, not mine. Strong grass growth and better yields per cow are driving those record volumes. Meanwhile, US data mirrors this saturation: USDA’s July WASDE report raised the 2025 forecast to 228.3 billion pounds and the 2026 forecast to 229.1 billion pounds—that’s 900 million pounds higher than they projected just a month earlier. Modest herd growth and continued gains in milk per cow are doing the work on both sides of the Atlantic.

***Record UK and US milk volumes underscore why the ‘wall of milk’ is so slow to crack***

Producers across the UK report experiences similar to those of their American counterparts—favorable conditions pushing rolling averages up significantly, with milk flowing whether the market wants it or not.

Across the wider EU, the picture is a bit more nuanced. While overall production for 2025 was initially forecast marginally below 2024 levels according to the USDA’s December 2024 outlook, conditions in the second half of the year have supported stronger-than-expected output in several key exporting regions. AHDB’s October review noted European milk production “roaring back to life in Germany and France,” helped by milder weather and those lower feed costs we’re all noticing.

Down in Oceania, New Zealand’s pasture-based sector has recovered from recent weather challenges. USDA and CLAL data show that from January to June 2025, New Zealand milk yields totaled 8.71 million tonnes—a 1.4% increase compared to 2024 —and June’s figures exceeded previous records thanks to favorable weather and early calving.

And then there’s the demand side—this is where it gets particularly interesting. China, which for years acted as the pressure valve for global skim and whole milk powder, is in a very different phase. Domestic raw milk output has increased while per-capita dairy consumption growth has slowed. Multiple industry analyses indicate that China’s stronger domestic production is constraining import demand for Oceania powders compared with earlier years.

Why does this matter? Because we don’t have the classic offset we’ve seen in other cycles. There isn’t a major drought knocking one exporter back, or a sudden demand boom somewhere else to soak up the surplus. From a farm-gate perspective, that’s worth careful consideration.

Three Reasons the Market Isn’t Self-Correcting

In the old pattern many of us remember—and I’ve watched a few of these cycles now—milk prices slid, feed stayed expensive, margins got squeezed, and the response was fairly quick: more culling, fewer fresh heifers, supply eased, prices stabilised in 9–12 months.

This time, three features are slowing that self-correction.

The Three Reasons at a Glance:

Cheap feed is softening the blow—milk-to-feed ratios near 20-year highs
Strong cull values create a false sense of “I can always sell later.”
Contract structures delay price signals by weeks or months

Cheap feed is softening the blow

First up is feed. In many regions, it’s simply cheaper than milk has been for some time.

AHDB market commentary and UK advisory notes for 2025 show the milk-to-feed price ratio near multi-year highs. As AHDB analyst Susie Stannard noted in a June Dairy Reporter piece, feed costs are reasonable enough that the milk-to-feed ratio is at an almost 20-year high. AHDB’s Q2 review confirmed that although the ratio has declined very slightly, it remains near that 20-year peak.

In the US, the Dairy Margin Coverage programme’s income-over-feed margin has often sat just above the main payout triggers—not because milk prices have been spectacular, but because corn, alfalfa, and soybean meal backed off their 2022 peaks. Wisconsin and California producers report the same thing: feed’s cheap, so the cow still pencils out on paper.

Here’s the thing, though. Extension economists at Wisconsin and other land-grant universities have pointed out something worth considering: this can make individual cows look better on paper than the whole business feels. A fresh cow might more than cover her ration and transition costs, but the farm still has to pay labour, power, interest, and machinery from a tighter cheque.

This is the paradox driving today’s oversupply: ration economics scream “keep milking,” while cull cheques whisper “you could exit anytime.” That’s fine in a short dip; it’s lethal in a long, flat market.

On many spreadsheets, the conclusion becomes, “The cow is paying her way, so we’ll keep her.” The risk? That spreadsheet is looking at feed, not the full cost of keeping that stall filled.

Strong cull prices create a false sense of security

The second feature is cull value—and this one cuts both ways.

UK beef and cull reports for 2025 show deadweight cow prices averaging around 420–450p/kg for much of the year. That’s well above long-term norms. North American reports tell a similar story: tight beef supplies and solid cattle prices have supported cull values through 2024 and into 2025.

Penn State Extension educator Michael Lunak made an interesting observation in a Dairy Herd article last autumn: the more a dairy can shift its culling from involuntary (injury, disease, breakdowns) to voluntary (strategic removal of low producers or problem cows), the more likely it is to be successful. As he put it, “Culling cows from the bottom of the herd makes room for more profitable cows.” He noted that typical overall cull rates around 35–37% aren’t inherently bad if more of those are strategic choices rather than forced exits.

From one angle, this environment makes culling a valuable financial tool. Every “passenger” cow you move today can generate more cash for feed bills, repairs, or debt reduction than she would have three or four years ago.

But there’s another side to consider: strong cull values can quietly encourage a mindset of, “If things really get bad, I can always sell a bunch of cows later.” If many producers end up thinking the same thing and time that “later” together, the exit door can get crowded quickly—and cull values can soften faster than anyone expects.

Contract structures delay price signals

The third factor lives in the milk contract—and this is something that’s evolved significantly over the past decade.

We’ve seen more UK and EU buyers move to deals that blend retail-aligned or cost-of-production-style pricing for a base volume, with A/B or similar structures for extra litres (where A is paid at the headline price and B is tied more closely to commodity returns).

Defra’s fair dealing rules and AHDB explainers go into how these contracts are meant to balance risk between buyer and producer while giving processors tools to manage surplus. In principle, that’s reasonable. In practice, it creates some timing challenges.

When markets are tight, B-litres can be a useful outlet. When butter, cream, and powder are under pressure, they can drop well below the cost of production. Farmers in GB and Ireland have reported that, in late 2025, B-milk, particularly powder, has at times been priced far below their overall costings—even while their A-price looked stable on paper.

The twist is timing. You make feeding, breeding, and fresh cow stocking decisions today; the milk cheque that fully reveals the effect of low-priced B-milk arrives weeks later.

A 2023 study on UK dairy price transmission, published in the journal Commodities, found that shocks at the farm level don’t always pass cleanly downstream, and that movements in one part of the chain often lag those in another. This builds on what researchers have observed for years: dairy supply is genuinely difficult to stabilise because of all these small delays and signals that don’t line up neatly.

Putting this all together, cheap feed, strong culls, and delayed contract signals go a long way toward explaining why barns are still full, even as global price indicators are flashing amber.

Lessons from the 2015–16 Dairy Crisis

To get a better handle on what might come next, it helps to look back at the 2015–16 EU milk crisis, when the end of quotas, steady supply growth, and weaker demand combined into a tough 18-month stretch for European producers.

Several independent studies and farm-business reviews have since examined which operations were more likely to come through that period intact. The patterns are fairly consistent—and they offer some useful guidance for today.

More milk from forage, less from the feed wagon

Research in agricultural economics journals found that European herds that got a larger share of their production from home-grown grass and silage tended to have lower and more resilient production costs.

Those farms could trim concentrate levels or push grazing and forage utilisation harder when prices dropped, without their output collapsing. By contrast, high-yield units where an extra 3,000–4,000 litres per cow were driven primarily by bought-in concentrates were more exposed. When milk prices dipped below the marginal value of that extra feed, the economics quickly stopped working.

Here’s what’s encouraging, though—this is something farmers can actually work on. Teagasc’s National Dairy Conference messaging in December 2025 reinforced that the strongest relationship with profitability in Irish grass-based systems isn’t milk per cow. It’s the grass utilised per hectare. About 40% of the variability in margin is explained by how much grass the farm grows and uses well.

That’s a powerful finding, and it applies beyond Ireland. Whether you’re running a grazing operation in the Southwest of England or managing a TMR system in the Midwest, the principle holds: the more of your milk that comes from home-grown feed, the more flexibility you have when prices tighten.

Lower fixed cash commitments

A second pattern was around capital structure—and this one deserves careful thought.

EU and national analysis showed that many farms which struggled the most had loaded up on new parlours, machinery, and buildings during the good years, and went into the downturn with high monthly finance payments. Those payments didn’t shrink when milk did.

Farms running older but paid-off kit (maybe with more workshop time and fewer shiny tractors) often had greater ability to cut back on non-essential spends without breaching covenants temporarily. Advisors who went through that period still talk about “machinery per litre” and “barn cost per stall” as critical resilience metrics.

I’m not suggesting anyone should avoid investment—modern facilities and equipment matter for efficiency and quality of life. But the timing and financing of those investments make a real difference when cycles turn.

Liquidity, timing, and fresh cow management

The third difference was liquidity and timing. Farms that entered the 2015–16 period with some cash on hand (or at least undrawn credit) and acted early tended to have more options.

Many of them did a “strategic shrink” in the first six months: they culled the bottom 10–15% of the herd while cull prices were still decent, used the cash to shore up their balance sheet, and ran the remaining cows harder and smarter.

Those who tried to “wait it out” with a full herd and no buffer were more likely to be forced to sell cows or land later, often at lower prices.

Producers who came through 2015–16 in good shape often note the same pattern: the cows they kept were the ones that freshened well and bred back. That wasn’t a coincidence—it was a strategy. Strong fresh cow management made every remaining stall more valuable, especially when the decision had been made to run fewer cows.

It’s worth saying: quotas and policy tools are different today, and climate rules add another layer. But the core operational lessons—milk from forage, sensible fixed costs, sound transition management, some liquidity, and willingness to adjust sooner rather than later—still apply.

Supply Chain Dynamics: Where Processors and Retailers Fit In

What farmers also notice, quite understandably, is that pain isn’t always evenly distributed along the chain.

Work on UK milk price transmission found that retail prices can be sticky on the way down. Wholesale and farm-gate prices may react more quickly to global markets than the price of a block of cheese or a pint of milk in the supermarket chiller. Similar studies on EU dairy supply chains have flagged that processor and retailer margins may widen for a time when farm-gate prices fall, until contracts and competition pull them back towards normal levels.

That can feel frustrating—and it’s a fair observation.

From a farm-level planning view, though, the practical takeaway is this: the fastest and most controllable levers are on your own side of the bulk tank.

Processors, retailers, and traders will make their adjustments, and there are legitimate pressures on them too (energy costs, labour, and environmental compliance). But those changes take time to filter back into milk prices. That’s why the rest of this piece focuses on what’s inside your control.

Strategic Herd Reduction: A Three-Step Framework

Farmers who came through previous downturns in reasonably good shape rarely talk about “chasing litres at all costs.” More often, they talk about tightening up the margin per cow and protecting cash.

In practice, that often started with a structured look at which cows were genuinely contributing and which were simply filling stalls.

The Three-Step Framework at a Glance:

Pull the right data: DIM, pregnancy status, SCC trends, component yields, contract structure, feed costs
Flag the passengers: Open/late cows, chronic SCC problems, repeatedly lame or problem animals
Rank by value, not volume: Sort by fat+protein kilos, stress-test bottom 10–15% at B-milk prices

Here’s how to work through each step using your own recording data and a bit of quiet time at the kitchen table.

Step 1: Pull the right herd data

From your herd management software and milk recording, pull days in milk and pregnancy status for each cow, recent somatic cell count trends (at least the last three tests), and milk, fat, and protein kilos per cow over a consistent recent period—say the last 30 or 60 days. Also note your current contract structure, including any A/B litres and how B-milk is priced.

From your costings (AHDB’s Promar Milkminder in GB, Teagasc reports in Ireland, or university benchmarks in North America), have your latest feed cost per cow per day and an up-to-date estimate of the total cost of production.

This sounds basic, but you’d be surprised how many operations don’t have all of this in one place.

Step 2: Flag the obvious “passengers”

Next, make a first pass with clear rules that don’t require a calculator.

Look for cows that are open and late—any cow open beyond an agreed DIM threshold (say, greater than 150–200 days) with no clear breeding plan, particularly if she’s in her third or later lactation. Flag chronic SCC or mastitis cases—cows that have repeatedly tested over your bonus threshold and regularly drag the bulk tank toward penalty territory. Losing a quality bonus can be the difference between black and red ink. And note problem cows: repeatedly lame animals, three-quartered cows, dangerous or extremely slow milkers that add stress to every milking.

This ties back to Lunak’s point from Penn State: the more you can shift culling from involuntary to voluntary—strategic removal of low producers or problem cows—the more likely you are to improve herd profitability over time.

Mark these as “review candidates.” Once you see them all on one page, there are usually more than you expect.

Step 3: Rank by milk value, not just milk volume

This is where the conversation gets interesting. Instead of just looking at litres, shift to milk solids.

Many buyers in Europe, Oceania, and North America increasingly pay on fat and protein, and even where volume is still primary, higher-solids milk often has more value once it’s into cheese, butter, or powder.

Sort the remaining cows by fat plus protein kilos per day, not just litres. Identify the bottom 10–15% on that solids basis. Often, these are cows that look “good” because of fluid yield, but when you factor in components and feed, they’re not pulling their weight.

Now ask a simple “what if?” question for that bottom slice: if this milk were effectively priced at a lower B-price or spot value, would this cow still cover her feed and variable costs?

To stress-test, some advisers suggest modelling those cows at a conservative milk price consistent with recent B-milk or spot values (especially where powder and cream have come under pressure) and subtracting your current feed cost per cow. If the margin is tiny or negative, that animal is essentially being subsidised by her herdmates.

Industry commentary in Dairy Herd Management and Hoard’s has echoed this approach, noting that when herds go through their books honestly, a bottom 10–15% group almost always emerges that can be culled with surprisingly little impact on total milk revenue—and a meaningful impact on cash and labour load.

Worked Example: What a 10% Cull Actually Looks Like

Let’s put some rough numbers around this, because the concept is easier to grasp with specifics.

Take a 200-cow, year-round calving herd in GB or the northern US. Average yield: 32 litres per cow per day, 4.0% fat, 3.3% protein. Latest costings show feed cost at about £4.00 (or roughly $5.00) per cow per day, with total cost of production around 35–36p/litre or $18–19/cwt.

Suppose that, using the framework above, the farm identifies 20 cows that are late-open, chronically high in SCC, and at the bottom of the solids ranking. If those animals average 300 kg deadweight at around 430p/kg (consistent with recent UK cull averages from AHDB cattle data), the cull cheque comes to roughly £26,000 before costs.

Daily feed costs drop by about £80, or around £2,400 per month, plus a bit of saved parlour time, bedding, and transition management overhead.

Milk sold might fall by 500–600 litres per day, but if those were mainly low-solids, higher-risk litres that were pushing the farm into B-milk, the hit to revenue can be smaller than expected. In some A/B setups, that reduction in total volume can actually improve the average milk price by keeping more litres in the better-valued A-band.

Obviously, every farm is different. Some will decide to cull more, some less, and some not at all. The point isn’t the exact number. It’s that a small, strategic shrink can unlock both immediate cash and lower monthly outgoings without undermining the core of the herd.

Conversations with Your Banker and Nutritionist

What farmers are finding is that conversations with lenders, nutritionists, and accountants go better when they’re started early and anchored in numbers rather than gut feel.

A few questions that have come up again and again in advisory meetings this season:

“If milk averaged X pence per litre (or $Y/cwt) for the next 12 months, what would that do to our cash-flow and overdraft?”

“How many months of operating costs do we currently have in working capital or undrawn credit?”

“What happens to our covenants if we reduce cow numbers by 10–15% but improve margin per cow?”

“Are there any high-cost debts we can refinance to ease monthly pressure if prices stay only average through 2026?”

These aren’t comfortable conversations. But they’re far better to have now, when you have options, than later when you don’t.

On the nutrition side, advisers are encouraging herds to look at whether they’re still feeding “for the cheque they had last year” or for the one they have now.

That might mean trimming some additives, shifting emphasis slightly from maximum litres to steadier components, or matching rations more tightly to groups (fresh cows versus late-lactation) to squeeze a bit more efficiency out of each tonne of silage and concentrate.

Strong fresh cow management—keeping transition problems, culls, and early deaths down—also shows up in the research as a major driver of both animal welfare and long-run profitability. Healthy, well-transitioned cows are far more likely to make it into that top tier of solids producers that you really want in the barn.

In Canada, supply management and quota systems buffer much of the day-to-day price volatility, but even there, Dairy Farmers of Canada and Farm Credit Canada have noted that tighter returns and changing product mixes are placing greater emphasis on cost control, milk quality, and component yield per kilogram of quota. The efficiency conversation is happening everywhere, even where prices are more stable.

Risk Management: Insurance, Not Speculation

Risk-management tools—such as fixed-price contracts, futures, and options—often spark mixed reactions. Some producers have used them for years; others have had experiences that make them cautious.

Recent guidance from university and industry economists is fairly consistent: treat these tools as insurance against very bad prices, not a way to outguess the market.

In practice, that might look like locking in or insuring a portion of expected milk at a level that, when combined with your costings, at least covers feed, routine bills, and a realistic debt payment. It means accepting that you won’t hit the exact top—the win is not being forced to sell all your milk at the bottom. And it means matching hedge volumes to your realistic production after any planned culling or stocking changes, so you aren’t over-hedged and tied to volumes you might not ship.

In Europe, some processors now offer fixed-price pools or index-linked contracts that can serve a similar purpose for farmers who are uncomfortable with direct futures trading. In New Zealand, Fonterra and others have rolled out fixed milk price schemes and options that are increasingly used as planning tools rather than speculation.

The common thread is using these tools deliberately, as part of a broader risk plan, not on a hunch.

What’s interesting is that when you talk with operations that have come through choppy periods in decent shape, they rarely say “hedging saved us.” They more often say “hedging helped us sleep at night while we did the real work on costs, cows, and grass.”

Wildcards: Weather, Disease, and Policy

It’s also fair to say that models and forecasts only get us so far. Weather, animal disease, and policy can all quickly tilt the board.

Recent years have reminded us how regional droughts, wet harvests, or mild winters can turn forage plans upside down and push more or less milk into the system than expected. Animal health issues—from mastitis pressure in wet housing to broader concerns like avian influenza affecting dairy operations in some regions—can affect both productivity and trade flows. Policy changes related to climate, trade, or support programmes can also alter incentives. The EU’s ongoing environmental targets are one example; Canadian quota policy and US farm bill debates are another.

All of that is a long way of saying: your plan for 2026 doesn’t need to be set in stone. It does, though, help to have a plan—and to revisit it a couple of times a year as new information comes in.

The Bottom Line

Pulling this together, a few practical lessons seem to be emerging from both the current data and the 2015–16 experience.

We’re probably in a longer phase, not a quick dip. Multiple exporters are growing at once while major buyers like China are more cautious, and outlooks from AHDB, USDA, Teagasc, and others still point to comfortable supplies into 2026. Building plans that assume a full, rapid rebound may be optimistic.

Cheap feed and good cull values are helpful but can mask underlying stress. They make it possible to carry marginal cows longer and delay decisive action—which works out fine if prices turn up quickly, but creates risk if they don’t.

Margin per cow is a better guide than litres per cow. Whether you’re on pasture-based grass systems or TMR in a freestall or dry lot, the herds that consistently earn room to reinvest tend to know their milk-from-forage numbers, watch solids, manage fresh cows carefully, and think in terms of margin rather than volume.

Liquidity and flexibility buy options. Cash in the bank, undrawn credit, and manageable fixed payments give breathing space when prices wobble or fresh cow problems crop up. It’s often the lack of liquidity—not a single bad month—that forces hard decisions.

There’s no single “right” answer. For some, the best move is to tighten the belt, trim the bottom of the herd, and ride this out. For others—especially where succession is unclear, or debt is heavy—an orderly, thought-through exit while cow and land values are still decent might be the wiser route. Either way, it’s better to make that choice on your own terms than have it made for you.

What this oversupply episode is really doing is pushing every dairy business—big or small, housed or grazing-based—to ask a simple but important question:

What do we actually want this farm to look like in five years, and what steps today move us towards that rather than away from it?

There’s no template, and there’s no shame in different answers. The common thread is taking a hard, honest look at numbers, cows, and goals—and then making changes while you still have room to manoeuvre.

KEY TAKEAWAYS

The cheap feed trap is real: Milk-to-feed ratios near 20-year highs make every cow look profitable—masking a global oversupply that won’t self-correct
Margin per cow beats litres per cow. Every time. Farms that survived 2015-16 knew this and acted early, before options disappeared
Find your passengers: Late-open cows, chronic SCC cases, and low-component producers are quietly being subsidized by your best animals
Have the hard conversations now: Model cash flow at lower prices. Stress-test your covenants. Your banker would rather hear your plan than your panic
The exit window is open—but not for long: Today’s strong cull prices are an opportunity to act, not a reason to wait. If everyone sells later, that door closes fast

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The True Cost of Raising Heifers: Are You Raising Too Many? – Breaks down the hidden impact of heifer inventory on farm liquidity and demonstrates how reducing heifer numbers can free up working capital without sacrificing future production potential—a key tactic for the “Strategic Shrink.”
Beef on Dairy: The Golden Ticket? – Provides a strategic analysis of the beef-on-dairy market, offering producers methods to maximize the value of their lower-ranking animals and leverage the “strong cull values” mentioned in the main article to create a second, reliable revenue stream.
Why Genomics is the Best Investment You Can Make – Delivers the technical “how-to” for the article’s Step 3: Rank by Value, showing how to use genomic data to accurately identify the bottom 15% of the herd that drains profit, ensuring you are culling the right cows for the right reasons.

Join the Revolution!

Categories : Dairy Markets

Tags : cost of production dairy, Dairy Farm Profitability, Dairy Herd Management, margin per cow, milk production forecast 2026, strategic culling

The $200K Dairy Margin Trap: What Cheap Feed Won’t Tell You About 2026

Saturday, December 6th, 2025

Feed dropped 75¢. Milk dropped $2. That’s not savings—that’s a $200K trap.

EXECUTIVE SUMMARY: Everyone’s celebrating cheap corn—but the math tells a different story. USDA projects 2026 milk at $19.25/cwt while feed costs have dropped only modestly, creating net margin compression of $1.25-1.75/cwt—that’s $156,000 to $218,000 in lost cash flow for a 500-cow dairy. New Zealand’s lowest-cost producers see what’s coming: they paid down $1.7 billion in debt this year rather than expand. Top U.S. operators are responding with feed efficiency gains, component optimization, IOFC-based culling, and beef-on-dairy programs that can protect $1.50+ per cow daily. With Chapter 12 bankruptcies up 55% and ag lenders reporting eight straight quarters of declining repayment rates, the window for strategic positioning is narrowing. The question isn’t whether margins compress in 2026—it’s whether you’ll position your operation before they do.

You know that feeling when everything looks fine on paper, but something in your gut says otherwise?

It’s the kind of conversation happening at kitchen tables across dairy country right now. The milk check looks okay—maybe even decent by recent standards. Feed costs have come down. The cows are milking well.

And yet something feels off.

That instinct isn’t wrong.

The FAO has been tracking global food prices for decades, and its November numbers tell an interesting story. The overall Food Price Index has dropped for three consecutive months, and the dairy sub-index has declined for five straight months.

New Zealand just posted a 17.8% production surge in their early season, according to their Dairy Companies Association data. U.S. milk output keeps climbing, too.

What’s worth understanding—and this is something many of us tend to underestimate—is the timeline between when these global signals show up and when they hit our milk checks.

Generally speaking, we’re looking at about six to eight months.

So the softening that started this fall? It’s likely showing up in Q2 and Q3 2026 checks.

Mark Stephenson, who spent years as Director of Dairy Policy Analysis at the University of Wisconsin-Madison before his recent retirement, studied these price transmission patterns extensively throughout his career. His research documented this lag across multiple market cycles.

The movement in international powder and butter prices isn’t really a question of whether it affects domestic markets—it’s more about when and how much.

USDA’s November World Agricultural Supply and Demand Estimates projects the all-milk price at $19.25 per hundredweight for 2026. That’s a meaningful change from the $22-24 range that many operations built their budgets around during stronger periods.

So what are the producers who’ve navigated these cycles before actually doing about it?

The Feed Cost Conversation That’s Missing Something

Walk into any farm supply store or dairy meeting right now, and you’ll hear some version of the same reassurance: “At least feed costs are down.”

And that’s true.

Corn is trading around $4.37 per bushel on the Chicago Board of Trade as of early December. Soybean meal is running around $310-$315 per ton. The DMC feed cost calculation is in a favorable territory compared to recent years—no question about that.

But here’s what that conversation often leaves out.

When milk prices were $22.75, and feed costs were about $11.00 per hundredweight, producers captured roughly $11.75 in income over feed costs.

Run the same math with 2026 projections—$19.25 milk and lower feed costs—and that margin still compresses to around $9.00.

Feed improved by maybe seventy-five cents. Milk dropped by more than two dollars.

The net effect is still a $1.25 to $1.75 per hundredweight margin compression for most operations.

On a 500-cow dairy producing 125,000 hundredweight annually, that’s $156,000 to $218,000 in reduced cash flow. Real money that has to come from somewhere—whether that’s reduced family living, deferred maintenance, or tighter input decisions.

Michael Dykes, who leads the International Dairy Foods Association as their President and CEO, put it well in a recent industry briefing. Lower feed costs are helpful, no question, but they’re best understood as breathing room to make strategic moves—not as a solution to margin pressure.

I recently spoke with an Upper Midwest nutritionist who put it more directly:

“I’ve got producers telling me they’re holding off on decisions because corn is cheap. That’s exactly backwards. Cheap corn is the opportunity to lock in favorable feed contracts and build some cushion—not permission to wait and see what happens.”

The timing matters here.

Producers who lock in Q1 and Q2 2026 feed contracts now, while basis levels remain favorable, capture that advantage regardless of what happens to spot markets later. Those who wait may find the window has closed.

It’s worth running the numbers with your feed supplier at a minimum.

What’s Actually Happening in Export Markets

The China situation deserves more attention than it typically gets in domestic dairy discussions, even for producers who don’t think of themselves as export-dependent.

Why does this matter to all of us? The economics tell the story.

The current reality is pretty stark.

U.S. dairy products face total tariffs of 84 to 125 percent in China following the trade escalation that peaked in April 2025—China’s Ministry of Finance and Reuters covered this extensively at the time.

New Zealand, by contrast, completed their Free Trade Agreement phase-in on January 1, 2024, and now ships dairy to China at zero percent tariff.

The market share shift has been significant.

While exact percentages shift quarter to quarter, the direction is clear: New Zealand has captured the lion’s share of China’s powder imports while U.S. product faces what amounts to a prohibitive tariff wall.

That displaced volume didn’t disappear—it backed up into domestic markets.

Even producers selling exclusively to domestic processors feel this effect, as Mary Ledman at Rabobank has pointed out in her global dairy market analysis. She’s been tracking these patterns as their Global Dairy Strategist for years now.

When export channels close, that milk has to go somewhere. It adds supply pressure that affects everyone, even if indirectly.

The regional effects aren’t uniform, though.

California and Idaho operations—traditionally more export-oriented through Pacific Rim trade—feel this more acutely than Upper Midwest producers whose milk flows primarily into domestic cheese markets.

I spoke with a Wisconsin cheesemaker recently who said his plant’s order book looks fine through mid-2026, but he’s watching West Coast capacity closely because displaced milk eventually tends to find its way east.

What’s particularly noteworthy is how New Zealand producers are responding to their advantageous position.

Despite favorable prices and strong production conditions, Kiwi farmers repaid NZ$1.7 billion in debt in the six months through March 2025 rather than expanding. ANZ Bank and New Zealand’s rural news outlets have been tracking this closely.

When the world’s lowest-cost producers choose balance sheet repair over growth during historically good times… well, it suggests they’re preparing for extended market softness.

That’s a signal worth paying attention to.

Reading the Financial Signals

Several data points help distinguish what’s happening now from typical cyclical patterns.

Chapter 12 farm bankruptcy filings—the specialized bankruptcy provision for family farmers—hit 216 cases in 2024, up 55 percent from the prior year. The American Farm Bureau Federation has been tracking federal court records on this, and the first half of 2025 saw additional filings running well ahead of 2024’s pace.

Context matters here. Bankruptcy filings alone don’t tell the whole story—they can reflect access to legal resources, regional legal practices, and individual circumstances as much as broad economic conditions.

But the trend is notable.

Geographic patterns show particular stress in California, Iowa, Michigan, Kansas, and Wisconsin—a mix of traditional dairy regions and areas affected by specific challenges, such as avian influenza and water constraints.

Debt service coverage ratios tell a related story.

Farm Progress recently reported on data from the Minnesota FINBIN farm financial database showing that the average producer had a concerning coverage ratio of around 85 percent in 2024—meaning operations were generating only 85 cents for every dollar of debt service obligation.

The remaining gap has to come from equity drawdown, off-farm income, or loan restructuring.

What concerns many lenders is the compounding effect.

Interest costs have roughly doubled over the past three years as rates have reset. An operation that was comfortable at 3.5 percent interest faces a completely different equation at 7.5 percent—as many of us have experienced firsthand.

The Federal Reserve Bank of Chicago’s Q3 2025 agricultural credit survey found 38 percent of banks reporting lower repayment rates—the eighth consecutive quarter of deterioration. More than two-thirds of lenders expect farmland values to flatten or decline in 2026.

None of this predicts any individual operation’s future—every farm has its own circumstances, strengths, and challenges.

But it does suggest the industry overall is experiencing stress levels that reward careful financial planning over optimistic assumptions.

The Expansion Paradox

One of the more counterintuitive aspects of current markets—and something I find genuinely interesting to think through—is why production keeps growing despite weakening price signals.

The biological reality is that dairy expansion decisions made two to three years ago are just now showing up in production numbers.

Heifers conceived in early 2023 are entering milking strings in late 2025. Facilities that broke ground during strong margins in 2023 and 2024 are now completing and being populated.

Once those commitments are made—once the cows are bred, raised, and the facilities built—the production is essentially locked in.

Debt service creates similar momentum.

Operations carrying expansion loans need to maintain production to meet their obligations. Reducing herd size often costs more than continuing to milk at marginal profitability, especially when the alternative is triggering loan covenant violations.

Christopher Wolf, the E.V. Baker Professor of Agricultural Economics at Cornell, has written thoughtfully about this dynamic. The economics of stopping are often worse than the economics of continuing.

That’s not irrational behavior—it’s responding logically to the debt structure and fixed-cost reality that exist in most operations.

Processing capacity investment adds another layer.

More than $11 billion in new U.S. dairy processing capacity is under construction or recently completed—IDFA released a detailed report in October covering 50-plus projects across 19 states.

That processing investment creates a regional demand pull that can support local expansion even when broader markets are oversupplied. A producer within hauling distance of a new plant in Dodge City or along the I-29 corridor faces different economics than one in a region without recent processing investment.

I’ve been hearing about this regional divide increasingly this season.

In Texas and New Mexico, where several major cheese and powder facilities have opened or expanded, local producers report being actively recruited with multi-year contracts.

Meanwhile, some Northeast producers describe tighter relationships with their cooperatives—fewer premium opportunities and more pressure on base pricing.

Same industry, very different regional realities.

What Successful Producers Are Doing Differently

Conversations with producers navigating current conditions successfully reveal consistent patterns. These aren’t revolutionary changes requiring massive capital—they’re an intensified focus on fundamentals.

1. Feed Efficiency Optimization

Top-performing herds are achieving feed efficiency ratios of 1.5 to 1.8 pounds of milk per pound of dry matter intake. The industry average sits around 1.4.

The Impact: Each tenth of a point improvement translates to roughly $0.20 to $0.30 per cow/day in margin enhancement.

The Tactic: Weekly NIR analysis on forages (~$15/sample) allows for immediate ration adjustments, rather than guessing between monthly tests.

I recently spoke with a Wisconsin producer who started as a custom heifer raiser before transitioning to his own milking herd. He described implementing weekly NIR testing on every forage load.

“The payback is maybe ten to one in ration accuracy,” he said. “We were basically guessing before.”

Most producers I’ve talked with see measurable results within 45 to 60 days—though individual results vary based on starting point and forage variability.

2. Component Value Capture

Producers focusing on butterfat performance and protein levels report capturing an additional $0.75 to $1.25 per hundredweight compared to volume-focused approaches.

The Tactic: Using rumen-protected choline during transition periods and summer heat stress (~$0.08/cow/day) to prevent butterfat depression.

The genetic piece is a longer-term play—daughters of high-component sires won’t hit the milking string for two-plus years—but the nutritional interventions can show results within a milk test cycle or two.

Worth having a conversation with your nutritionist about current ration fatty acid profiles and where component optimization opportunities might exist for your herd.

3. Strategic Culling Based on IOFC

Rather than culling primarily based on age, reproduction metrics, or production levels, progressive operations calculate income over feed cost for each cow and move out animals that are consistently below $1.50 per cow daily.

The Shift: “A seven-year-old cow giving 60 pounds might look fine on paper,” one herd manager at a 1,200-cow Minnesota dairy told me. “But when you run her actual IOFC with her feed intake and health costs, she’s sometimes underwater. We’re making decisions on math now, not sentiment.”

For operations without individual cow feed intake data (which is most of us), pen-level IOFC calculations still identify which groups are carrying the herd versus dragging it down.

Most herd management software can generate these reports with minimal setup.

4. Beef-on-Dairy Integration

Producers systematically breeding bottom-tier genetics to beef sires report equivalent revenue of $2.50+ per hundredweight from crossbred calf sales.

The Math: A straight Holstein bull calf might bring $150. A beef-cross brings $1,000 or more based on current USDA feeder cattle reports.

The Genetics Play: Use genomic testing or breeding values to identify the bottom 20-30% of your herd’s genetic merit. Breed those animals to proven beef sires with good calving ease scores, and establish buyer relationships before calves hit the ground.

This is where your genomic data becomes a direct revenue driver—not just a breeding tool.

Operations that treat beef-on-dairy as an afterthought leave money on the table compared to those who plan the program strategically.

The Emerging Structure: Two Viable Paths

Looking at where the industry appears headed over the next three to five years, a structural pattern is emerging that’s worth understanding—even if it raises uncomfortable questions.

The data increasingly suggests two economically viable models:

Large-scale efficiency operations—generally 1,500 cows and above—achieving production costs in the $14 to $17 per hundredweight range through scale economics, technology adoption, and processing relationships.

USDA’s Economic Research Service cost-of-production data confirms that this scale advantage has widened over the past decade. Many of these operations use dry-lot systems or hybrid facilities to maximize throughput efficiency.

Premium-differentiated operations—typically 50 to 500 cows—capturing $4 to $8 per hundredweight premiums through organic certification, grass-fed positioning, or direct-to-consumer channels.

These require proximity to metro markets and significant transition investment, but create a margin cushion independent of commodity prices.

Operations in the middle face the most challenging economics under the current market structure.

This isn’t a judgment about the value of family-scale dairy farming or the communities these farms anchor. It’s an observation about where the current market structure creates clearer paths forward.

Regional variation matters significantly.

A 300-cow dairy in Vermont with Boston market access faces different options than a similar-sized operation in central Wisconsin without nearby premium channels.

A Framework for Evaluation

For producers working through these questions—and most of us are—several considerations help clarify the path forward.

For operations considering expansion:

Is there processing capacity within 200-300 miles actively seeking suppliers?
Is replacement heifer availability realistic? National inventory sits at roughly 3.9 million dairy replacement heifers 500 pounds and over—the lowest absolute level since 1978, according to USDA’s January 2025 Cattle report. The heifer-to-cow ratio of 41.9% is the lowest since 1991.
Can production costs realistically reach sub-$17 per hundredweight at expanded scale?
What do debt service requirements look like at current interest rates, not 2021 rates?

For operations considering premium positioning:

Is there a metro market within a reasonable distance with demonstrated premium demand?
What’s the realistic timeline? Organic certification alone typically takes three years under USDA National Organic Program rules.
Does the land base and climate support pasture-based systems?
Is there family interest in direct marketing relationships?

For operations evaluating the current position:

What’s the actual debt service coverage ratio at projected 2026 milk prices?
When do loans mature, and at what interest rate reset?
Has the processor offered multi-year supply contracts?
What’s the true breakeven with full cost accounting—including family labor and reasonable return on equity?

These aren’t comfortable questions.

But they’re better asked now than answered by circumstances later.

The Timing Reality

One thread runs through conversations with producers, lenders, and analysts who’ve navigated previous downturns: timing matters more than most people acknowledge.

Producers who assess their position and make strategic decisions during 2025 and early 2026—while milk prices are still serviceable, while cull cow prices remain historically strong—retain meaningfully more options than those who wait.

December through February: Run your real numbers. Calculate the actual DSCR at $19.25 milk. Have the honest conversation with your lender—most good lenders appreciate proactive communication.

This is also the window for DMC enrollment decisions. If you haven’t reviewed your coverage levels against projected margins, now’s the time. LGM-Dairy is worth a conversation with your insurance agent, too, especially for operations wanting more flexible coverage options.

February through April: Make feed decisions. Lock contracts if the math works. Implement efficiency improvements that deliver results by summer.

Spring 2026: Evaluate first-quarter performance against projections. Adjust culling strategy based on actual margins. Make the bigger strategic calls with real data rather than hope.

The Bottom Line

The dairy industry has navigated challenging transitions before, and it will again.

The producers who came through previous cycles strongest were generally those who saw conditions clearly, made decisions based on their specific circumstances, and acted while they still had choices.

That window is open now.

The question is what each of us does with it.

The Bullvine provides market analysis and industry perspective for dairy producers worldwide. This article reflects conditions and data available as of early December 2025. Individuals should consult their own financial advisors, lenders, and Extension specialists when making significant business decisions. Every farm’s situation is unique, and the right path forward depends on factors only you and your advisors can fully evaluate.

KEY TAKEAWAYS

The Trap: Feed dropped 75¢. Milk dropped $2. That’s not savings—that’s $200K in vanishing cash flow for a 500-cow dairy.
The Global Signal: NZ farmers paid down $1.7 billion in debt instead of expanding. The world’s lowest-cost producers expect extended softness.
The Warning Signs: Chapter 12 bankruptcies up 55%. Ag loan repayments have been declining for 8 quarters straight. Financial stress is accelerating.
What Top Producers Are Doing: Capturing $1.50+/cow/day through feed efficiency, component optimization, IOFC-based culling, and beef-on-dairy integration.
The Window Is Now: Cull values are strong. Milk checks are still serviceable. Lenders are still flexible. Make strategic decisions while you still have options.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The $700 Truth: Your Best Milkers Are Your Worst Investment – Reveals why high-volume cows often lose $3/day in actual margin and demonstrates how to use Residual Feed Intake (RFI) data to identify the true profit-drivers in your herd.
The $228,000 Exit Strategy Reshaping Dairy – Uncovers the “Section 1232” tax provision behind the recent surge in Chapter 12 filings, explaining how strategic bankruptcy is helping retiring producers preserve equity rather than losing it in traditional sales.
Robot Revolution: Why Smart Dairy Farmers Are Winning – Analyzes the 2025 ROI of automated milking systems beyond simple labor savings, providing a blueprint for the “efficiency-at-scale” model that allows family operations to compete with larger consolidators.

Join the Revolution!

Categories : Dairy Markets

Tags : 2026 milk price forecast, beef-on-dairy genetics, dairy margin compression, dairy risk management, feed efficiency optimization, income over feed cost

The Cooperative Trap: UK’s 32p Milk Crash Proves Your Co-op Won’t Save You

Thursday, December 4th, 2025

When a Welsh dairy farmer sat in that boardroom and voted to slash his own income by £78,000 a year, he wasn’t being foolish. He was being a fiduciary. And that distinction matters for every cooperative member reading this.

Executive Summary: Mike Smith milks 450 cows in Wales and serves as vice chairman of First Milk. This month, he voted to cut his own milk price to 32.25p—a decision that costs his operation approximately £6,500 every month. He wasn’t being foolish. He was fulfilling his legal duty: UK company law requires cooperative directors to protect the enterprise first, even when farmgate prices fall below the 43-47p most producers need to break even. That tension between member interests and cooperative survival explains why UK dairy has consolidated from 35,000 farms in 1995 to roughly 7,000 today—and why analysts project just 4,000-5,000 by 2030. Cooperatives deliver real value: market access, collective bargaining, shared risk. But insulation from global oversupply? That’s not part of the deal. North American producers shipping through DFA, Agropur, or provincial marketing boards face the same structural dynamics—and understanding them now, while you still have options, is the point.

Mike Smith runs a 450-cow dairy in Pembrokeshire, Wales. He’s also vice chairman of First Milk, one of the UK’s largest British-headquartered farmer-owned cooperatives. This month, he sat in a boardroom and voted to cut his own milk price—a decision that will cost his operation roughly £6,500 every single month.

That image stuck with me as I worked through what’s happening across UK dairy right now. A farmer-owner, voting against his own short-term interest, because the alternative was watching the cooperative face serious financial difficulty. It tells you something important about how cooperative economics actually work when markets turn challenging—and it’s something Wisconsin, Ontario, and every other cooperative-heavy dairy region should understand.

This chart shows how UK dairy farms collapsed from roughly 35,000 to 7,000 in a single generation, with another third likely gone by 2030. Cooperatives kept processing capacity afloat, but the price mechanism quietly selected who stayed and who exited. The system is working exactly as designed—and that should scare any producer betting their future on membership alone.

The Numbers Behind the Decision

First Milk announced its January 2026 price at 32.25 pence per litre, down a staggering 3.6ppl from the prior month. That’s no small adjustment. According to Mike Smith in First Milk’s official announcement: “This change reflects the continuing challenges in the market. UK and global milk production remain at record levels, and there is still no sign of improvement in the supply/demand imbalance.”

Production costs vary significantly across UK dairy operations. What’s interesting here is that grazing systems generally run lower than housed herds, and regional differences in feed and labor costs create quite a range. Industry benchmarking from AHDB and farm business consultancies like Kite Consulting consistently shows that fully-housed systems average somewhere in the mid-to-upper 40s pence per litre when all costs, including unpaid family labor, are accounted for. According to Promar International’s UK Dairy Producer Cost Analysis 2025, leading producers sustain production costs of 41-43 pence per litre.

Let’s run some realistic numbers on a 150-cow herd shipping about 103,000 litres monthly. If we assume production costs around 43ppl—reasonable for a well-managed system:

Monthly revenue at 32.25ppl: £33,217
Monthly production cost at 43ppl: £44,290
Monthly shortfall: Around £11,073

That’s burning through £133,000 or more each year before the family draws any income for living expenses. The 3.6ppl cut alone strips roughly £3,700 monthly from an already tight position.

Here’s what’s worth noting, though. First Milk has maintained a strong corporate performance—the BV Dairy acquisition significantly expanded its processing capacity. But those processor-level numbers don’t change the reality that farmgate prices have to track global commodity markets, regardless of how well the creameries perform. The processing business can be healthy while the farm business struggles. That disconnect frustrates producers, understandably so.

This comparison shows the brutal reality of December 2025 pricing: all conventional UK processors are paying members less than even the best‑in‑class 43ppl breakeven cost. Only organic producers clear the breakeven wall. When co‑op boards talk about ‘alignment with market conditions,’ this is what they mean.

Understanding Why Cooperative Boards Make Difficult Choices

I’ve followed cooperatives across three continents over the years, and the pattern at First Milk is one I’ve seen before. Understanding these mechanics matters because they apply across all cooperatives that handle commodity dairy.

First, let’s acknowledge what cooperatives genuinely provide—and these benefits are real and significant. Collective bargaining power. Guaranteed market access even when spot buyers disappear. Shared infrastructure investment that individual farms couldn’t finance alone. There’s a good reason the cooperative model has endured for over a century in dairy.

But when global supply substantially exceeds demand—as it does currently—those benefits don’t override fundamental market dynamics.

First Milk’s board includes farmer directors like Mike Smith, who manage substantial operations themselves. These aren’t distant executives making decisions about someone else’s livelihood. They’re producers facing the same pressures as every other member.

Why did they vote for reductions? Three factors typically converge in these situations.

There’s a fiduciary duty. UK company law—specifically Section 172 of the Companies Act 2006—requires directors to act in the best interest of the enterprise as a going concern. When the cooperative faces potential covenant pressure on significant debt, preserving the business takes legal precedence over maximizing short-term member returns.

Then there’s the volume obligation built into the cooperative structure. Unlike corporate processors who can decline volume, cooperatives generally must accept what members ship. When global supply surges, that milk needs processing—even when margins suffer. Müller’s agriculture director Richard Collins acknowledged this pressure directly in their November announcement: “We’re seeing market price reductions, and daily collection volumes are still significantly higher than they were last year.”

And competitive positioning matters more than many producers realize. Arla UK set December prices at 39.21ppl (down 3.50ppl). Müller moved to 38.5 ppl (down 1.5 ppl). Freshways went to 30.4ppl. If First Milk holds significantly above market while competitors price lower, retailers shift contracts. Volume drops. Fixed processing costs are spread across fewer litres. The trajectory from there becomes concerning.

How One Welsh Family Is Working Through the Numbers

What follows is a composite based on industry figures and conversations with UK dairy advisors—not a specific identifiable operation, but representative of decisions many families are working through right now.

The Morgans milk 165 cows on 200 acres outside Carmarthen. Third generation on the land. Two children—one considering returning to farm after agricultural college, one leaning toward other opportunities.

Their numbers heading into 2026:

Monthly production: 114,000 litres
First Milk price (January): 32.25ppl = £36,765 revenue
All-in production cost: 44ppl = £50,160
Monthly gap: Around £13,395

They’re carrying about £340,000 in debt—equipment loans, a 2019 cubicle shed, and an operating line. Their debt-to-asset ratio sits around 45%. DEFRA’s Balance Sheet Analysis suggests that’s actually in reasonable shape compared to many UK dairy operations.

The family has been running scenarios this autumn:

Scale up option: Adding 80-100 cows would require roughly £400,000 in new investment—buildings, livestock, and slurry capacity. At current prices, that creates a larger shortfall with more debt service. They’d need milk to recover to 38-40ppl within three years for expansion to work financially. That’s possible, but far from certain.

Exit option: Cull cow prices are historically strong right now. AHDB’s weekly livestock reports from late 2025 showed deadweight cows averaging well above the five-year average. Land in their area has traded around £8,500/acre recently, according to Farmers Weekly market reports. They could likely clear debt and retain meaningful equity. But three generations of work and the children’s potential inheritance make this more than a financial calculation.

Reduce and reassess: They’re seriously considering culling 25-30 head this winter, generating £40,000-50,000 in cull revenue while beef prices hold. That cuts feed costs immediately and gives 18 months to see how markets develop. It’s not a permanent solution—more of a managed pause that preserves options.

Herd Size	Monthly Litres	Revenue @ 32.25p	Cost @ 43p	Monthly Loss	Annual Bleed
100 cows	68,000	£21,930	£29,240	-£7,310	-£87,720
150 cows	103,000	£33,218	£44,290	-£11,072	-£132,864
200 cows	137,000	£44,183	£58,910	-£14,727	-£176,724
300 cows	205,000	£66,113	£88,150	-£22,037	-£264,444
450 cows (Mike Smith)	308,000	£99,330	£132,440	-£33,110	-£397,320

The son, home for Christmas, asked his father what he thought would happen to UK dairy over the next decade. The response was sobering: “A lot of the farms that are here now won’t be in ten years. The question is whether we’re among those who continue or those who don’t.”

The Global Supply Dynamics Driving These Pressures

This situation feels different from previous dairy downturns—and that distinction matters for how farmers might respond.

The 2015-16 downturn was largely demand-driven. Russia embargoed EU dairy. Chinese buying slowed significantly. When those external factors resolved, prices recovered. This time, pressure is coming from the supply side. That’s more challenging because there’s no single external event to wait out.

Irish milk production increased substantially through 2025. AHDB’s tracking shows January-May 2025 Irish output running 7.6% above the same period in 2024—with March up 8%, April up 13%, and May up 7%. That’s farmers pushing volume ahead of tightening nitrate regulations—an understandable response to policy changes, but one that’s flooding markets with additional supply.

Meanwhile, European production dynamics are complex. USDA’s Foreign Agricultural Service EU Dairy Forecast from February 2025 showed EU milk deliveries forecast to decline marginally by 0.2% in 2025, with low farmer margins and environmental restrictions pushing some smaller producers out. But GB production tells a different story entirely—AHDB’s December 2025 forecast update projects UK milk production for 2025/26 at a record-breaking 13.05 billion litres, up 4.9% from the previous milk year.

The Global Dairy Trade auction results reflect these dynamics. The December 2025 auction saw the index decline 4.3%—the eighth consecutive decline—with butter crashing 12.4% to US$5,169 per tonne. AHDB noted that “increasing global dairy milk supplies and product stocks are weighing heavily on prices currently.”

Global dairy prices have fallen at every single GDT auction since spring, with the steepest hit in November and butter down 12.4% in December. That’s not a storm you ‘ride out’ with a bit of overdraft. It’s a structural oversupply that forces co‑ops to use your milk cheque as the shock absorber.

Independent dairy analyst Chris Walkland offered a stark assessment in late November: some producers could face milk payments between 30 and 35 pence per litre for eight to nine months.

The Brexit Trade Dimension

Everything described so far applies to dairy producers globally. But UK farmers are navigating the same supply environment while operating outside the EU’s single market. That creates additional complexity.

Trade data analyzed by Logistics UK shows UK dairy and egg exports to the EU declined approximately 6% since Brexit. The documentation requirements have proven substantial.

The mechanics are straightforward but add costs. Every dairy shipment to the EU requires export health certificates, veterinary sign-off, and potential border inspections under the sanitary and phytosanitary (SPS) control framework introduced in 2024. An analysis by Stone X noted that “the UK and EU now treat each other as ‘third countries,’ meaning any dairy products moving across the Channel are subject to rigorous SPS checks.”

John Lancaster, head of EMEA and Food Consultancy at Stone X, observed: “Volatility is nothing new for the dairy sector, but the nature of that volatility is evolving. The UK, traditionally a net importer of dairy, has seen strong milk collections in recent months, likely leading to reduced imports in 2025. This elevated supply, combined with administrative barriers to export, has meant that local spot prices can swing more sharply.”

UK dairy exports to the EU have slipped around 6% since Brexit—not because Europe banned our products, but because red tape throttles every truckload. While Irish and Dutch milk moves freely inside the single market, British producers fight the same oversupply with added paperwork drag.

Ireland and the Netherlands face similar global supply pressures. But they operate within the single market—frictionless trade, shared regulations, and access to EU support mechanisms. UK producers are competing with additional administrative and cost burdens that other major producing regions don’t face.

What Successful Adaptation Looks Like

Alongside these challenges, some operations are finding paths forward. The strategies vary but share a common element: reducing pure commodity exposure.

Millbrook Dairy in the West Midlands has developed direct export relationships, particularly targeting Middle Eastern markets where UK cheese commands a premium positioning. According to Dairy Reporter’s coverage from May 2025, the company has faced Brexit, COVID-19, the Red Sea crisis, and US tariffs—but rising global demand for premium cheese and butter has created opportunities for those willing to navigate the complexity.

Several Welsh operations have moved toward organic certification and secured premium contracts. While conventional prices have crashed below 35ppl for some, organic producers continue receiving prices in the upper 50s ppl—First Milk’s organic price remains at 57.95ppl, unchanged from the conventional cuts.

We’re actually seeing similar patterns in North America. Some Upper Midwest producers have moved into farmstead cheese or on-farm processing to capture more margin. A few Ontario operations have built agritourism components that complement their dairy income. These aren’t easy pivots—they require capital, skills, and market access—but they show the “expand or exit” framework isn’t the only path available.

None of these approaches fit every situation. They require specific circumstances and opportunities that vary significantly by region and operation. But they illustrate that other paths exist for those positioned to pursue them.

Questions Worth Asking Your Cooperative

For North American farmers watching the UK situation, there’s practical value in understanding what to monitor closer to home. DFA handles a substantial share of the US milk supply through cooperative structures. Canadian cooperatives like Agropur and provincial marketing boards face similar dynamics when global markets shift.

Having specific questions ready when cooperative leadership presents forecasts or pricing updates can be valuable:

On volume management:

Is the cooperative implementing or considering base-excess programs or volume adjustments?
What percentage of members are shipping above base allocation?
How does the cooperative plan to balance supply if market conditions weaken?

On financial position:

What are the cooperative’s current debt covenants, and how much flexibility exists?
What milk price level would create covenant concerns?
How much of the operating profit comes from processing versus member milk margin?

On forward planning:

What price scenarios is management modeling for the next 12-24 months?
At what price level would capacity rationalization become necessary?
How are competing processors positioned, and what’s the risk of contract shifts?

These aren’t confrontational questions—they’re the kind of information that business owners should reasonably have about enterprises they collectively own.

Indicators Worth Watching

The UK situation offers a framework for what to monitor. Several metrics are worth tracking.

Supply growth provides early signals. USDA’s monthly Milk Production report is the primary source. If year-over-year growth exceeds 3% for six consecutive months, supply is outpacing demand. That pressure eventually reaches farmgate pricing. Wisconsin producers might watch regional production trends particularly closely, given the concentration of cooperative membership in the Upper Midwest.

Futures markets offer forward visibility. CME Class III cheese futures below $17/cwt for extended periods suggest markets are pricing in oversupply conditions. Monthly checks of forward curves provide useful context for planning.

Cooperative communications often signal direction if you listen carefully. When leadership emphasizes “supply balance,” “market alignment,” or “production discipline,” they may be preparing ground for pricing adjustments. Richard Collins at Müller noted they’re “keeping a close eye on supply and demand”—that language often precedes action by 60-90 days.

Cull market conditions indicate exit dynamics. Strong cull prices create exit incentive—but also suggest culling hasn’t reached levels that would meaningfully reduce supply.

When multiple indicators converge, the UK pattern becomes more relevant to local planning.

The Broader Industry Pattern

After three decades in this industry—starting with a Master Breeder operation and later founding The Bullvine—I keep returning to a pattern that deserves direct discussion.

Cooperative commodity dairy, by its structural design, tends to address supply-demand imbalances partly through changes in membership. That’s not necessarily a failing of the model—it’s inherent to how cooperatives function in commodity markets. When global supply exceeds demand, and prices fall below production costs, cooperatives adjust farmgate pricing to maintain processing viability. Those price adjustments create pressure on higher-cost operations. Some exit. Supply eventually contracts. Prices stabilize for continuing producers.

The cooperative continues. Membership consolidates. The cycle continues.

AHDB’s latest survey of milk buyers revealed an estimated 7,040 dairy producers in GB as of April 2025—a loss of 190 producers (2.6%) since the previous year. Against a backdrop of rising volumes, this suggests a continued shift toward fewer, larger farms. Industry exits typically occur during the winter months, before housing and other input requirements rise seasonally.

This isn’t an argument against cooperatives. Their benefits remain genuine—market access, collective bargaining strength, shared risk, and infrastructure investment beyond individual farm capacity. But it does argue for a realistic understanding of what cooperative membership provides. Insulation from global market forces isn’t among those benefits.

Practical Considerations by Situation

For operations with strong balance sheets—debt-to-asset below 40%: This environment may present opportunities. Industry transitions often create acquisition possibilities. Operations that can achieve competitive production costs at scale, with family commitment to a long-term horizon, may be well-positioned for the consolidation ahead.

For operations with moderate leverage—40-60% debt-to-asset: Focus on cash preservation and maintaining flexibility. Cull strategically to generate near-term cash while beef prices remain favorable. Explore loan restructuring while lenders remain accommodating. Develop realistic exit valuations to understand your position. The objective is to navigate 24 months without eroding equity, then reassess.

For operations with higher leverage—above 60% debt-to-asset —the situation requires an honest assessment. At current UK price levels, highly leveraged operations face compounding challenges that can steadily erode equity. Voluntary, well-planned transition while cull and land markets remain favorable often preserves more family wealth than delayed, pressured decisions. That’s a difficult conversation, but an important one.

For all operations: Know your actual cost of production—including properly valued family labor. Understand your cooperative’s financial position and be prepared to ask informed questions. Watch the indicators that might signal your region following similar patterns. And recognize that choosing your timing generally produces better outcomes than having timing determined by circumstances.

Editor’s Note: All pricing data cited in this article comes from official processor announcements and AHDB reports from November-December 2025. Production cost figures reference AHDB, Promar International, and Kite Consulting industry benchmarks. National and regional averages may not reflect your specific operation’s circumstances. We welcome producer feedback and regional case studies for future reporting. Contact: andrew@thebullvine.com

Resources for Ongoing Monitoring:

AHDB Dairy Market Indicators: ahdb.org.uk/dairy (free registration provides full cost tracker access)
USDA Milk Production Reports: usda.gov/nass
Global Dairy Trade Auction Results: globaldairytrade.info
CME Dairy Futures: cmegroup.com/markets/agriculture/dairy

Key Takeaways

32p milk, 43p costs. First Milk’s January 2026 price leaves most UK producers hemorrhaging cash—£11,000+ monthly on a mid-size herd. The gap isn’t a glitch. It’s global oversupply working exactly as markets do.
A farmer voted to cut his own pay. Vice Chairman Mike Smith slashed his milk price by £6,500/month because UK law requires cooperative directors to protect the enterprise first. Fiduciary duty trumps member income when the cooperative’s survival is at stake.
Cooperatives manage consolidation—they don’t prevent it. UK dairy shrank from 35,000 farms to 7,000 over thirty years. Cooperative membership provided orderly exits and market access for survivors, not insulation from structural economics.
The supply glut is structural, not seasonal. Irish milk up 7.6% through May. GB production at record highs. Eight straight declines in the Global Dairy Trade auction. There’s no external shock to wait out—this is the new baseline until supply contracts.
Your turn is coming. DFA, Agropur, and provincial marketing boards face identical cooperative economics. The producers who understand these dynamics now—and position accordingly—will have options when pricing pressure arrives. The rest will have the options the market gives them.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Decide or Decline: 2025 and the Future of Mid-Size Dairies – This strategic guide targets the “squeezed middle” (700-1,200 cows), outlining three specific survival paths: intended expansion, rigorous optimization, or strategic exit. Essential reading for producers needing to calculate if their debt-to-asset ratio supports the scale required to survive current consolidation trends.
Global Dairy Market Dynamics: Navigating Volatility and Strategic Opportunities in 2025 – Expand your understanding of the supply-side pressures mentioned above with this deep dive into 2025 Global Dairy Trade (GDT) indices and regional production forecasts. It provides the broader economic context needed to anticipate price floor movements before they hit your milk check.
Digital Dairy: The Tech Stack That’s Actually Worth Your Investment in 2025 – Move beyond buzzwords with this ROI-focused analysis of farm automation and data integration. It demonstrates how integrating specific technologies—like AI-driven feed management—can slash costs by 5-10%, offering a tangible way to protect margins when milk prices fall below production costs.

Join the Revolution!

Categories : Dairy Markets

Tags : cost of production analysis, dairy cooperative management, Dairy Farm Profitability, global dairy markets, herd consolidation trends, milk price volatility

8 Straight GDT Declines. The Genetic Culling and Cash Strategies That Separate 2026 Survivors.

Wednesday, December 3rd, 2025

Raising mediocre genetics into an $18 market is a $3,000 mistake walking on four legs. 8 GDT declines say it’s time to cull harder.

EXECUTIVE SUMMARY: Eight straight GDT declines—the worst streak since 2015—isn’t a cycle. It’s a structural reset. China’s self-sufficiency jumped from 70% to 85%, erasing 200,000+ metric tons of annual demand that isn’t returning. Production keeps accelerating everywhere: the US up 3.3%, the EU up 6%, Argentina up 10.9%. For operations still budgeting $21 milk, the math turns brutal fast—at $18/cwt, working capital burns in months, not years. The response demands ruthless clarity: cull the bottom 20% of your genetics, sell $1,000-1,400 beef-on-dairy calves instead of raising $3,000 replacement heifers, lock in price protection, and call your lender before covenants force the conversation. The dairies thriving in 2027 won’t be those that waited for recovery—they’ll be those that used 2026 to make the hard calls their competitors avoided.

Something shifted in global dairy markets this fall. Those of us watching the twice-monthly Global Dairy Trade auctions could sense it building, but the numbers from Event 393 on December 2nd brought it into sharp focus.

The damage in one auction:

GDT Price Index: Down 4.3%
Butter: Down 12.4% (the hardest hit)
Whole Milk Powder: Down 2.4%
Average price: US$3,507/MT (lowest in nearly two years)
Streak: Eight consecutive declines—worst since 2015

Butter prices collapsed 12.4% at Event 393. Anhydrous milk fat fell 9.8%. These aren’t modest corrections—they’re demand destruction in fat products. Meanwhile cheddar climbed 7.2% and lactose 4.2%. Message: high-fat commodity products are vulnerable in this market. Component strategy must shift toward cheese and protein, away from butter margin dependency.

For producers mapping out Q1 and Q2 of 2026—whether you’re managing a 200-cow operation in Vermont, running 3,000 head in the Central Valley, or navigating the unique economics of Southeast pasture-based systems—these results raise questions that deserve careful thought.

Is this a cyclical correction that resolves in a few months? Or does it reflect something more structural?

Here’s my read: eight consecutive declines with this breadth across product categories suggests supply-demand fundamentals that may take longer to rebalance than we’d like. That’s not cause for panic, but it is a reason for strategic action. The operations that navigate the next 12-18 months successfully will be those that understand what’s driving this weakness—and position accordingly.

The Supply Picture: Everyone’s Running Hot

The basic dynamic is pretty clear once you lay it out. Global milk production across major exporting regions is growing faster than demand can absorb. USDA Foreign Agricultural Service data and Rabobank’s quarterly analysis both point to this imbalance persisting through at least mid-2026.

Everyone’s running hot. Argentina’s milk production surged 10.9% in Q1 2025. The EU is up 6%. The US 3.3%. The problem? Demand isn’t returning. When all suppliers produce simultaneously into shrinking demand, there’s only one outcome: prices collapse.

What makes this period particularly concerning is the breadth. It’s not one region running hot while others moderate. Everyone’s pushing milk at the same time:

Region	Growth Rate	Source
New Zealand	Season-to-date up 3.0%	Fonterra November Update
United States	August production up 3.3% (24 major states)	USDA Milk Production Report
European Union	September deliveries up 6.0%	AHDB Market Analysis
Argentina	Q1 2025 up 10.9%	USDA Attaché Reports

Fonterra has already raised their collection forecast from 1,525 million kgMS to 1,545 million kgMS. The US herd continues expanding even as futures soften. You know how it goes—once you’ve invested in facilities, genetics, and labor, the economic pull favors keeping stalls occupied.

“This cycle, we’re seeing production accelerate into declining prices. That pattern—when it persists—typically indicates a longer adjustment period ahead.”

The China Shift: This Isn’t Cyclical

No factor shapes the global dairy trade outlook quite like China’s changing import patterns. For nearly a decade, China served as the primary growth engine for dairy exports worldwide. What’s shifted there helps explain everything we’re seeing at GDT.

China’s government-backed self-sufficiency push worked. From 70% to 85% domestic production in five years. Translation: 200,000+ metric tons of annual demand that exported countries will never see again. This isn’t a market cycle. It’s geopolitics as food security policy.

The key numbers:

Self-sufficiency: Climbed from ~70% (2020-2021) to ~85% (2025) per USDA and Rabobank estimates
WMP imports: Dropped from 845,000 MT at peak to ~430,000 MT by 2023
Missing demand: 200,000-240,000 MT annually that isn’t coming back soon

Rabobank’s Mary Ledman, its global dairy strategist, framed it clearly: China moved from about 70% self-sufficiency to roughly 85%, and that shift cascades through global trade flows. When China’s import demand contracts, it affects pricing for exporters worldwide.

What this means: Business planning built around a rapid return to peak Chinese imports probably warrants reconsideration. Beijing invested heavily in domestic processing capacity as a food security priority. Some analysts believe import demand could stabilize if domestic production growth slows—but for planning purposes, assuming reduced Chinese appetite persists seems prudent.

Where’s the Milk Going?

With China absorbing less, displaced volume is finding alternative homes—but at a cost:

Secondary markets are absorbing volume. The Middle East, Southeast Asia, and parts of Latin America have increased purchases at competitive pricing. But these markets are smaller and more price-sensitive. They take the milk—just at prices that drag everything down.

Product mix is shifting. EU processors are directing more milk toward cheese and whey rather than powder. This doesn’t eliminate surplus; it redistributes pressure across product streams.

Inventories are building. US nonfat dry milk stocks have grown through 2025, according to USDA Dairy Products data. The milk is moving, but it’s backing up. That overhang suppresses spot prices until stocks normalize.

Farm-Level Math: Where It Gets Real

For individual operations—particularly those carrying debt from recent expansions—extended margin compression creates genuine planning challenges.

Fonterra’s adjustment illustrates how GDT weakness hits farmgate: They narrowed their 2025/26 price range from NZ$9.00–$11.00/kgMS to NZ$9.00–$10.00/kgMS. For a farmer supplying 200,000 kgMS, that 50-cent midpoint reduction means roughly NZ$100,000 less this season.

US operations face a similar arithmetic:

500-cow dairy producing 25,000 lbs/cow annually
Each $1/cwt change = approximately $125,000 in gross revenue impact

I recently spoke with a producer running about 450 cows in east-central Wisconsin—debt-to-asset ratio around 47%, which isn’t unusual for operations that expanded during 2021-2022. At $22/cwt, modest positive cash flow. At $18-19/cwt, he’s projecting monthly shortfalls of $35,000-45,000. Working capital covers roughly three months at that burn rate.

His approach? Running all projections at $18 now, not $21.

“I’d rather be surprised by better prices than caught short by worse ones.”

The timeline pressure: Working capital reserves on many operations cover 2-4 months of shortfalls. When those deplete, operating lines of credit come at higher rates—what was 6-7% might now cost 10-11%, further pressuring cash flow.

Practical Responses That Are Working

Across regions, proactive producers are responding with concrete adjustments. The specifics vary—feed costs differ between California and Wisconsin, Southeast operations face different heat-stress economics, and Northeast producers navigate distinct cooperative structures—but certain approaches work broadly.

Get Brutally Honest on Cash Flow

Run projections at $18.00/cwt, not $21-22. Answer these questions candidly:

What’s the monthly cash flow at current prices through Q2 2026?
How many months can you sustain negative cash flow before exhausting working capital?
At what price does the operation return to breakeven?

Operations projecting shortfalls above $30,000-50,000/month should initiate lender conversations now—before covenant pressures force them.

Lock In Some Protection

Forward contracting and hedging deserve fresh attention:

Forward contract 30-50% of near-term production through co-ops or direct processor contracts
Put options on Class III or Class IV milk for downside floors with upside participation
Dairy Margin Coverage enrollment at coverage levels matching your debt structure

Options protection typically costs $0.20-0.40/cwt. That’s insurance math—worth evaluating against your exposure.

Strategic Cost Management

Ration optimization remains the biggest lever. Maximize the number of components per pound of dry matter intake. With butterfat and protein premiums available through many marketing arrangements, component-focused feeding can partially offset lower base prices. Transition cow nutrition and fresh cow management remain areas where investment pays returns—you probably know this, but it bears repeating during tight margins.

Forward purchase feed ingredients at current favorable levels for 6-12 months.

Capital discipline—defer projects that don’t show clear payback within 12 months at $18/cwt.

Ruthless Heifer Inventory Calibration

This is where genetics strategy meets financial survival.

Stop raising the bottom 20% of your genetics. Move from 110% of replacement needs to strictly 100%. Use beef-on-dairy crosses on everything that isn’t top-tier. In a market like this, raising a mediocre heifer is a luxury you cannot afford.

Downturns are the time to concentrate genetic investment. Focus sexed semen only on your elite animals. Let beef sires cover the rest. The operations that emerge strongest from price cycles are typically those that used the pressure to accelerate genetic progress—not those that kept feeding average genetics because “we’ve always raised our own replacements.”

Here’s what’s interesting about the economics right now. Dairy beef has become a meaningful revenue stream—according to Hoard’s Dairyman, dairy-beef crosses now represent 15-20% of national beef production. That $1,000-1,400 dairy-beef calf you’re selling at a few days old is worth far more than a replacement heifer you’ll spend $2,500-3,000 raising only to freshen into an $18 milk market. The math has completely flipped from where it was just a few years ago, when those calves were bringing $350-400.

Early Lender Engagement

For operations where projections suggest restructuring may be needed, earlier conversations produce better outcomes. Options farmers are exploring:

Extending term debt amortization (10 → 15 years) to reduce annual payments
Converting operating lines to term debt for covenant breathing room
Adjusting payment timing to align with milk check cycles
Providing additional collateral for better terms

Lenders prefer restructuring to foreclosure. But that preference is strongest when borrowers approach proactively—not when they’re already in technical default.

The Coordination Reality

Could coordinated production cuts accelerate rebalancing? Probably not.

US antitrust law restricts coordination on production or pricing. Cooperative structures require accepting all member milk. And even if one region cut output, others would expand to capture the opportunity—Argentina’s 10.9% Q1 surgeshows how fast capacity elsewhere fills gaps.

Historical precedent: During 2014-2016, US milk production actually grew despite severely compressed margins. Recovery came when demand improved—not from coordinated supply reduction. The survivors managed through individually: maintaining reserves, restructuring early, achieving efficiencies their neighbors didn’t.

Market rebalancing will occur through aggregated individual responses to economic pressure. That places the burden on each operation to assess its own position and act accordingly.

How the Next 18 Months Might Unfold

Here’s one informed perspective—not prediction:

Through Q1 2026: Current dynamics persist. Production growth continues despite weak prices, China maintains a reduced import posture, and inventories stay elevated. GDT likely stays below $3,500/MT, potentially testing $3,200-3,300.

By mid-2026: Margin compression forces more decisive responses. Some operations exit through individual financial pressure. Others restructure and emerge leaner. Consolidation accelerates.

Late 2026 into 2027: If sufficient capacity adjusts, supply comes into better balance. Prices recover—though likely to equilibrium levels reflecting China’s structurally lower imports and more consolidated global production.

The operations positioned well for 2027 won’t necessarily be the largest. They’ll be those that assessed their situations honestly now, made difficult decisions while options remained, and configured for a market that differs from 2021-2022.

The Bottom Line

This market weakness is structural, not cyclical. Eight consecutive GDT declines, plus China’s sustained import reduction, create headwinds that won’t resolve quickly.

Run your numbers at $18/cwt. Operations showing significant monthly negative cash flow face decisions within 6-12 months.

Talk to lenders before you have to. Proactive conversations yield better outcomes than forced ones.

Concentrate your genetic investment. Stop subsidizing mediocre genetics with expensive heifer development. Use beef-on-dairy aggressively—at $1,000+ per calf, the economics have never been better.

Protect some downside. Evaluate forward contracting and options based on your specific debt exposure.

Early action preserves options. Delayed response narrows them.

These are genuine challenges—and ones the industry has navigated before. The operations thriving when conditions improve will be those making informed decisions now: understanding what market signals indicate, assessing their position realistically, and acting while choices remain.

Your local extension dairy specialists and farm business management educators can provide perspective tailored to your specific circumstances. Run your numbers, have the conversations, and position your operation for whatever comes next.

We’ll continue tracking these developments. In the meantime—sharpen your pencil, sharpen your genetics, and sharpen your strategy.

Key Takeaways

Stop waiting for recovery. China’s at 85% self-sufficient. That 200,000+ MT of vanished demand isn’t returning. This is the market now.
Budget at $18. Today. At $21, you’re planning for a market that no longer exists. Run your numbers at $18 and see if your runway is months—or weeks.
Cull the bottom 20%. Ruthlessly. A $1,400 beef calf at 3 days old beats a $3,000 heifer raised to freshen into $18 milk. That math has permanently flipped.
Call your lender this week. Proactive conversations get restructuring options. Forced conversations get whatever terms are left.
The 2027 winners are being decided now. They won’t be the biggest operations—they’ll be the ones that culled harder, budgeted tighter, and moved while competitors waited.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Transform Your Dairy Economics: How Beef-on-Dairy Crossbreeding Delivers 200% ROI – Reveals the specific ROI formulas progressive dairies use to validate beef-on-dairy programs, moving beyond simple calf premiums to calculate true feed efficiency gains and long-term herd profitability.
Why Dairy Markets Can’t Self-Correct Anymore: The Hidden Forces Reshaping the Dairy Industry’s Future – Explains the structural “economic handcuffs”—from European cooperative obligations to energy revenue streams—that are preventing traditional supply corrections and keeping global production high despite low milk prices.
The Tech Reality Check: Why Smart Dairy Operations Are Winning While Others Struggle – Provides a brutally honest assessment of automation ROI, demonstrating why management protocols matter more than machinery and how top operators achieve payback in 3.8 years while others struggle for a decade.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy economics, dairy farm cash flow, dairy market outlook 2026, genetic culling strategy, Global Dairy Trade trends, milk price forecast

Walmart’s Second Milk Plant Is Open. For Mid-Size Dairies, the Clock Is Ticking.

Wednesday, December 3rd, 2025

18 months after Walmart opened its first milk plant, Dean Foods filed for bankruptcy. Plant #2 is now open. Mid-size dairies—what’s your move?

Executive Summary: Walmart’s second milk plant opened in Valdosta, Georgia, on December 2, 2025—and history offers a sharp warning. Dean Foods filed for bankruptcy just 18 months after Walmart launched its first plant. For mid-size dairies, this isn’t background noise; it’s a decision point. Three paths forward exist: scale to 1,500+ cows with processor commitments in writing, pivot to specialty markets with buyer agreements secured upfront, or exit strategically while cattle and land values hold. Your timeline isn’t set by milk prices alone—your lender’s risk appetite and your region’s Class I dependency matter just as much. Southeast producers face tighter constraints than Upper Midwest operations with cheese plant alternatives. The dairies that navigated the Fort Wayne transition successfully weren’t the biggest; they were the ones asking hard questions while everyone else was still waiting for news.

While the ribbon-cutting in Valdosta was all smiles and corporate handshakes, the silence in Georgia’s milking parlors was deafening. Walmart just cut another slice out of the middleman’s pie by opening its second owned-and-operated milk plant and sourcing directly from regional farms, and producers are rightfully asking: “Am I next?”

When Walmart opened its $350 million milk processing facility in Valdosta, Georgia, on December 2, 2025, it didn’t generate the national headlines you might expect for a project of this scale. But for those of us watching the dairy supply chain closely, it’s a development worth understanding.

This is Walmart’s second owned-and-operated dairy facility, following Fort Wayne, Indiana, back in 2018. A third plant in Robinson, Texas, is set to open in 2026. According to Walmart’s corporate announcement, the Valdosta plant will serve more than 650 stores and Sam’s Clubs across the Southeast under the Great Value and Member’s Mark labels.

What does this mean for producers? Well, that depends on your situation, your region, and your position in the supply chain. Let me walk through what we know and what it might suggest.

Dr. Mark Stephenson—who spent years as Director of Dairy Policy Analysis at the University of Wisconsin-Madison before his recent retirement—offers a useful perspective here. “We’re watching the supply chain reorganize in real time,” he’s noted. “When retailers capture processing margin internally, it changes the economics for everyone else in the chain.”

That’s neither inherently good nor bad—it’s a structural shift that creates both challenges and opportunities depending on where you sit.

I reached out to both Walmart and Dairy Farmers of America for their perspectives on this piece. Walmart pointed us to their public statements about the Valdosta facility. DFA didn’t respond to our request.

What We Learned from the Fort Wayne Transition

The pattern that emerged after Walmart’s Fort Wayne plant came online in 2018 offers a useful case study—both in terms of what went sideways for some producers and what went right for others.

Dean Foods, then America’s largest fluid milk processor, lost substantial Walmart volume when Fort Wayne opened. The company filed for Chapter 11 bankruptcy protection in November 2019—about 18 months later—in the Southern District of Texas under Case No. 19-36313. Now, it’s worth remembering that Dean was already facing significant headwinds: declining fluid milk consumption, aging infrastructure, and substantial debt. The Walmart contract loss accelerated an existing trajectory rather than creating it from scratch.

What happened next reshaped the cooperative landscape considerably. Dairy Farmers of America acquired 44 Dean Foods processing facilities for approximately $433 million in May 2020, according to DOJ filings related to the transaction. Industry analyses at the time suggested this significantly expanded DFA’s processing footprint—on the order of one-third more capacity, though the exact figure depends on how you measure it.

I’ve spoken with producers in Indiana and Ohio who experienced this transition firsthand, and their perspectives vary widely. One producer—who asked to remain anonymous because he still ships through a DFA-affiliated handler—described the compressed timeline: “We had maybe six months of warning before everything changed. Guys who moved fast found alternatives. Guys who waited got whatever terms were left.”

But I also spoke with Mike (not his real name), who runs about 900 cows in northeast Indiana and came through the transition in good shape. His approach was instructive. When Dean started showing financial stress in early 2019, he didn’t wait for official announcements. He spent three months building relationships with regional processors—before he needed them.

“By the time Dean went under, I had two backup options lined up,” he told me. “The difference wasn’t herd size or butterfat performance or who had the best fresh cow protocols. It was just who started making phone calls earlier.”

That’s a lesson worth holding onto: early information gathering creates options that may not exist later.

Regional Market Structures: Why Location Matters So Much

Here’s something that deserves more attention in industry discussions: the same consolidation trend creates very different situations depending on where you’re located.

The USDA Agricultural Marketing Service tracks Class I utilization—the percentage of milk going to fluid beverage use versus manufacturing—by Federal Order. The numbers tell an interesting story about regional market structure:

Florida Federal Order: Class I utilization runs around 82%, meaning the vast majority of milk goes to fluid products
Southeast Federal Order: Generally in the mid-to-high 70s for Class I utilization
Upper Midwest Federal Order: Roughly 8-10% Class I utilization—almost all the milk goes to cheese, butter, and powder

Geography isn’t destiny, but it sure shapes your options. Florida and Southeast producers face 75-82% Class I dependency with 2-3 regional processors. Lose one buyer and you’re scrambling. Upper Midwest operations live in a different world—9% Class I utilization, dozens of cheese plants competing for milk within trucking distance. Same consolidation trend, completely different exposure.

Think about what this means practically. A Wisconsin producer in the I-29 corridor has remarkable market flexibility. Dozens of cheese plants, butter manufacturers, and powder processors compete for milk within a reasonable trucking distance. If one buyer changes terms, alternatives exist. You might take a hit on hauling costs or accept different component premiums, but you’ve got options.

A Georgia producer faces a fundamentally different situation. According to UGA Extension’s most recent data, Georgia currently has on the order of 75-80 dairy farms, averaging roughly 1,000-1,050 cows each. Georgia Farm Bureau reports those farms produced about 227 million gallons of milk in 2024. And before Valdosta opened, Georgia Milk Producers confirms the state had exactly two commercial milk processing plants—in Atlanta and Lawrenceville.

“We’re working with a more concentrated market,” one South Georgia producer explained to me last month. “When your milk has to go to fluid processing, and there are limited plants in the region, the negotiating dynamics are just different than what our friends in Wisconsin experience.”

This isn’t about one region being better than another—it’s about understanding how market structure shapes your strategic options. A trucking constraint of roughly 300 miles for fluid milk (where economics start to get challenging) means Southeast producers can’t easily access Midwest cheese markets as an alternative outlet.

Understanding the Cooperative Landscape

This topic generates strong opinions, and I want to approach it thoughtfully. DFA’s position in the market is complex, and reasonable people can disagree about what it means.

When DFA acquired those 44 Dean Foods plants in 2020, it created something unusual: an organization that simultaneously represents milk producers as a cooperative and purchases milk from producers as a processor. The USDA Packers and Stockyards Division has examined this dual structure.

This arrangement has faced legal scrutiny over the years. A federal lawsuit filed by Food Lion and the Maryland-Virginia Milk Producers Cooperative in May 2020 (Middle District of North Carolina, Case No. 1:20-cv-00442) raised questions about market practices. DFA has also paid or agreed to pay settlements in various pricing cases: $140 million in a Southeast settlement back in 2013, $50 million in a Northeast settlement in 2015, and most recently about $34.4 million (combined with Select Milk Producers) in July 2025, according to Reuters coverage of that agreement.

So how should producers think about this? Here’s my read on the tradeoffs:

The case for cooperative membership is genuine:

Guaranteed milk pickup provides real security, especially in volatile markets
An extensive processing network offers market access across regions
Collective bargaining can deliver input cost advantages
For producers without strong independent processor relationships, membership provides a reliable home for their milk

The considerations are also worth weighing:

Various fees and deductions typically reduce effective milk prices—I’ve reviewed producer milk checks showing $1.50-4.00/cwt below Federal Order minimums, though this varies considerably by situation
Equity contributions may be locked for extended periods with limited liquidity
Governance structures naturally give larger members more influence
The processing division’s interests don’t always align perfectly with member pricing

The right answer depends entirely on your specific situation. For some operations, cooperative membership is clearly the best choice. For others with strong independent relationships, different arrangements make more sense. The key is evaluating your actual options rather than making assumptions either way.

Aspect	Membership Upside	Membership Considerations
Milk pickup	Guaranteed pickup, logistical security	Hauling and service fees reduce net price
Market access	Extensive processing network	Limited ability to pursue independent buyers
Milk price	Collective bargaining benefits	$1.50–4.00/cwt below Federal Order minimums
Equity	Ownership stake in system	Equity locked, limited short‑term liquidity
Governance	Voice through member structure	Larger members hold more influence
Processor alignment	Shared interest in volume	Processing margin may not align with member pricing

The Economics of a Mid-Size Operation

Let me walk through some representative numbers, because I find concrete figures help clarify the discussion.

A 600-cow dairy—fairly typical for a mid-size operation in the Southeast or Mid-Atlantic—produces roughly 150,000 hundredweight of milk annually at 25,000 pounds per cow. That’s achievable with good genetics, solid fresh-cow management, and attention to transition-period health.

At $23/cwt milk prices, a 600-cow operation nets just $287,500 annually—8% margin. But here’s the gut punch: every $1/cwt price drop erases $150,000 in annual income. Drop to $19/cwt for 12-18 months and working capital starts bleeding out. The math doesn’t care how good your management is.

Current economics, as best we can estimate:

All-milk prices have been running in the $22-24/cwt range, depending on region and components, with USDA’s December 2024 figure coming in around $23.30/cwt, according to Brownfield Ag News
Gross revenue at $23/cwt: roughly $3.45 million
Many university and FINBIN-type benchmarks suggest total costs for mid-size commercial dairies commonly fall in the high-teens to low-$20s per cwt, depending on feed costs, labor markets, and debt structure
Annual margin: perhaps $300,000-450,000 in favorable conditions

It’s worth noting that feed costs remain a significant variable right now. Corn and soybean meal prices have moderated from their 2022 peaks, but purchased feed still represents 40-50% of total costs for most operations. And labor—particularly finding reliable, skilled help for milking and fresh cow protocols—continues to challenge operations across most regions. These factors can swing your actual cost of production by $1-2/cwt in either direction.

That margin covers debt service, family living expenses, capital reserves, equipment replacement, and taxes. It works—but it doesn’t leave much buffer for extended downturns, as many of us have experienced firsthand.

The sensitivity is worth understanding: every $1/cwt price decline reduces this operation’s annual income by $150,000. That’s $12,500 monthly. For a 600-cow barn at these benchmarks, at $19/cwt milk, margins get tight. At $18/cwt sustained over 12-18 months, working capital generally starts to deplete.

Here’s what keeps 600-cow operators up at night: a 3,000-cow operation makes $6.33/cwt more on the same milk check—purely from spreading fixed costs. You can have perfect transition cow protocols and 4.2% butterfat, and still get crushed by economies of scale. The $4-6/cwt structural gap isn’t about management—it’s math

Now, here’s some important context: larger operations often achieve meaningfully lower production costs meaningfully. Highly efficient herds in the 2,500-cow-and-up range can, in some documented cases, drive total costs into the mid-teens per cwt—say $14.50-16.00. That advantage comes from spreading fixed costs, volume purchasing power, dedicated transition facilities, and automation investments that require scale to justify.

This isn’t a criticism of mid-size management—many mid-size operations are exceptionally well-run. It’s simply the mathematics of fixed cost allocation. Understanding this dynamic helps inform strategic thinking.

Dimension	600‑Cow Mid-Size Herd	2,500‑Cow+ Large Herds
Annual milk per cow	~25,000 lbs	Similar or slightly higher
Total cost per cwt	High‑teens to low‑$20s	$14.50–16.00 per cwt
Fixed cost per cow	Higher per cow	Lower per cow via scale
Purchasing power	Standard feed and input pricing	Volume discounts, stronger vendor leverage
Automation investment	Limited by capital	More justified: robots, rotary parlors, tech
Margin resilience	Tight margins, less downturn buffer	More buffer to ride price dips

The Credit Dimension

Here’s an aspect of industry economics that deserves more discussion: how agricultural lenders respond to sector-wide changes.

A Farm Credit loan officer shared his perspective with me recently (off the record, as is typical for these conversations): “We’re not predicting which farms will succeed. But we are required to manage portfolio risk. When we see structural shifts in an industry, our credit committees ask harder questions about renewals and terms.”

This matters because agricultural lenders operate under regulatory requirements—Farm Credit Administration examination standards and Basel III provisions—that mandate risk management responses to changing sector conditions.

The practical implications:

When industry consolidation becomes visible, lenders flag portfolios for review
Credit line renewals may face additional documentation requirements
Covenant thresholds (typically 45-50% debt-to-asset ratios) get enforced more carefully
Operations near covenant limits may face restructuring conversations

Dr. David Kohl—Professor Emeritus of Agricultural Finance at Virginia Tech, who’s consulted with farm lenders for decades—makes an important observation: producers sometimes don’t realize their decision timeline is partly defined by their lender’s risk tolerance, not just their own cash flow.

This isn’t about lenders being difficult—it’s about understanding how institutional constraints shape available options. Knowing this in advance lets you plan accordingly.

Three Strategic Directions Worth Considering

Based on current conditions and conversations with producers who’ve navigated similar transitions, three general pathways emerge. Each has different requirements and realistic odds of success.

Pathway 1: Scaling to 1,500-2,500+ Cows

What this typically requires:

Capital investment of $3.5-7.5 million for facilities, animals, and working capital
Processor commitment (in writing) before lenders will typically approve expansion financing
Current debt-to-asset ratio below 50%—many mid-size operations run higher
Access to replacement heifers in a constrained market

Regarding heifers: USDA data shows the national replacement heifer inventory has declined about 18% from 2018 levels, to around 3.92 million head. Premium springers at California and Minnesota auction barns have been bringing $3,500-4,000 per head, while USDA’s mid-2025 national average is around $3,010. This creates a real constraint on expansion timelines.

There’s another factor that doesn’t get enough attention: regulatory and permitting requirements. Depending on your state and county, expanding from 600 to 2,000 cows may trigger new CAFO permitting thresholds, nutrient management plan requirements, and neighbor notification processes. In some regions—particularly parts of the Upper Midwest and Northeast—these timelines can add 12-18 months to an expansion project. I’ve seen producers budget the capital and line up the heifers, only to spend a year and a half working through environmental review. Factor this into your planning if you’re seriously considering this path.

Realistic assessment: This pathway generally works best for operations with existing scale infrastructure, strong lender relationships, and confirmed processor partnerships. From what I’m seeing, success probability runs maybe 30-40% for operations currently in the 500-800 cow range, based on capital access constraints and market conditions.

Pathway 2: Specialty Market Transition

Options worth evaluating:

Organic certification: 36-month transition absorbing higher input costs before receiving organic premiums. Current organic prices are $26-28/cwt, according to USDA data, but buyer capacity is limited in many regions.
A2 milk: Requires 5-7 years of genetic transition through breeding and culling. Buyer infrastructure is still developing, particularly outside major metro areas.
Grass-fed/regenerative: 2-3 year infrastructure development for rotational grazing. Works better in some climates than others—those July temperatures in South Georgia make intensive grazing pretty challenging compared to, say, Vermont or Wisconsin.

I spoke with a producer in Pennsylvania—she asked me not to use her name—who completed an organic transition in 2021 after three years of planning. “The transition period was brutal financially,” she told me. “But I had my buyer commitment from Organic Valley before I started, and that made all the difference. Neighbors who converted without a commitment lined up… some of them waited eight, nine months for a market. You can’t cash flow that.”

Realistic assessment: Specialty markets can transform mid-size economics when accessible. The key is securing buyer commitment before incurring transition costs. With a confirmed buyer in place, the success probability runs perhaps 50-65%. Without pre-transition commitment, it’s considerably lower.

Pathway 3: Strategic Exit

This option deserves serious consideration rather than dismissal. For some families, it’s the path that best serves long-term financial security.

What orderly exit typically preserves:

Cattle values at current market prices (quality milking cows around $2,000/head per recent USDA livestock reports)
Land values before any consolidation-related softening
Equipment values through private sale versus auction liquidation

As an illustrative example—and I want to be clear, these numbers are scenario-based rather than universal—a 600-cow operation with 800 acres in a reasonably strong land market might preserve something like $5.5-6.0 million in net equity with a carefully planned 12-18-month exit after debt payoff.

What pressured liquidation often costs:

Cattle at distress prices: typically 75-80% of normal market value
Land under time pressure: often 80-85% of fair value
Equipment at auction with other distressed sellers: sometimes 45-55% of book value
Potential recovery in this scenario: perhaps $3.5-4.0 million

Dimension	Orderly 12–18‑Month Exit	Forced / Distress Liquidation
Cattle prices	Around current market ($2,000/head)	75–80% of normal value
Land sale	Near full fair market value	80–85% of value under pressure
Equipment value	Better via private sale	45–55% of book at auction
Net equity example	$5.5–6.0M preserved	$3.5–4.0M recovered
Decision timing	Proactive, with planning runway	Reactive, after cash and credit crunch

The difference—potentially $1.5-2.5 million in preserved family wealth—is substantial. Your specific numbers will vary based on region, debt load, and market timing, but the principle holds.

A Wisconsin producer I know—he’s given me permission to share this—made the exit decision in 2022 with 650 cows and came out with enough to pay off all debt, set up his son in a different agricultural enterprise, and retire comfortably. “Hardest decision I ever made,” he told me. “But waiting another three years would have cost us at least a million dollars. The numbers don’t lie.”

Dr. Kohl has worked with families on both sides of this decision. His observation: “The ones who made proactive decisions came out in far better financial position than those who waited until circumstances forced their hand. The hardest part is accepting that exiting strategically isn’t giving up—it’s making the best decision with available information.”

Pathway	Core Requirements	Key Advantages	Major Risks / Constraints
Scale to 1,500–2,500+	$3.5–7.5M capital, written processor commitment	Lower cost per cwt, stronger plant leverage	Heifer shortage, permitting delays, lender appetite
Specialty markets	Buyer agreement before transition, multi‑year planning	Premium prices (organic, A2, grass‑fed)	Limited buyer capacity, tough transition cash flow
Strategic exit	12–18‑month planned wind‑down, asset valuation work	Preserves $1.5–2.5M more equity	Emotional difficulty, timing decisions

Looking Toward 2030

Industry projections suggest continued structural evolution, though the pace and extent remain uncertain. USDA Economic Research Service data and academic analyses from places like Wisconsin and Cornell point toward some likely trends:

Continued farm count decline: If current closure and consolidation rates continue, several credible analyses suggest U.S. dairy farm numbers could fall into the mid-teens of thousands by 2030—perhaps 15,000-18,000 operations, compared to higher numbers today
Increasing herd concentration: Rabobank analysis shows roughly 65% of the national dairy herd already lives on 1,000+ cow operations. That share could reach perhaps three-quarters of cows by decade’s end if trends continue
Processing evolution: Continued shifts in processing ownership and structure, with remaining capacity increasingly concentrated

Regional variation matters considerably here. The Southeast and Mid-Atlantic, with their reliance on Class I markets, may see faster adjustment than the Upper Midwest, with its diverse cheese and manufacturing base.

This isn’t necessarily negative—the remaining operations will likely be financially strong and highly capable. But the structure is evolving, and mid-size operations occupy a challenging position in that evolution.

The Value of Early Information

What I keep coming back to is timing. The producers who successfully navigated the Fort Wayne transition were generally the ones who started asking questions before the answers became obvious to everyone.

Here are conversations worth having in the next month or two:

With your lender:

What’s our current debt-to-asset position relative to your covenant thresholds?
How would an expansion proposal be received in the current environment?
What scenarios would trigger concern about our operating line?

With your processor or cooperative:

How do you see your capacity and operations evolving through 2027-2028?
Are there volume commitments or contract structures worth discussing?
How is retail processing expansion affecting your planning?

With trusted advisors:

What are realistic current valuations for our assets?
What’s the tax-optimized approach for different strategic directions?
What are we not considering that we should?

The goal isn’t rushed decisions—it’s gathering information while options remain open.

Factor	Early Movers (Prepared)	Late Movers (Waited)
Timeline	Backup options lined up ~6 months ahead	Waited for official announcements
Processor relationships	Proactively built with regional plants	Scrambled after Dean collapse
Contract terms	Negotiated better hauling and price terms	Accepted remaining, less favorable deals
Stress level	More control, planned changes	High stress, limited leverage
Outcome	Generally maintained stable markets	Higher risk of poor terms or stranded milk

The Bottom Line

What I see in the current environment is a transition, not a crisis. Those are different things. Transitions allow preparation time for those who use it.

The market reality:

Retail vertical integration is changing how processing margin flows through the supply chain
Regional market structures create meaningfully different situations for different producers
Cooperative membership involves tradeoffs worth evaluating for your specific situation

What this suggests for planning:

Understand where you sit on the cost curve and what that implies for your operation
Know your credit position and how your lender likely views sector conditions
Think through which strategic direction genuinely fits your operation, capital position, and family goals

On timing:

Information gathered now creates options later
Decision windows narrow gradually but persistently
Strategic choices made proactively typically preserve more value than reactive ones

On risk management:

Whatever pathway you’re considering, don’t overlook the tools available through USDA’s Dairy Margin Coverage program and Livestock Gross Margin for Dairy (LGM-Dairy). They won’t solve structural challenges, but they can provide a floor during the transition period while you’re executing your strategic plan. Your local FSA office or a crop insurance agent familiar with dairy can walk you through the current coverage options and premium costs.

The dairy industry has navigated significant transitions before and will do so again. Operations that approach current conditions with clear information, realistic assessment, and thoughtful timing will be well-positioned—regardless of which path they choose.

The least favorable outcome isn’t choosing Path 1, 2, or 3. It’s deferring the evaluation until circumstances make the choice for you.

For additional resources on dairy operation analysis and planning, contact your state extension service. The University of Wisconsin’s Dairy Marketing and Risk Management Program at dairymarkets.org offers valuable tools for price risk analysis, and the USDA’s Dairy Margin Coverage information is available at fsa.usda.gov

Key Takeaways:

18 months—that’s the precedent: Dean Foods filed bankruptcy 18 months after Walmart’s first plant opened. Plant #2 launched on December 2, 2025.
Three paths, three price tags: Scaling requires $3.5-7.5M and processor commitments in writing. Specialty markets need buyer agreements before you transition. Strategic exit preserves $1.5-2.5M more equity than forced liquidation.
Your region shapes your risk: Southeast Class I markets have 2-3 processor options. Upper Midwest cheese country has dozens. Same trend, completely different exposure.
Lenders may move before you do: At 45-50% debt-to-asset ratios, credit committees tighten terms regardless of milk prices. Your timeline isn’t just about cash flow.
Early movers had options; late movers got leftovers: The producers who navigated Fort Wayne had backup relationships six months before the headlines hit. By then, the best deals were gone.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The Rules Changed and Nobody Told You: Three Paths Left for the 300-Cow Dairy – Provides a specific survival framework for smaller operations (under 500 cows), contrasting with the main article’s 600-cow model, and details the “investment vs. exit” equity calculations that every producer must run before credit markets tighten further.
America’s 800,000-Heifer Crisis: How Chasing Beef Premiums Broke Our Replacement Pipeline – Explains the “heifer trap” preventing many expansions today and offers immediate tactical breeding adjustments to secure your replacement inventory before costs hit the predicted $3,000+ mark in 2026.
How AI is Banking Dairy Farmers an Extra $400 Per Cow – Demonstrates how integrating AI health monitoring and precision feeding can deliver the efficiency gains needed to survive lower margins, offering a clear ROI roadmap for producers who aren’t in a position to double their herd size.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy farm viability, dairy herd expansion, dairy supply chain, market consolidation, milk processing, Southeast dairy market, strategic planning

Whole Milk is Back in Schools. Here’s Why Only 834 Dairy Farms Will Really Win.

Monday, November 24th, 2025

After 13 years of scientific vindication and structural transformation, the Senate’s unanimous approval reveals important lessons about policy, persistence, and what it really takes to survive in American dairy

EXECUTIVE SUMMARY: Whole milk returns to schools after 13 years, validating what dairy farmers knew all along—but for 17,000 operations that closed during the wait, vindication came too late. The University of Toronto’s 2020 research showed that whole milk reduces childhood obesity by 40%, yet policymakers needed five more years and a new administration to act. Today’s transformed industry means only farms with 1,500+ cows can capture meaningful returns ($40,000-$80,000 annually) from school contracts, while farms with fewer than 500 cows are effectively locked out. The December 31, 2025, deadline for cooperative engagement is the last chance to participate until 2029—but many mid-size farms are finding better opportunities in value-added production, earning 30% revenue increases versus marginal school milk returns. The harsh lesson: in agricultural policy, being scientifically right matters less than being financially resilient enough to outlast institutional inertia.

You know, when I watched the celebrations after the Senate unanimously passed S.222 on November 20th—that’s the Whole Milk for Healthy Kids Act—I had mixed feelings. Don’t get me wrong, after thirteen years of being told our product was harmful to children, finally getting vindication feels good.

But I recently had coffee with a producer from central Wisconsin who put it perfectly:

“We won the battle, but the war changed while we were fighting it.”

— Wisconsin dairy farmer, November 2025

And that’s what I keep hearing as I talk with folks across the industry. This victory arrives in a fundamentally different world than the one we knew in 2012. The real question isn’t whether we were right about the science—turns out we were—but rather, what does this actually mean for operations trying to make it work today?

The Science Story: What Actually Changed Things

So let me walk you through what happened with the research, because it’s pretty revealing about how this whole system works.

The University of Toronto published this meta-analysis back in early 2020—Dr. Jonathon Maguire’s team analyzed 28 studies covering nearly 21,000 kids from seven countries. And here’s what knocked me sideways when I first read it: children drinking whole milk showed 40% lower odds of being overweight or obese compared to those drinking reduced-fat milk.

Think about that for a second. The 2010 policy that yanked whole milk from schools—we’re talking about 30 million students in the National School Lunch Program—that whole thing was built on the idea that cutting saturated fat would fight childhood obesity. The Toronto research basically said we might’ve had it backwards all along.

What’s really interesting is its consistency. Eighteen of those 28 studies pointed in the same direction. Not a single study showed that reduced-fat milk actually lowered obesity risk.

As the University of Toronto folks noted, these findings meant we needed to completely rethink our assumptions about whole milk and kids’ health.

But here’s where it gets frustrating, and I bet many of you felt this too. The 2020 Dietary Guidelines Advisory Committee had this research right in front of them—it’s in Part D, Chapter 9 of their Scientific Report if you want to look it up. They acknowledged it, called the evidence “limited” because it wasn’t from randomized controlled trials, and recommended no change to policy.

It would take five more years and a complete change in political administration before anything actually moved. That gap between having the evidence and getting the policy to shift? That’s something every agricultural sector needs to understand.

What Really Happened While We Were Waiting

The numbers tell part of the story, but they don’t tell all of it. USDA’s Census of Agriculture shows we went from about 43,000 dairy farms down to around 26,000. But let me break down what that meant in places we all know.

Wisconsin’s Department of Agriculture reported 2,740 operations closed. Pennsylvania’s Center for Dairy Excellence documented 1,570 farms gone. New York’s Department of Agriculture and Markets recorded 1,260 fewer operations.

These aren’t just statistics—these are neighbors, fellow co-op members, families we’ve known for generations.

What’s really revealing, though, is the structural shift. USDA’s Economic Research Service report from July shows that operations with over 2,500 cows actually grew from 714 to 834. Meanwhile, those mid-sized herds—the 500- to 999-cow operations that used to be the backbone of so many regions—declined by 35%. And farms running 1,000-2,499 head? Down 10%.

You know what this tells me? This isn’t just consolidation in the traditional sense. It’s a fundamental restructuring of who can even access certain markets anymore.

Component pricing arrangements, pooling structures, institutional procurement requirements—they’ve all evolved in ways that increasingly favor operations with scale and capital reserves.

Gregg Doud, President of the National Milk Producers Federation, acknowledged this reality in their press release after the Senate vote: “While we celebrate this victory, we must recognize that market access will vary significantly by operation size and regional positioning.”

He’s right. That’s the hard truth we need to face.

Three Producers, Three Different Paths

I was visiting with producers in three different states last month about exactly this. Dave from southeastern Pennsylvania, running 750 cows, told me, “We survived by diversifying early—not because we saw this coming, but because we couldn’t afford to wait around.”

A producer named Carlos down in West Texas with 3,500 cows had a different take: “We built for institutional markets from day one. Scale was always our strategy.”

And Sarah, milking 120 cows up in Vermont, said simply, “We stopped trying to compete in commodity markets five years ago. Best decision we ever made.”

Three different paths, all working. That’s what’s interesting about where we are now.

What the Whole Milk Opportunity Actually Looks Like

So here’s what industry analysts and cooperatives are projecting. If whole milk adoption in schools reaches 50%, we could see butterfat demand increase by tens of millions of pounds annually.

Schools account for roughly 8% of total fluid milk consumption through about 4.9 billion meals served each year—that’s based on USDA data—so we’re talking about meaningful volume.

But the distribution of that benefit? That’s where it gets complicated.

Based on what Federal Milk Marketing Order data and cooperative communications are suggesting, here’s how it breaks down:

Who Wins from Whole Milk’s Return?

Operation Size	Projected Annual Impact	Strategic Move
1,500+ Cows	+$40,000–$80,000	Aggressively bid 2026 RFPs; leverage volume for contracts
500–1,000 Cows	+$1,500–$3,000 (marginal)	Evaluate admin costs vs. return; focus on efficiency gains
Under 300 Cows	Low/Inaccessible	Focus on direct market/specialty; skip commodity school bids

Each operation needs their own pencil work here, but the pattern is clear: scale determines access.

The Timeline You Absolutely Need to Know

If you’re thinking about pursuing this, the window for action is pretty specific:

December 2025 is really your last shot to engage your cooperative about interest.

School districts typically release their RFPs between January and March 2026. You’ll need to get your documentation and compliance certifications together in February—and trust me, there’s a lot of paperwork.

Bids are due April through May. Awards get announced in June. New contracts start July 1, 2026.

Miss that window? You’re looking at waiting one to three years for the next cycle. That’s just how institutional procurement works.

What’s Actually Working Out There

While everybody’s been focused on the whole milk policy news, I’ve been tracking what successful operations are actually doing day to day. And the patterns are pretty instructive.

Value-Added Production: More Than Just Buzzwords

Market research shows that value-added dairy products are growing at about 12% annually, while fluid milk is pretty flat.

Michael Dykes, Senior Vice President for Regulatory Affairs at the International Dairy Foods Association, keeps saying what a lot of producers are discovering on their own: differentiation and innovation capture premiums that commodity markets just don’t offer.

Here’s what I’m seeing work:

Lactose-free products commanding decent premiums
A2 milk is getting significant price advantages in metro markets
Artisanal products at farmers’ markets are capturing really impressive margins—USDA’s direct marketing research backs this up consistently

I visited a family operation near River Falls, Wisconsin, last month that put in bottling equipment through a USDA Value-Added Producer Grant. They’re processing about 60% of their production on-farm now, and they’re seeing revenue increases pushing 30%. Plus, they created three local jobs.

But they’ll also tell you it took two years of planning and serious capital commitment. It’s not a quick fix.

Technology: What the Early Adopters Are Finding

The data on precision management is getting clearer, and it’s worth paying attention to.

IoT health monitoring systems are showing productivity improvements in the 15-20% range, with payback periods of 18-24 months—that’s based on extension research and what early adopters are reporting.

Precision feeding is demonstrating meaningful cost reductions, we’re talking tens of thousands annually for mid-sized operations. Robotic milking shows solid yield increases, though you’re looking at ROI horizons beyond seven years.

What’s interesting is how successful farms are approaching it. Mark from central Michigan told me, “We started with monitoring—low investment, quick returns. That funded our next technology step.”

That staged approach keeps showing up in the success stories.

Cooperative Innovation: Old Ideas, New Applications

Here’s something that gives me hope. Edge Dairy Farmer Cooperative’s President, Brody Stapel, recently discussed how producer groups are rediscovering collective bargaining power through the Capper-Volstead Act. This isn’t nostalgia—it’s a smart strategy.

Penn State Extension documented 12 Pennsylvania operations, each averaging 350 cows, that formed their own cheese-making cooperative. They’re getting $1.50 to $2.50 per hundredweight premiums through regional direct sales.

By controlling processing and marketing, they basically created their own market channel. Takes significant coordination, but it’s absolutely replicable.

How Different Regions Are Handling This

The whole milk opportunity plays out differently depending on where you are, and understanding your regional context really matters.

Traditional Dairy States: Infrastructure Without Volume

Wisconsin, Pennsylvania, New York—we’ve got the infrastructure and cooperative relationships to access school markets. But with way fewer farms to benefit now, the impact gets concentrated among fewer producers.

Wisconsin’s still losing hundreds of operations annually, according to their state statistics.

Bob Bosold from the Dairy Business Association frames it well: the infrastructure persists, but we’re down to half the number of farms we had when whole milk was banned. The survivors tend toward larger scale and efficiency, but there’s just fewer of them to capture the benefit.

Expansion Regions: Built for This

Texas, Idaho, and New Mexico operations? They were essentially designed for institutional contracts.

With $11 billion in processing capacity additions expected through 2026, according to industry investment tracking, these regions are optimized for high-volume, standardized production.

Average herd sizes in these areas now measure in the thousands, which aligns perfectly with procurement requirements. New facilities incorporate automated systems ensuring consistent butterfat ratios and daily delivery capacity from day one.

It’s industrial-scale dairying, and for that market segment, it works.

Specialty Markets: A Different Game Entirely

Vermont, Northern California, pockets of the Northeast—they’ve largely exited commodity competition. And honestly? Market research suggests organic dairy could exceed $30 billion by 2030.

For these regions, that represents a way better opportunity than school contracts.

Vermont’s Agency of Agriculture finds that about 75% of remaining farms now do value-added or direct marketing, up from 31% in 2012.

That’s not retreat—that’s strategic repositioning, and it’s working for them.

Understanding How Policy Actually Works

The whole-milk experience taught me something important about how agricultural policy really works. Scientific evidence alone—even compelling evidence like the Toronto study—doesn’t automatically drive policy change.

When FDA Commissioner Martin Makary started talking about ending what he called the “fifty-year war on saturated fat,” and Agriculture Secretary Brooke Rollins expressed support for whole milk, they provided something dairy producers couldn’t: institutional permission to challenge established frameworks.

That permission, not just the science, enabled the change.

NMPF had been citing the Toronto research since 2020, submitted formal comments, provided testimony—and followed all the proper channels. But as they noted in their testimony, they kept encountering “institutional commitment to existing guidance despite evolving science.”

The 2020 Dietary Guidelines Committee acknowledged potential benefits of higher-fat dairy for children but stuck with existing recommendations, saying the studies were observational rather than randomized controlled trials.

That’s institutional inertia in action—not conspiracy, just systematic resistance to change.

What This Means for Different Operations

Based on what I’m hearing from producers and seeing in market dynamics, here’s how I’d think about it:

Large operations (1,500-plus cows): You should probably evaluate school contracts pretty aggressively during that 2026 procurement window. The potential return likely justifies the effort.

And use that baseline volume to leverage value-added investments. But get talking to your cooperative now, not in March.

Mid-size operations (500 to 1,000 cows): You’ve got a more complex calculation. Those modest school premiums might not justify the administrative headaches.

University economics research keeps showing that value-added production, marketing alliances, or specialty certification offer better risk-adjusted returns for operations of your size.

Smaller operations (under 500 cows): Institutional markets are probably structurally out of reach, and that’s okay.

Extension research consistently shows that direct-to-consumer, on-farm processing, agritourism, or specialized production delivers way better margins than competing in commodity markets.

The Real Lesson Here

Here’s what the whole milk saga really reveals about agricultural policy:

Institutional frameworks resist change even when faced with strong contrary evidence
Individual operations can’t survive indefinitely waiting for policy-market misalignment to fix itself
Industry organizations face real constraints limiting how hard they can push
Political context matters just as much as scientific evidence

“The 17,000 farms that closed weren’t wrong about the science. They just couldn’t survive the wait.”

That’s the sobering part.

Looking Ahead: What Success Looks Like Now

Industry forecasts from major agricultural lenders suggest continued consolidation toward something like 15,000 total U.S. dairy farms by 2030.

***The industry’s brutal restructuring: Total farms plunged 60% from 43,000 to 26,000 while mega-dairies with 2,500+ cows surged 67%—a tale of two industries in one policy shift***

Within that reality, though, success patterns are emerging from USDA and extension data:

Operations with multiple revenue streams show way better five-year survival rates
Technology adopters demonstrate clear margin advantages
Direct market relationships command premium pricing
Innovative cooperative structures are creating market access for mid-sized producers who work together

What’s encouraging is that these strategies were working before the whole milk policy changed. The policy shift provides favorable conditions, not a fundamental transformation.

The Bottom Line

Whole milk’s return validates what many of us have understood intuitively about nutrition and what kids actually want to drink. That vindication deserves recognition, and I’m genuinely glad we got here.

But the thirteen-year wait extracted enormous cost from our industry. The farms that made it through built resilient businesses that didn’t depend on policy alignment finally happening.

So yeah, pursue whole milk opportunities if you’re positioned for it. But build your operation assuming policy corrections might take another decade—or might never come at all.

That’s not pessimism. That’s just strategic realism based on what we’ve all watched unfold.

The industry emerging from this period will be different—more concentrated, more specialized, more technology-enabled. Whether that’s good or bad depends on your perspective and where you sit.

What’s certain is that adaptability, not policy dependence, determines who’s still farming five years from now.

This moment offers real opportunity for those positioned to capture it, validation for those who stuck it out, and lessons for all of us about how science, policy, and agricultural economics actually interact.

How we apply those lessons will shape what American dairy looks like going forward.

Your Next Steps

If You’re Considering School Milk Contracts:

Contact your cooperative before December 31, 2025
Request procurement specifications and compliance requirements
Evaluate administrative capacity against projected returns

For Value-Added Exploration:

USDA Value-Added Producer Grant program: rd.usda.gov/vapg
Your state dairy association for regional guidance
Extension dairy specialists for business planning

For Technology Investment Planning:

University extension technology adoption studies
Your equipment dealer’s ROI calculators
Peer producers who’ve implemented similar systems

For Cooperative Innovation:

Capper-Volstead Act resources through the USDA
State extension cooperative development programs
Regional producer alliance case studies

General Resources:

National Milk Producers Federation: nmpf.org
International Dairy Foods Association: idfa.org
Your state dairy association
Local extension dairy specialist

Based on legislative records, USDA data, industry reports, and conversations with producers through November 2025. For operation-specific guidance, talk with your advisors who know your situation.

KEY TAKEAWAYS

December 31, 2025, Deadline: Contact your cooperative now for 2026 school contracts, or wait 3 years
Scale Determines Success: 1,500+ cow operations gain $40-80K/year; farms under 300 cows are locked out
Science Was Always Right: Whole milk reduces childhood obesity 40%—but 17,000 farms closed waiting for policy to catch up
Better Options Exist: Mid-size farms seeing 30% revenue gains from value-added production vs. marginal school milk returns
Adapt or Wait: Surviving farms built businesses that don’t depend on policy victories

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The Rules Changed and Nobody Told You: Three Paths Left for the 300-Cow Dairy – Strategic Analysis:Reveals the specific economic thresholds for survival in the current market, providing a candid financial breakdown of the three viable business models (Scale, Pivot, or Exit) available to operations under 500 cows.
Death of ‘Get Big or Get Out’? Why Tech-Savvy 500-Cow Dairies Are Outperforming Mega-Farms – Tactical Guide: Demonstrates how mid-sized operations are using specific technology stacks to achieve higher profit margins than larger competitors, offering a blueprint for efficiency that doesn’t require massive expansion capital.
The Robot Truth: 86% Satisfaction, 28% Profitability – Who’s Really Winning? – Investment Reality: exposes the critical gap between producer satisfaction and actual financial return on robotic milking systems, providing a data-driven checklist to ensure your automation investment delivers actual ROI, not just lifestyle benefits.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy farm consolidation, Dairy Farm Profitability, milk procurement strategy, school milk contracts, value-added dairy, whole milk in schools

The Hidden Cost of Waiting: Why Dairy’s 2025 Crisis Response Is Breaking Historical Patterns

Monday, November 24th, 2025

While you analyze, you’re losing $189/day. The 2025 dairy crisis isn’t like 2009—and waiting won’t work.

EXECUTIVE SUMMARY: The average dairy farm is hemorrhaging $2,654 every two weeks through delay—not because markets are unpredictable, but because information overload has paralyzed decision-making. Unlike 2009 when producers acted within 3 weeks, today’s response time has stretched to 11 weeks despite clear crisis signals: Class IV at .50, milk production still growing 3.7% annually, and seven consecutive GDT auction declines. The hidden costs are staggering—a .50/cwt Class III-IV spread worth ,200 yearly, while booming whey protein demand from Ozempic-style medications benefits only the 35% of plants that have upgraded. Most producers don’t know their cooperative contracts contain five types of escape clauses; financial hardship provisions succeed 70% of the time, and strategic negotiations have saved farmers 0,000-plus. Your immediate action plan: request contract documents Monday morning, lock Q1 feed while corn remains under $4.40, and document everything for potential hardship claims. The stakes are clear—decisive action now means 8-month recovery; paralysis guarantees 24 months of losses.

Something different is happening in dairy country right now. If you’ve been watching the markets, you feel it in your gut: this isn’t 2009, and the old playbook isn’t working.

Here’s what’s interesting—after seven consecutive Global Dairy Trade auction declines, with prices down about 18% total according to the November 19 results, you’d expect to see the kind of swift herd adjustments we all remember from 2009 or even 2015. But that’s not what’s happening.

What really caught my attention is that U.S. milk production is still climbing—we’re talking 3.7% year-over-year based on USDA’s latest report—even with Class IV milk sitting at $13.50/cwt as of Friday’s close. Now, in any previous cycle, those numbers would’ve triggered immediate action. Instead, here we are, eleven weeks into clear deterioration signals, and most operations are still… well, they’re still thinking about it.

University of Minnesota dairy economics analysis has been running the numbers on this, and what they’ve found is sobering: the average 100-cow operation is losing somewhere between $2,500 and $2,700 every two weeks they delay making decisions. That’s not theoretical—that’s real money coming straight out of operating margins when you can least afford it.

So let me walk you through what’s actually happening here, because understanding why this response is so different from previous downturns might just save your operation tens of thousands of dollars.

When More Information Creates Less Action

It’s counterintuitive when you think about it. We’ve got more market information at our fingertips than ever before—real-time GDT results, CME futures updating constantly, and dozens of advisory services. And yet, the National Milk Producers Federation has been tracking response times, and they’ve noticed producers are taking significantly longer to act on crisis signals—sometimes more than two months compared to just a few weeks back in 2009.

What I’ve noticed, talking with producers across Wisconsin and Idaho, is that this isn’t about individual farmers making poor decisions. It’s what behavioral economists call a “decision architecture collapse.” Basically, when you’re getting conflicting signals from multiple sources, the safest action starts to feel like no action at all.

Think about what lands in your inbox on a typical Monday morning. Back in 2009—and Jim Dickrell over at Farm Journal has written about this extensively—you’d get one phone call from your co-op manager with clear guidance about cutting production. Simple, direct, actionable.

Today? Well, you’re getting GDT results showing prices down, but various newsletters suggest a possible recovery, your CME app shows futures bouncing around, and social media… let’s just say it’s all over the map. Your lender’s probably telling you to hang tight, while your nutritionist is pushing feed strategies that assume normal production levels.

The result is exactly what we’re seeing: paralysis. And here’s the thing—it’s completely understandable.

Breaking Down the Real Cost of Delay

Let’s get specific about what waiting actually costs, because these aren’t abstract numbers—they’re coming right out of your milk check. Cornell’s PRO-DAIRY team has been helping producers quantify this for a typical 100-cow operation shipping Class IV milk, producing about 210,000 pounds monthly.

Here’s what that two-week delay actually means for your bottom line:

First, there’s the feed cost acceleration. USDA’s Agricultural Marketing Service has been tracking corn futures, which have rallied from $4.38 to $4.55 per bushel over the past two weeks. Now, if you’re locking in even half your Q1 needs today versus two weeks ago, that’s an extra $260 in quarterly feed expenses. Doesn’t sound like much, but…

Then there’s insurance. LGM-Dairy premiums—and I’ve verified this with multiple insurance agents in Wisconsin—have jumped from $0.52 to $0.68/cwt between early November and now. On quarterly production of 6,300 cwt, you’re looking at another $1,008 you’re leaving on the table.

The cull cow market is where it really hits home, though. USDA’s latest reports show cull cow prices have dropped from $0.75 to $0.68 per pound as more producers finally start making those tough decisions. On a modest 10-cow cull, that’s $980 in immediate revenue that just evaporated.

Add in the milk price erosion—you’re shipping at .50 instead of potentially locking at .00 if you’d acted earlier—and we’re talking another 0 gone.

Total damage: $2,654 in just two weeks. That’s equivalent to five full days of milk production value. Think about that for a minute.

The Whey Paradox: Why Your Milk Check Isn’t Reflecting the Protein Boom

Now here’s what’s really fascinating about this crisis—and it shows how structural barriers are preventing the industry from adapting as quickly as it should. Whey protein demand is actually booming, up 12-15% year-over-year according to USDA’s latest Dairy Products report, even while cheese prices have collapsed by 30%.

The University of Wisconsin’s dairy profitability team has been digging into this, and what they’ve found is remarkable: the explosion in GLP-1 weight loss medications—you know, Ozempic, Wegovy, those medications—has created somewhere around 300-400 million pounds of additional protein demand annually. Patients need about 50% more protein to maintain muscle mass during rapid weight loss.

You’d think cheese plants would be racing to upgrade from commodity dry whey production to whey protein isolate processing. The economics are compelling—plants that make this transition could potentially generate an additional $250,000 to $380,000 annually for their milk suppliers based on current price spreads in Dairy Market News.

But here’s the thing: recent industry surveys suggest only about 35-40% of U.S. cheese plants have actually made this upgrade. Why?

In discussions with cheese plant managers across the Midwest, the barriers are more organizational than economic. One manager of a 500,000-pound-per-day plant in Wisconsin told me flat out: “We invested $30 million in upgrades between 2018 and 2022. We’re still carrying $3 million in annual debt service. Our board won’t even discuss another $15 million for WPI equipment until 2027.”

And the expertise shortage is real. University of Illinois research shows WPI processing requires specialized knowledge that commands $150,000-250,000 annually. As one extension specialist put it, “Try recruiting that talent to rural Wisconsin or Idaho. It’s nearly impossible.”

Whether this bottleneck resolves in the next year or drags on longer—honestly, that’s anyone’s guess at this point.

Understanding Your Cooperative Contract Reality

What’s keeping a lot of producers up at night—and I’m hearing this from Pennsylvania to California—is the growing spread between Class III and Class IV prices. We’re looking at Class III holding at $17.00/cwt, while Class IV is at $13.50/cwt, based on Friday’s announcement. That $3.50 spread represents $88,200 annually for a 100-cow operation. That’s not pocket change—that’s survival money.

Here’s something most producers don’t realize, and it’s worth noting: virtually every cooperative agreement contains escape provisions that farmers rarely explore. Dairy cooperative law specialists have reviewed dozens of these contracts and found common exit clauses, including financial hardship provisions—which work about 60-70% of the time when properly documented—herd-size change triggers, and buy-out provisions.

The really interesting strategy—some attorneys call it the “overpay negotiation”—is brilliantly simple. You offer your cooperative cash to exit early. Since cooperatives typically incur no actual damages when a member leaves (the milk just comes from someone else), in several documented cases, they’ve accepted $75,000-150,000 to release producers from commitments that might cost $400,000-plus over five years.

As one legal specialist who’s negotiated several of these recently told me, “Cooperatives would rather have cash now than deal with a potentially bankrupt member later.”

The Coordination Problem Nobody Wants to Talk About

Here’s where we get to the heart of why this crisis will likely last 24 months rather than 8. It’s essentially what economists call a prisoner’s dilemma, and Cornell’s dairy program explained it well in its recent analysis.

Every producer thinks the same thing: “If I reduce my herd and my neighbors don’t, I lose market share.” So nobody moves first, supply stays high, and prices stay depressed for everyone. You probably know this already, but it bears repeating.

The historical data is clear on this. University of Wisconsin research shows that when a substantial majority of producers simultaneously reduce herds by just 5%, milk prices typically recover in 4-6 months rather than 18-24 months. But creating that coordination without running afoul of antitrust laws? That’s the challenge.

What made 2009 different, according to NMPF’s economic analysis, was clear, unified messaging. Cooperative managers, extension agents, lenders—everyone was saying the same thing. Today’s fragmented information landscape has eliminated those coordination points.

Will we see that kind of unified response emerge? I have my doubts, but you know, stranger things have happened in this industry.

Regional Realities: Not All Dairy Is Created Equal

The crisis impact varies dramatically by region, and USDA’s latest Dairy Market News reports show some stark differences that are worth understanding:

In stronger positions: Wisconsin operations with access to specialty cheese markets are maintaining $0.50-0.75/cwt premiums according to the latest Federal Order data. Idaho producers near the major WPI-processing plants are capturing an extra $0.40-0.60/cwt in whey value. And Pennsylvania farms with Class I fluid contracts? They’re insulated mainly, still receiving $15.50-16.00/cwt.

But in vulnerable positions: Southwest operations are getting hammered—not just by low prices but by ongoing drought conditions that have pushed water costs up 40% year-over-year, according to USDA’s Economic Research Service. Southeast producers face limited processing options, with many plants at capacity. Small Northeast farms without cooperative bargaining power are seeing some of the worst prices in the country.

As Bob Cropp from UW-Madison put it in a recent analysis, “We’re not really in one dairy crisis—we’re in about six regional crises happening simultaneously.”

Technology Adoption: The Quiet Differentiator

Despite everything, certain farms are actually strengthening their position through strategic technology adoption. What’s encouraging is the data from last month’s Precision Dairy Conference, which shows remarkable trends.

Robotic milking systems—yes, they require $150,000-250,000 per unit according to manufacturer data—but they’re delivering labor savings of $200-300 per cow annually. University of Kentucky’s dairy program tracked 50 farms that installed robots in 2023, and their break-even point improved by $1.50/cwt within 18 months, even in this down market.

Precision feeding is another bright spot. Ohio-based nutritionist consultants have documented 8-12% reductions in feed costs through optimized ration formulation. We’re talking $0.75-1.00/cwt savings just from better feed efficiency. That’s real money.

And the genetic progress continues. USDA’s Animal Improvement Programs Laboratory reports show genomic selection is accelerating production gains by 2-3% annually in top herds. That might not sound like much, but on a 100-cow operation, it’s often the difference between breaking even and losing money.

The 2026 Recovery Path: What the Data Suggests

Based on analysis from various agricultural lenders and conversations with dairy economists at Penn State and Cornell, here’s the most likely scenario—though I’ll be the first to admit these projections could shift if global demand patterns change:

Q1 2026 will remain challenging. Class IV is likely to remain below $14/cwt based on current futures curves and global supply projections.

Q2 2026 should see initial stabilization as the delayed culling we’re seeing now finally impacts supply. USDA projections suggest cow numbers could decline by 75,000-100,000 head by April.

Q3 2026 is when recovery is likely to accelerate. Global dairy outlooks suggest tightening supplies, with Class III potentially reaching $17-18/cwt.

Q4 2026 brings market normalization, though likely at a lower equilibrium than in 2024.

As many analysts note, the operations that will emerge strongest are those that act decisively in late 2025 rather than waiting for overwhelming market signals.

Your Action Plan: From Analysis to Decision

After talking with dozens of producers, lenders, and advisors over the past month, here’s what the smart operators are doing right now:

This week’s priorities:

Call your cooperative and request your Membership Agreement, Milk Marketing Agreement, and Bylaws. As Sarah Lloyd from the Wisconsin Farmers Union often points out, most producers have never actually read these documents—and they contain options you don’t know exist.
Calculate your specific delay costs using CME forward curves. Lock Q1 2026 feed costs while December corn remains below $4.40/bushel—multiple grain merchandisers I’ve spoken with expect a rally after the first of the year.
Schedule a consultation with a dairy attorney now if you’re thinking about contractual changes. The good ones are already booked through December.

Next 30 days:

Take a hard look at whether your current Class designation makes sense. The University of Wisconsin’s online tools can help you model different scenarios.
Consider strategic herd reduction if cash flow projections show negative margins through Q2. Penn State’s extension templates are excellent for this analysis. As Iowa State Extension often teaches, it’s better to milk 85 productive cows than 100 marginal ones.
LGM-Dairy insurance enrollment for Q1 2026 closes December 28. With premiums still below $0.70/cwt according to RMA data, it might be worth the protection.

Next 90 days:

Investigate whether your milk handler has WPI processing or upgrade plans. The industry directories can tell you who’s investing in what.
Build relationships with alternative handlers now, not when you’re desperate. As Cornell’s dairy program likes to say, the best time to negotiate is when you don’t have to.
Document everything if you might claim financial hardship. Your cooperative will want to see cash flow statements, tax returns, and lender correspondence.

The Information-to-Action Challenge

What’s becoming crystal clear from this crisis is that success isn’t about having perfect information—it’s about acting on good-enough information before the window closes.

The $2,654 that disappears every two weeks through delay is real money with real consequences. For a 100-cow operation, that’s the difference between updating equipment and deferring maintenance, between keeping good employees and losing them, between staying current with your lender and starting those difficult conversations.

Cornell’s dairy crisis research—they’ve studied every major downturn since the 1980s—shows something interesting: the producers who survive aren’t necessarily the lowest-cost or highest-producing. They’re the ones who recognize reality quickly and adapt before they’re forced to.

That adaptation starts with understanding what’s actually possible. Not what you wish were possible, not what should be possible, but what your contracts, your finances, and your operation can actually execute.

The irony is that we have more information, better genetics, superior technology, and deeper market understanding than ever before. But as this crisis is proving, those advantages mean nothing if they don’t translate into timely decisions.

For most operations, the path forward isn’t about making perfect decisions—it’s about making intentional ones. The cost of waiting for certainty is becoming higher than the cost of acting with uncertainty.

As we head into what looks like a challenging 2026, remember this: The market doesn’t care about your analysis paralysis. It only responds to actual supply and demand. And right now, with production still growing while demand stagnates, that response is telling us something important.

The question isn’t whether to act anymore. It’s whether you’ll act in time to make a difference.

Market prices and data are current as of November 22, 2025. Individual situations vary significantly—consult with your advisory team before making major operational changes.

KEY TAKEAWAYS:

This Week’s Must-Do: Request your cooperative contracts and calculate delay costs—you’re losing $2,654 every 14 days through inaction
December Deadlines: Lock Q1 feed under $4.40/bushel and LGM-Dairy insurance below $0.70/cwt by December 28—premiums are climbing daily
The $88,200 Reality: Class III-IV spread at $3.50/cwt means escape clauses in your contract could save you $300k+ over 5 years (70% success rate with proper documentation)
Break the Paralysis: This isn’t 2009—more information is creating slower decisions. Trust your math, not the market consensus that isn’t coming

Learn More:

Unlock the Blueprint: How Strategic Planning Transforms Dairy Farming Success – Provides a practical “ABCDE” framework for overcoming the decision paralysis described in the main article. It offers specific steps for assessing operational strengths and turning financial chaos into a structured recovery plan for 2025.
Dairy Outlook December 2024: Navigating Price Shifts and Production Trends – Delivers the deep-dive market data behind the crisis, offering detailed Class III and Class IV price forecasts. This analysis helps producers validate the “cost of waiting” calculations with specific feed and milk price projections for the coming quarters.
Robotic Milking Revolution: Why Modern Dairy Farms Are Choosing Automation in 2025 – Expands on the technology differentiator strategy, breaking down the exact ROI of automation. It details how farms are offsetting the labor crisis and achieving the $200-300 per cow savings mentioned in the main text through strategic equipment upgrades.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Join the Revolution!

Categories : Dairy Markets

Tags : cull cow decisions, dairy crisis management, Dairy market trends 2025, farm profitability analysis, herd management ROI, milk price strategy

2025’s $21 Milk Reality: The 18-Month Window to Transform Your Dairy Before Consolidation Decides for You

Sunday, November 23rd, 2025

Fairlife sells for $6. You get paid like it’s a store brand. Meanwhile, direct-market dairies are getting $48/cwt. See the gap?

EXECUTIVE SUMMARY: At $21.60/cwt, milk prices are crushing farm profits—your typical 500-cow dairy loses $125,000 this year while processors capture $38/cwt through hedging and consumers pay record retail prices. This isn’t a downturn; it’s the industry’s fundamental restructuring. By 2030, America’s 35,000 dairy farms will shrink to 24,000, with survivors clustering into three models: mega-operations leveraging scale, niche producers earning $48/cwt through direct sales, or multi-family partnerships pooling resources. The traditional 600-cow family farm is mathematically obsolete, running $250,000 in the red each year. Smart operators are already moving—diversifying revenue through beef-on-dairy, optimizing components for Class III premiums, or restructuring operations entirely. You have 18 months to choose your model before market consolidation chooses for you. The farms that thrive in 2030 won’t be those that survived 2025—they’ll be those that transformed during it.

You know, when I saw USDA’s latest forecast showing milk prices heading down to $21.60 per hundredweight, my first thought was about what this actually means for folks like us. For most 500-cow operations—and that’s a lot of farms I work with—we’re talking about roughly $125,000 in lost annual revenue. That’s not exactly small change when you’re already running things pretty tight.

Here’s what’s interesting, though. I’ve been looking at the Bureau of Labor Statistics data, and retail dairy prices? They’re still near record highs. And get this—fluid milk consumption actually grew in 2024 for the first time in 15 years. USDA’s own sales reports are showing this. The International Dairy Federation keeps saying global demand is climbing steadily.

So what’s going on here? Why are we getting squeezed when everything else suggests we should be doing better?

I’ve been talking with producers from Wisconsin to California lately, and what I’m hearing goes way deeper than typical market-cycle complaints. It’s this disconnect between what we’re getting at the farm gate and what consumers are paying at the store. And here’s the thing—even with the tightest heifer supplies in two decades, prices aren’t responding like they used to. What’s really fascinating is we’re seeing three distinct operational models emerging that’ll probably determine who’s still milking cows come 2030.

If you’re paying attention—and I know you are—the next year and a half represents what I’d call a critical decision window. The choices you make now? They’re going to determine whether you’re thriving or just hanging on when this industry looks completely different five years from now.

Let’s Talk About What’s Really Happening with Prices

So back in March, when CME Group reported Class III milk futures dropping to .75 per hundredweight, most of us expected the usual pattern, right? Supply tightens up, prices recover, and we all catch our breath. But that’s not what’s playing out, and honestly, it’s revealing something pretty concerning about how these markets work now.

Peter Vitaliano over at the National Milk Producers Federation articulated something that really resonates—the gap between farmgate and retail has never been this wide. We’re looking at USDA data showing farmers getting .60 per hundredweight while consumers are paying over a gallon for whole milk and around a pound for cheddar. These are historically high retail prices, folks.

What I find particularly noteworthy is how processors have positioned themselves. Take these massive new facilities—Leprino Foods with its 8-million-pound-per-day capacity plant, and Coca-Cola’s new fairlife facility up in New York. The International Dairy Foods Association has been tracking, it says, over $2 billion in infrastructure investments since 2020. These plants need milk volume a consistent milk supply to justify those investments. And that’s creating some… well, let’s call them interesting market dynamics.

Mark Stephenson from Wisconsin’s Center for Dairy Profitability shared something with me that really clicked. Processors are using futures contracts to lock in their margins months ahead, while we’re getting prices based on last month’s averages. That timing difference? It’s worth about three dollars per hundredweight in a protected margin for them. Three dollars!

A producer I know well out in California’s Central Valley—runs about 650 Holsteins—put it to me this way: “They’ve hedged their position months in advance. We’re operating with completely different risk exposure.” And you know what? He’s absolutely right.

[INSERT IMAGE: Graph showing the widening gap between farmgate prices and retail dairy prices from 2020-2025, with processor margins highlighted]

That Heifer Shortage Everyone’s Banking On

Now, conventional wisdom says—and I’ll admit, I believed this too—that this replacement heifer shortage should fix everything. CoBank’s August report shows we’re at a 20-year low, down to about 3.9 million head. You’d think that means better prices by late next year, maybe 2026?

Well… not so fast.

What we’re learning about beef-on-dairy breeding is fundamentally changing the game. The breeding association data shows that about a third of our Holstein and Jersey calves are now beef crosses. Think about what that means for a minute.

Replacement heifer prices have exploded—USDA’s tracking them at over three thousand per head, up 75% since early 2023. And if you’re looking for premium genetics? I’ve seen them go for thirty-five hundred, even four thousand at regional auctions. Down in Georgia and Florida, some producers are paying even more for heat-tolerant genetics. CoBank’s projecting we’ll be short another 800,000 replacements by 2026.

Yet—and here’s the kicker—this dramatic supply constraint isn’t translating to better milk prices. Why? It’s the processing overcapacity. Andrew Novakovic from Cornell’s Dyson School explained it to me this way: when processors have billions invested in facilities that require high volume, they have incentives to keep farmgate prices stable to ensure consistent throughput. It sounds backwards, but that’s the reality we’re dealing with.

The Darigold situation out in the Pacific Northwest really drives this home. Despite obvious milk supply tightness, they announced a $4-per-hundredweight deduction on all member farms back in May. A producer out there—runs about 3,000 cows—spoke at a meeting about it and didn’t mince words: “When milk price is down and you add these deducts, it really starts to sting.”

Why Growing Demand Isn’t Helping Us (This One Really Gets Me)

Here’s what caught me completely off guard when I first saw the International Dairy Foods Association data. Fluid milk sales grew about half a percent in 2024—first increase in 15 years! USDA’s marketing service confirms whole milk consumption hit its highest level since 2007. The Organic Trade Association reports that organic milk sales jumped by over 7%. And premium products? IRI’s retail data from 2024 shows brands like fairlife grew nearly 30% in dollar sales compared to the year before.

You’d think this demand recovery would support our prices, right? Instead—and this is what’s so frustrating—it’s doing the opposite. The growth is all concentrated in premium products where processors and retailers, not farmers, capture that value.

Let me break this down in real numbers—here’s The Value Disconnect:

Level	Price	Who Gets It
Farm Gate	$21.60/cwt	Farmers (commodity price)
Conventional Retail	~$40.00/cwt equivalent	Retailers (standard markup)
Premium Retail (fairlife)	~$60.00/cwt equivalent	Processors & retailers
The Gap	$38.40/cwt	Captured via hedging & branding

Marin Bozic, who does dairy economics at the University of Minnesota, explained the mechanism to me: the Federal Milk Marketing Order structure simply has no way for farmers to participate in the creation of premium product value. Your milk could become commodity cheese or the fanciest filtered milk on the shelf—you get the same basic commodity price either way.

The Three Futures: Why the Traditional 500-Cow Family Farm is Mathematically Obsolete (And What to Become Instead)

Research from Cameron Thraen’s team at Ohio State, which analyzed USDA’s agricultural census data and published its findings in the 2024 dairy outlook report, reveals something both fascinating and, honestly, a bit scary. They’re projecting that consolidation will reduce the number of dairy farms from about 35,000 today to 24,000 to 28,000 by 2030. And the production? It’s going to concentrate into three pretty distinct models.

If you’re running a traditional 500-to-700-cow family operation like many of us, the mathematics suggest you need to evolve into one of these structures, or… well, face some really tough decisions.

[INSERT IMAGE: Infographic showing the three operational models with icons – Mega-Operation (factory icon), Niche Producer (farmers market icon), Multi-Family Partnership (handshake icon) – with their respective herd sizes, investment requirements, and profit projections]

The Large-Scale Operations (3,500+ Cows)

We’ve got about 900 of these operations now, controlling roughly 20% of production. Wisconsin’s Program on Agricultural Technology Studies published their structural change analysis in 2024, suggesting this’ll grow to maybe 1,500 or 2,000 operations controlling 35-40% of all milk by 2030.

What makes them work? Well, Cornell’s annual Dairy Farm Business Summary shows they’re hitting costs of around 14 to 16 dollars per hundredweight through massive scale. They negotiate directly with processors—not as suppliers but as genuine business partners. They’re getting 50 cents to $1.50 per hundredweight just on volume guarantees. Investment required? We’re talking eight to fifteen million, according to the ag lenders I’ve talked with.

As one industry analyst put it, “A 5,000-cow operation with consistent component quality has real negotiating leverage.” And that’s the key word there: leverage.

The Niche Direct-Marketing Operations (100-400 Cows)

There are maybe 4,000 to 5,000 of these operations now, and interestingly, the National Young Farmers Coalition’s 2024 land access survey suggests this could grow to around 6,500 by 2030, particularly as beginning farmers explore alternative market channels.

I spoke with a producer in Vermont recently who made this transition—went from conventional to organic with direct marketing. She’s getting around $48 per hundredweight equivalent through farmers’ markets and on-farm sales. “It’s definitely more work,” she told me, “but we’re actually profitable now.”

A Texas producer I know took a different approach—focusing on A2 genetics and local Hispanic market preferences. He’s capturing premiums I wouldn’t have thought possible five years ago.

What works for these folks:

Premium pricing in that $35-to-50 range through direct sales
Organic, grass-fed, A2 genetics, local food positioning
On-farm processing so they capture those processor margins themselves
Investment needs are different—three to seven million, but it’s focused on brand building and market access, not just production

The Multi-Family Partnerships (2,000-3,500 Cows Total)

This is the emerging model that’s really interesting. We’re seeing maybe a few hundred of these now, but projections suggest over a thousand by decade’s end.

Mike Hutjens, who recently retired from the University of Illinois after decades of dairy research, described it well in his recent Extension publication on consolidation strategies: “Three families combining resources, each contributing 600-700 cows, sharing facilities and management. They’re achieving near-mega-operation efficiency while maintaining family control.” Based on operations he’s worked with, each family can see $200,000 to $300,000 annually.

Here’s the hard truth nobody really wants to hear: Cornell’s Pro-Dairy program’s 2024 cost of production analysis suggests that traditional 600-cow single-family operations face an approximately quarter-million-dollar annual profit gap compared to these three models. Without evolving into one of these structures… well, the math becomes pretty challenging.

What Successful Producers Are Actually Doing Right Now

What distinguishes farms positioned to thrive from those heading toward crisis? It’s not hope for market recovery—it’s specific actions during the downturn. I’ve been watching successful operations across the Midwest, and there are definitely patterns.

Moving Beyond the Milk Check

The smartest producers I know have completely abandoned the old assumption that milk sales should be 85-90% of revenue. A Wisconsin producer I work with is breeding 30% of his herd with beef semen. At current beef prices—around $250 per calf—that’s significant money. Plus, he’s not overwhelming his heifer facilities.

Strategic culling at these cull cow prices—USDA’s reporting over $145 per hundredweight—is generating serious cash. An Idaho producer told me she culled 15% strategically, generated substantial one-time revenue while cutting feed costs permanently by about 16%.

And value-added production? Penn State Extension’s 2023 bulletin on dairy value-added enterprises shows that even converting 5% of your milk to yogurt, cheese, or specialty products can generate margins two and a half to three times higher than commodity milk. Their case studies are pretty compelling, actually.

It’s About Efficiency, Not Just Volume

What I’m seeing is successful operations focusing on feed efficiency over just pushing for more milk. Kent Weigel at Wisconsin-Madison has data showing feed efficiency genetics have a heritability of around 0.43—meaning those improvements compound fast.

The approach is getting pretty sophisticated:

Genomic testing to identify and cull the bottom 20% for feed efficiency before they even enter the milking string
Switching to bulls with high Feed Saved indexes—costs nothing, impacts everything
Getting that metabolizable protein dialed in at 100-115% of requirements saves fifty to seventy-five dollars per cow annually, according to University of Minnesota research

For a 500-cow operation? These strategies might cost ten to fifteen thousand dollars to implement, but can return ten times that annually. And it compounds year after year. Scale it down to 250 cows, and you’re looking at maybe a $50,000 return on a $5,000-7,500 investment. Scale up to 1,000 cows? We’re talking $200,000-280,000 annually.

Components and Geography Matter More Than Ever

Here’s something worth noting: USDA’s November projections show Class III prices around $18.82, while Class IV falls to maybe 15 or 16 per hundredweight in 2026. That three-to-four-dollar spread? It rewards specific decisions.

A Minnesota producer told me about switching to Jersey-Holstein crosses three years back. “Our butterfat runs 4.3% now versus 3.7% before. That’s worth about seventy cents per hundredweight. Doesn’t sound like much until you’re shipping 50,000 pounds daily.”

What Canada’s System Reveals (It’s Not What You Think)

Looking north offers an interesting contrast. While we’re facing this dollar-per-hundredweight drop, the Canadian Dairy Commission’s February announcement showed essentially minimal change—less than a tenth of a percent adjustment.

Their stability comes from a formula: prices adjust by half to production costs and half to the consumer price index. As Sylvain Charlebois from Dalhousie University’s Agri-Food Analytics Lab explained, “Canadian farmers know their milk price nine months ahead.” Imagine being able to plan that far out!

But—and this is important—there are trade-offs. Dairy Farmers of Canada reports quota costs around $24,000 per kilogram of butterfat. That’s a massive entry barrier. A 2024 study in the Agricultural Systems journal documented approximately 6.8 billion liters of milk waste from 2012-2021 in the Canadian system. And the Fraser Institute calculates Canadian families pay nearly $300 more annually for dairy.

What’s really revealing? Statistics Canada’s agricultural projections suggest they’ll still lose about half their dairy farms by 2030, bringing the total to around 5,000. So even with all that protection, consolidation is happening. It’s fundamental economics that transcends whatever system you use.

The 2025-2027 Window: Why Timing Is Everything

What I’m seeing suggests 2025 is where three forces converge for the first time:

First, we’ve got this processing capacity overhang from billions of new facilities coming online. Industry tracking shows it’s massive. Second, the International Dairy Federation projects global consumption growing faster than production—about 1.1% versus 0.8%. And third, producer exits are accelerating. The American Farm Bureau reports Chapter 12 bankruptcies up over 50% year-over-year.

This creates what I’d call an 18-to-24-month window for strategic positioning. Christopher Wolf, who heads Cornell’s dairy markets and policy program, suggests once global supply scarcity becomes obvious and prices start recovering—probably 2027—consolidators will move aggressively. Acquisition costs will spike. Windows close.

So What Should You Actually Do? (The Practical Stuff)

Understanding all this, here’s what I’m seeing work:

If You’re Planning to Continue:

Focus on efficiency over growth. A Pennsylvania producer told me, “We’ve stopped all expansion. Every dollar goes to efficiency improvements and component optimization. That dollar-fifty from better components beats any volume premium.”

Lock in what you can. USDA’s Dairy Forward Pricing Program, reauthorized through April 2025, lets you contract ahead when futures look reasonable. Creating revenue floors has saved several operations I know.

Build those alternative revenue streams now. Beef-on-dairy, strategic culling, value-added—these can offset entire milk price declines.

If You’re Considering Structural Change:

The partnership conversation needs to happen now. An Ohio producer who merged three family operations told me they spent eight months finding the right partners. “Wait until the crisis? Your best options are already gone.”

Thinking about the niche route? Start small, but start now. That Vermont producer I mentioned began with just 5% of its output going to farmers’ markets. It took three years to transition fully, but she learned as she grew.

Geographic disadvantages are real. USDA data shows consistent one-to two-dollar regional differences. If you’re in a disadvantaged area, seriously consider your options.

For Everyone:

Accept that mid-size independence might require significant adaptation. As one Cornell economist put it, “That’s not defeat—it’s realistic evolution in a consolidating industry.”

Focus on what you control: genetics, efficiency, component quality, and marketing channels. An Idaho producer said it best: “The market does what it does. I can’t control that. But I absolutely control my cost per hundredweight.”

For those who want to dig deeper, information on the USDA’s Dairy Forward Pricing Program is available at your local FSA office. Cornell’s Pro-Dairy program has excellent resources on cost analysis. And if you’re considering the partnership route, the University of Wisconsin’s Center for Dairy Profitability has some solid guidance materials.

The Bottom Line (Where This All Leads)

The 2025 milk price situation isn’t really about traditional supply and demand—it’s a structural transformation that’s been building for decades. That $21.60 forecast from the USDA? It’s looking more like a new reality where processor margin management matters more than the old market dynamics we learned.

Yet within this challenging environment, I’m seeing clear paths forward for producers willing to abandon old assumptions. The farms thriving in 2030 won’t be those that simply survived 2025 through sheer determination. They’ll be operations that recognized this inflection point and repositioned, while others that waited for the recovery that follows will follow completely different rules.

You’ve got maybe 18 to 24 months for deliberate transformation. After that, market forces make the choices for you. The question isn’t whether to change—it’s which of these emerging models fits your operation’s future. That decision, made with clear eyes rather than false hope, determines success or failure.

What’s interesting is every producer I know who’s made these strategic pivots says the same thing: “Should’ve done it sooner.” Maybe that’s the real lesson. The best time to transform isn’t when crisis forces your hand—it’s right now, while you still have options.

And honestly? That’s both scary and oddly encouraging. At least we know what we’re dealing with. Now it’s time to act on it.

KEY TAKEAWAYS:

The $38/cwt gap is permanent: Processors locked in margins through futures—your $21.60 milk price won’t recover, costing typical 500-cow dairies $125,000 annually
Pick your path in 18 months: Mega-operation (3,500+ cows), direct-marketing ($48/cwt premiums), or multi-family partnership—traditional single-family 600-cow farms face mathematical elimination
Diversify revenue TODAY: Leaders generate $45,000+ from beef-on-dairy (30% of herd), 3x margins on value-added products, and $0.70/cwt from component optimization
10:1 returns exist: Genomic feed efficiency selection costs $15,000, returns $150,000 annually—compound these gains before the 2027 consolidation wave

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Dairy Wins, Beef Loses: Inside the 18-Month Window Where $1,400 Calves Meet Record Component Premiums – Reveals how progressive operations are generating over $700,000 in new annual revenue by stacking beef-on-dairy windfalls with component optimization, effectively decoupling their financial survival from base milk prices.
The $11 Billion Reality Check: Why Dairy Processors Are Banking on Fewer, Bigger Farms – deep dives into the massive infrastructure spending that is forcing consolidation, explaining why processors are locking in supply with mega-dairies and what that means for your 2026 contract negotiations.
Unlock Hidden Dairy Profits Through Lifetime Efficiency: How Modern Genetics and Strategic Nutrition Can Cut Feed Costs by $251 Per Cow – Provides a technical blueprint for implementing Residual Feed Intake (RFI) genomic selection to slash feed costs, offering a proven method to protect margins even when milk prices bottom out.

Join the Revolution!

Categories : Dairy Markets

Tags : 2025 milk price forecast, beef-on-dairy strategy, dairy farm consolidation, dairy profit margins, genomic feed efficiency, milk processor margins, US dairy market trends

Why African Dairy’s $74B Boom Bypasses Local Farmers – And What It Means for Global Markets

Saturday, November 22nd, 2025

African farmers: $21/cow/year. African dairy market: $74 billion. The money’s flowing—just not to farmers.

EXECUTIVE SUMMARY: Africa’s dairy market will reach $74 billion by 2035, yet local farmers capture just 2-3% while 80% flows to imports. The paradox: Africa owns 20% of global cattle but produces only 5% of milk, with farmers earning $21-200 per cow annually versus $1,800 breakeven in developed markets. Multinationals dominate through powder reconstitution rather than local sourcing—it’s cheaper to import at 5% tariffs than to collect from smallholders who produce 1-3 liters daily. East Africa proves transformation is possible, with Kenya and Rwanda becoming exporters through cooperatives and smart policy, while West Africa remains import-dependent. For global dairy professionals, success means abandoning Western models for adapted genetics, intermediate technologies, and hybrid strategies that match Africa’s unique reality—not replicating Wisconsin in Lagos.

At a recent dairy conference, I found myself in conversation with several producers interested in African opportunities. They’d all seen the same presentations—Africa’s dairy market reaching $74 billion by 2035, up from $61.7 billion today, according to IndexBox’s November 2024 analysis. “Last frontier for dairy,” one called it.

After spending the past few months examining the dynamics on the ground, I’ve come to realize we’re dealing with something far more complex than most investment presentations suggest. Africa isn’t developing a conventional dairy sector like we’ve seen elsewhere. Instead, it’s creating a unique hybrid system that challenges our traditional understanding of dairy market development.

***The economic paradox of African dairy: A $74 billion market where local farmers earning $21 per cow annually capture just 2.5% of growth***

The Market Growth Story: Real but Different

Understanding the Demographic Shift

The fundamentals driving growth are undeniably strong. McKinsey’s consumer research from June 2023 documented that Africa’s urban middle class is expanding from 300 million today to 500 million by 2035. That’s a demographic shift comparable to adding the entire U.S. population as potential dairy consumers.

What’s particularly noteworthy is how consumption patterns are evolving. Ethiopia’s Ministry of Agriculture reported in their 2024 sector review that urban dairy spending has accelerated dramatically, especially among middle-income households. Kenya’s Dairy Board projects 5.8% annual consumption growth through 2030—that’s faster than most Asian markets at a similar stage of development.

The Import Reality Check

Yet here’s where the story becomes more nuanced. The FAO’s November 2025 Africa Food Security Report reveals that approximately 80% of this consumption growth is met by imported dairy products and reconstituted powders, not by expanded local production.

***Africa’s fundamental dairy paradox: controlling 20% of the world’s cattle but producing just 5% of global milk while importing 80% of consumption***

“The continent currently produces just 5% of global milk while maintaining 20% of the world’s cattle.”

According to UN Comtrade data from 2024, Africa imports $7.5 billion in dairy products annually, with projections suggesting this could reach $15 billion by 2035. The European Milk Board’s October 2024 analysis shows traditional and fat-filled milk powder accounting for 76% of these imports—particularly dominant in West African urban centers.

KEY MARKET INDICATORS: The Scale of the Challenge

Current African production: 53.2 million tons (5% of global output)
Cattle population: 20% of the global herd
2024 import value: $7.5 billion
Projected 2035 imports: $15+ billion
Powder products as a percentage of imports: 76%
Estimated local farmer share of market growth: 2-3%

Why Local Production Can’t Keep Pace

The Sobering Economics

I recently reviewed research from Mountaga Diop and colleagues at Senegal’s Institute of Agricultural Research, published in 2023. Their findings on smallholder economics were sobering:

“Average annual net returns of just $21.70 per cow”

***Africa’s structural cost disadvantages: 70% feed costs, 40% infrastructure losses, and 53% heat-driven yield reductions make local production economically impossible against 5% tariff imports***

In Kenya, often highlighted as a success story, the Kenya Institute for Public Policy Research’s 2024 analysis shows that farmers average $200 in annual profit per cow, with daily yields of 5-8 liters.

To put this in perspective, a Wisconsin producer recently told me their breakeven is around $1,800 per cow annually. The disparity illustrates fundamentally different economic realities.

Three Structural Challenges Blocking Progress

1. Feed Economics That Don’t Work

ILRI’s comprehensive study across eight African countries in 2024 found that feed accounted for 70% of production costs, compared to the 40-50% we typically see in North American operations. This difference alone changes everything about profitability calculations.

Ben Lukuyu, ILRI’s principal scientist for feed and forage development in Nairobi, shared with me that Kenya and Uganda face approximately 60% annual feed deficits. When the Russia-Ukraine conflict drove fertilizer prices up 81.9% and feed costs up 13.3%, many marginally viable operations simply couldn’t survive. And that’s in Kenya, which has better infrastructure than most.

2. Climate Stress Destroying Yields

The University of Melbourne’s research team, with support from the Gates Foundation, published compelling data in Animal Production Science this March. They documented Holstein yield reductions of 17-53% under African heat stress conditions—far exceeding what we see even in challenging U.S. environments like Arizona or Southern California.

“South Africa saw average yields decline from 21 liters to 16.1 liters per cow between 2018 and 2023—a 23% drop in the continent’s most developed dairy market”

This comes from the USDA Foreign Agricultural Service’s February 2025 report, and it’s particularly concerning because South Africa has the infrastructure we’d expect to mitigate these challenges.

3. Infrastructure That Can’t Support Growth

The World Bank’s 2024 Cold Chain Assessment estimates:

“Africa loses up to 40% of perishable food due to inadequate cold storage.”

CIRAD’s research indicates that only 1-7% of locally produced milk in West Africa enters formal trade channels. The investment required to fix this—estimated at $50-100 billion for comprehensive cold chain development—exceeds current funding commitments by roughly tenfold.

What Multinationals Are Actually Building

The Reconstitution Reality

The expansion strategies of major dairy companies offer important insights. Nestlé, Danone, and FrieslandCampina are indeed investing heavily across Africa, but their business models differ significantly from what many expect.

Okereke Ekumankama’s 2023 research at the University of Nigeria examined FrieslandCampina’s operations in detail. While the company controls 75% of Nigeria’s dairy market, they source virtually no local milk. Instead, they import powder from Europe for reconstitution in Nigerian facilities.

When “Development Programs” Don’t Develop

Their Dairy Development Programme, launched in 2010, aimed to integrate smallholder farmers. However, Ekumankama’s field research with 250 participating farmers revealed persistent challenges preventing meaningful integration.

The transaction costs of collecting from dispersed producers, averaging 1-3 liters daily, often in areas lacking roads, electricity, or cold storage, exceed the economics of importing powder at 5% tariff rates.

This pattern—building processing capacity for imported inputs rather than developing local supply chains—appears across much of the continent. It creates employment and provides affordable dairy products to urban consumers, which has value. But it doesn’t necessarily translate to local dairy sector development.

East Africa: A Different Story Emerges

The Success Stories

East Africa presents a notably different picture. The FAO’s October 2024 regional report shows the region accounting for 48% of Africa’s total milk production, with 26% growth between 2013 and 2023.

Rwanda’s Systematic Transformation

According to their Ministry of Agriculture’s presentation at September’s IDF Regional Conference:

Milk production tripled from 334,727 metric tons in 2010 to 1,092,430 metric tons in 2024
Per capita consumption doubled from 37.3 to 79.9 liters annually

The key? Mandatory quality testing at milk collection centers through Ministerial Order 001/11.30, strategic genetics programs with Heifer International, and sustained government investment spanning multiple administrations.

Kenya’s Cooperative Advantage

**Kenya’s dairy success story: strategic policy and cooperative strength drove production from 4.2 to 5.7 billion kg while transforming from net importer to exporter by 2020**

Kenya produces 5.7 billion kilograms annually, according to the Dairy Board’s 2025 outlook, with 80% originating from smallholder operations. The success factor isn’t individual farm productivity—yields remain at 5-8 liters per cow daily. Rather, it’s cooperative strength.

“Without the cooperative, I’d be selling to brokers at whatever price they offer. Now we negotiate as a group, and we get veterinary services I could never afford alone.”
— James Kibiru, dairy farmer in Nyeri County

Consider Meru Dairy Cooperative Union, which engages over 35,000 farmers through annual field days. They provide milk aggregation, veterinary support, quality-based payment systems rewarding butterfat performance, and collective bargaining power.

Uganda’s Export Achievement

IFPRI’s 2023 value chain analysis documents Uganda’s growth from a $2 million dairy industry in 2008 to $150 million by 2017. The country now exports $500 million worth of milk powder to Algeria, according to their Ministry of Trade’s 2024 data.

West Africa: Where Different Challenges Persist

I spoke with Kwame Asante, who manages a small dairy operation outside Accra, Ghana. “We can produce milk,” he told me, “but getting it to market before it spoils? That’s the real challenge. The processors prefer powder—it’s easier, cheaper, more reliable.”

His experience reflects broader West African dynamics. Ghana’s Fan Milk, now owned by Danone, built one of the region’s most successful distribution networks. Those yellow tricycles are everywhere in urban areas. Yet, as industry data shows, the operation relies primarily on imported powder, with local farmers supplying only about 2% of the processed volume.

The economics make sense from a processor perspective. A solar-powered cooling system for a single collection center runs about $15,000-20,000 according to equipment suppliers I’ve spoken with. When you’re collecting 50-100 liters daily from that center, the payback period stretches beyond what most investors will accept.

Policy Choices That Make or Break Markets

***The fork in the road: policy choices and cooperative strength determine whether African dairy regions become self-sufficient exporters or import-dependent markets***

The Tale of Two Approaches

Timothy Njagi at Kenya’s Tegemeo Institute documented how the country’s 2015 implementation of a 10% import levy plus 16% VAT on milk imports catalyzed transformation. Average daily yields from indigenous breeds increased by approximately 300% over the following decade, shifting Kenya from a net importer to an exporter.

By contrast, West African nations maintain just 5% tariffs through the ECOWAS Common External Tariff. Oxfam’s 2024 trade analysis shows the result: continued heavy import dependency, with fat-filled milk powder (a blend of skim milk and palm oil) dominating 70% of consumption in major cities.

Nigeria’s New Attempt

Nigeria’s National Dairy Policy Implementation Framework, validated in November 2025, offers:

Five-year tax holidays for processors
Low-interest credit for farmers
Guaranteed off-take schemes

Whether this succeeds where previous efforts struggled remains to be seen. The policy appears comprehensive on paper, but implementation has consistently been a challenge in Nigeria.

What This Means for Different Players

For Genetics Companies

Focus on adaptation, not maximum production. Raphael Mrode, who leads ILRI’s genetics program in Kenya, has been incorporating the “slick gene,” which confers heat tolerance through shorter, sleeker hair coats. These animals maintain reasonable productivity under conditions that would devastate conventional Holstein genetics.

The market opportunity exists for companies developing adaptation traits rather than pursuing maximum production designed for temperate conditions.

For Equipment Suppliers

Forget precision dairy technology designed for 1,000-cow operations. That’s not the market. Instead, think intermediate technologies: solar-powered cooling for collection centers (around $15,000-20,000 per unit), mobile apps for basic smartphones, robust milk testing equipment suitable for cooperative-level deployment.

Success requires matching technology to operational realities and economic constraints.

For Processors

Develop dual strategies: reconstitution capacity for urban markets while gradually building local collection infrastructure where economically viable. Don’t promise what you can’t deliver on local sourcing, but don’t ignore it either—governments are increasingly demanding local content.

***The brutal reality: of the $74B African dairy market, local farmers capture just 2% ($1.5B) while European powder imports claim 58% ($43B)***

The Bottom Line: Understanding the Real Opportunity

The $74 billion projection for the African dairy market from IndexBox appears realistic given demographic and income trends. However, understanding who captures this value—and how—requires nuanced analysis.

East African nations with strong cooperative structures and consistent policy support show genuine transformation potential. West Africa will likely remain import-dependent with selective local success stories. South Africa continues consolidating, potentially dropping below 500 commercial dairy operations by 2030.

What’s encouraging is seeing younger African dairy professionals returning from international training with fresh ideas. They understand both traditional systems and modern technology. They’re the ones who’ll ultimately bridge this gap between potential and reality.

For global dairy professionals, Africa represents opportunity—though not in ways that conform to conventional expectations. Success requires understanding the continent’s unique development trajectory, abandoning standard assumptions, and developing approaches appropriate to diverse regional contexts.

As we consider these opportunities, it’s worth noting that markets develop differently. Africa won’t follow the path of New Zealand or Wisconsin, or the Netherlands. It’s creating something new, and those who recognize and respect that difference will find the real opportunities.

This paradox—simultaneous consumption growth and production challenges—defines the current reality of African dairy. How the industry responds will shape both African food security and global dairy trade for decades to come.

What do you think? Are we looking at this opportunity the right way? I’d love to hear from producers who’ve worked in these markets or are considering investments there. The conversation continues.

KEY TAKEAWAYS:

Africa’s $74B dairy market is an import story, not a production opportunity—80% flows to European powder while farmers earning $21-200/cow yearly capture just 2-3% of value
Geography determines destiny—East Africa transforms through cooperatives and smart policy (Kenya exports after tripling yields), while West Africa stays import-dependent at 76% reconstituted powder
The economics simply don’t work at the current scale—African farmers face 70% feed costs (vs. 40% globally), 40% infrastructure losses, and compete against powder imports at just 5% tariffs
Success requires radical adaptation—heat-tolerant genetics (Holstein yields drop 17-53% in African heat), intermediate technology ($15K solar cooling, not $100K precision systems), and hybrid import-local business models
Multinationals aren’t villains, they’re rational—FrieslandCampina controls 75% of Nigeria’s dairy using zero local milk because collecting from smallholders costs more than importing

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Heat Stress 2.0: Why Your Current Cooling Strategy Is Costing You Big Money – Provides actionable protocols for “smart soaking” and tiered cooling strategies that can recover the 17-53% yield losses cited in African herds, offering a blueprint for managing extreme climate challenges.
Global Dairy Markets Signal Imminent Price Correction as Production Surge Overwhelms Demand – Explains the “supply tsunami” from major exporters driving the low-cost powder surplus that undercuts local African production, helping you understand the macro-economic forces fueling the import paradox.
Bred for Success, Priced for Failure: Your 4-Path Survival Guide to Dairy’s Genetic Revolution – Reveals the accelerating gap between high-performance Western genetics and global operational realities, offering critical context for why “adapted” traits are becoming an economic necessity over pure production speed.

Join the Revolution!

Categories : Dairy Markets

Tags : African dairy market, Dairy Farm Profitability, dairy investment trends, global dairy exports, heat tolerant genetics, milk powder trade

The Tyson Shutdown Playbook: How Plant Closures Steal $10,000 From Your Dairy – Every Year

Saturday, November 22nd, 2025

When beef plants close, dairy basis widens. Here is the economic playbook used to squeeze producer margins—and how to protect your operation

EXECUTIVE SUMMARY: Tyson claims ‘unprecedented cattle shortages’ justified closing their Lexington plant—yet cattle inventory is down just 3% and the company paid $2 billion MORE for cattle this year, not less. This closure eliminates 30% of Nebraska’s processing capacity, extracting .5 million annually from producers through wider basis—the gap between futures prices and what farmers actually receive. Dairy farmers are already living this reality: processor consolidation costs the average 1,000-cow dairy ,000-14,000 yearly in reduced cull cow values alone. With four firms controlling 85% of beef processing (up from 25% in 1977), capacity decisions become price controls—no conspiracy required, just strategic plant closures. The same playbook that eliminated 61% of dairy farms over 25 years is now accelerating in beef. This investigation reveals how basis compression works, why consolidation makes it worse, and what producers can do to protect their operations before they become the next casualty.

When Tyson Foods announced the closure of their Lexington, Nebraska, beef processing plant on November 21st—citing “unprecedented cattle shortages”—it sparked conversations across agricultural communities. The facility processes 5,000 head daily, employs 3,000 workers in a town of 10,000, and will shut down by January 2026. That represents roughly 30% of Nebraska’s beef processing capacity disappearing in a single corporate decision. While this is a beef industry headline, the blueprint is identical to the consolidation already squeezing dairy margins—and understanding these mechanics could mean the difference between adapting successfully or becoming another farm closure statistic.

What makes this particularly relevant for dairy operations is how the actual cattle inventory data appears to tell a different story than the corporate narrative suggests. For those of us who’ve watched dairy consolidation over the past decade, these patterns feel remarkably familiar.

Economic Impact Distribution: When Tyson closes Lexington, $182.5M leaves rural Nebraska—cattle producers lose $37.5M annually in basis compression, the community loses $25M, workers lose $120M in wages. Processing companies and shareholders capture $60M in improved margins

Understanding Basis Pricing: The Mechanism Behind Local Markets

Let me share something that becomes increasingly important as markets consolidate—the concept of “basis” and how it affects what producers actually receive versus what they see on commodity screens.

Basis represents the difference between futures prices—those numbers flashing on Chicago Mercantile Exchange screens—and the actual cash price producers receive at their local market. Think of it as your regional market adjustment. In dairy, we see this same dynamic between Class III futures and mailbox prices, and the parallels are instructive.

Basis Compression Impact: Plant closures directly translate to lost revenue for dairy producers through wider basis differentials on cull cow sales. A 1,000-cow dairy loses $10,000-$17,000 annually as processing competition evaporates

The agricultural economics team at the University of Nebraska-Lincoln has extensively documented these patterns through its research publications. Their findings show that in competitive markets, feedlot operators typically receive the futures price minus a modest basis adjustment—perhaps 5 to 15 cents per hundredweight — for transportation and regional supply-and-demand factors.

What’s particularly noteworthy is how dramatically this changes when processing capacity leaves a region:

In a competitive market scenario: A feedlot 50 miles from multiple processors might see:

Basis of approximately -$0.05/cwt
Multiple competitive bids arriving weekly
Cash price around $193.95/cwt on a 1,250 lb steer, yielding $2,424

After significant capacity reduction: That same operation now shipping 180+ miles might experience:

Transportation costs are adding $33 per head (based on USDA-tracked rates of $5.50 per loaded mile)
Basis weakening to -$2.50/cwt or more
New cash price dropping to $191.50/cwt, or $2,394 per head

When you calculate that $30 per head difference across the 1.25 million head annually processed at Lexington, Nebraska producers potentially face $37.5 million in reduced annual revenue—not from market fundamentals, but from structural changes in competitive dynamics.

The Cull Cow Connection: What This Means for Your Bottom Line

Here’s something every dairy producer needs to understand about processing capacity: it directly affects your cull cow revenue. For a 1,000-cow dairy culling 35% annually, that’s 350 cull cows heading to market each year. When regional processing capacity shrinks, the basis on those cull cows widens just like it does for fed cattle.

Using current market dynamics, if basis widens by just $2.00/cwt due to reduced processing competition, that represents approximately $10,000 to $14,000 in lost annual cash flow for that 1,000-cow operation (assuming 1,400 lb cull cows at current prices). For many dairies, that’s the difference between profit and break-even—or between staying in business and selling out.

Examining the Supply Narrative: What the Data Actually Shows

The interesting thing about market narratives is how they sometimes diverge from documented data. USDA’s National Agricultural Statistics Service reported Nebraska’s January 2025 cattle inventory at 6.05 million head, down just 3% from the previous year. The state’s cattle-on-feed inventory in September 2025 stood at 2.43 million head, showing remarkable stability through recent reporting periods.

What’s particularly revealing—and this comes from Tyson’s own SEC filings—is that the company reported cattle costs increased by $2 billion in fiscal 2025 compared to the prior year. That pattern typically suggests competitive bidding for supply rather than genuine scarcity.

Dr. Derrell Peel at Oklahoma State University, who’s done extensive work on livestock markets, has observed that when processors simultaneously report supply challenges and increased input costs, it often indicates competitive pressure rather than actual shortage conditions. This aligns with what many market observers have noted.

Tyson’s beef segment reported an adjusted operating loss of $426 million in fiscal 2025, with forward guidance suggesting losses of $400-600 million in fiscal 2026. The closure removes 6,700 head of daily processing capacity from the market when you include reductions at their Amarillo facility—a significant structural change to regional competition.

Learning from Dairy’s Consolidation Journey: Regional Patterns Emerge

The dairy industry’s experience with consolidation offers a valuable perspective on these dynamics—and it’s playing out differently across regions.

Market Concentration Timeline: As processing consolidation accelerated from 25% to 85% control by four firms, dairy farm numbers collapsed by 61%. The correlation isn’t coincidence—it’s cause and effect

When Dean Foods filed for bankruptcy in November 2019, they operated 57 facilities across 19 states—essentially the largest fluid milk processor in America. Dairy Farmers of America’s 2020 acquisition of 44 of those plants for 3 million represented a significant concentration of processing capacity.

The Northeast Experience

Vermont exemplifies how consolidation pressures compound. The November 2025 Class I base price hit $16.75/cwt, down $1.29 from October, despite relatively stable national commodity markets. With 78% of Vermont experiencing severe drought conditions according to U.S. Drought Monitor data, producers face what economists describe as converging pressures—rising feed costs coinciding with price compression from national oversupply.

The Midwest Transformation

Wisconsin’s story shows how quickly landscapes change. Saputo’s recent optimization strategy provides a textbook example. Between 2024 and 2025, they’ve closed facilities in Belmont, Big Stone (South Dakota), Lancaster, Tulare (California), South Gate (California), and Green Bay. Each announcement emphasized “network optimization” and “operational efficiency.”

The Suamico, Wisconsin, closure eliminated 240 positions according to state workforce notifications. What’s particularly significant for smaller operations is that Saputo’s new Franklin, Wisconsin, facility requires 4-5 million pounds of milk daily for efficient operation—volume typically sourced from larger operations rather than traditional family-scale dairies.

Wisconsin has seen three major facility closures in 18 months. For producers in central regions, buyer options have decreased from five to perhaps two or three—a fundamental shift in market structure. International Dairy Foods Association tracking shows $11 billion in new processing capacity announced nationwide, with significant investment flowing to Texas, Idaho, and New Mexico—regions with operational scales different from traditional Midwest dairy.

I recently spoke with a Wisconsin producer milking around 400 cows who shared their experience after the Lancaster closure. Their milk hauling distance jumped from 45 miles to 110 miles, adding roughly 90 cents per hundredweight to their costs—assuming truck availability, which isn’t always guaranteed in tight transportation markets.

The Western Perspective

A California producer I connected with last month offered a different perspective. “We’ve watched consolidation reshape our market for two decades,” she explained. “When you’re down to two buyers for your milk in a 200-mile radius, the conversation changes completely. It’s not negotiation anymore—it’s take it or leave it.”

The progression seems consistent across all regions:

Processors announce efficiency-driven network optimization
Regional processing options decrease
Basis differentials widen as competition diminishes
Margin pressure intensifies for producers
Scale becomes increasingly critical for survival

USDA Economic Research Service data documents this trajectory in dairy—from approximately 100,000 operations to 39,000 over 25 years, a 61% reduction. American Farm Bureau projections suggest 2,800 dairy operations may exit in 2025 alone, though market conditions could affect these estimates.

Dairy Consolidation Acceleration: As processor consolidation squeezes margins, operations exit at increasing rates. Survivors must scale dramatically—average herd size jumped from 82 to 330 cows. The 300-cow family dairy that once thrived now barely survives

Understanding Make Allowance Impacts

The June 2025 Federal Milk Marketing Order adjustments increased make allowances in ways that the National Milk Producers Federation analysis suggests will shift approximately $91 million annually from producer revenues to processor margins. University of Wisconsin dairy enterprise budgets indicate a typical 300-cow operation that might have netted $10,000 annually could face $61,000 in losses under current conditions—challenging math for any operation.

The Economics of Community Impact

Rural development researchers have modeled the economic ripple effects of major facility closures, suggesting impacts of around $300 million over time for a community like Lexington—roughly $30,000 per capita in a town of 10,000. This encompasses lost wages, reduced tax revenue, diminished retail activity, and the broader multiplier effects that flow through rural economies.

Make Allowance Revenue Transfer: The June 2025 Federal Order changes shifted $91M annually from producer milk checks to processor margins. A typical 300-cow dairy loses $10,000/year—often the difference between profitability and loss. This isn’t market forces; it’s regulatory capture

Understanding where economic value flows in these transitions helps explain the dynamics:

For processing companies and shareholders: Industry analysis suggests potential margin improvements of $40-80 million annually through strategic capacity management and reduced regional competition. Tyson’s dividend program distributes $353 million annually to shareholders, with share buyback authorizations exceeding $1 billion in fiscal 2025.

For producers: Transportation cost increases alone could reach $42 million annually for cattle previously processed at Lexington. Add basis compression and reduced negotiating leverage, and the economic pressure compounds significantly.

For communities: Property tax revenue losses estimated at $15-25 million annually create budget pressures that affect schools, infrastructure, and essential services—impacts that persist long after the initial closure.

Monitoring Market Consolidation: Warning Signs to Watch

Language That Warrants Attention:

When processors use terms like “network optimization,” “reducing duplicate capacity,” or “investing in next-generation facilities,” it often precedes structural changes. Similarly, phrases about “managing supply challenges” or “consolidating operations” deserve careful consideration.

Market Indicators to Track:

Widening gaps between announced prices and actual payments
Shifting regional price differentials
Increasing hauling distances to remaining processors
Investment patterns favoring certain regions over others

Proactive Steps to Consider:

Maintain detailed records of basis trends
Build information networks with regional producers
Request transparency in pricing calculations
Preserve operational flexibility where possible

Price Discovery: The Foundation of Fair Markets

One fundamental shift deserves particular attention—the evolution of price discovery mechanisms. Iowa State University research documents that in the 1990s, approximately 80% of fed cattle were traded through transparent cash markets. Today, that figure has dropped to around 20%, with formula contracts dominating transactions.

Why does this matter? When price discovery depends on limited transactions, those prices become both less representative and potentially more influenced by strategic behavior. Academic research shows that as formula contracts grew from 20% to 80% of volume, the packer-to-retail price spread effectively doubled.

Price Discovery Erosion: Cash market trading collapsed from 80% to 20% of cattle transactions. Formula contracts now dominate—but those formulas are based on the thin cash market, creating a self-reinforcing cycle of reduced transparency and price control

Dairy maintains relatively better price transparency through Federal Order reporting, which explains why the June 2025 make allowance changes generated immediate producer response—the impacts were visible and quantifiable. Markets operating primarily through private formula contracts offer less transparency for impact assessment.

Strategic Considerations for Producers

While consolidation trends seem likely to continue, producers have options for navigating these changes:

Near-term Risk Management:

Document basis patterns systematically—tracking announced versus actual prices monthly reveals trends that inform decisions
Build information networks—comparing experiences with regional producers helps identify systematic patterns versus individual situations
Seek pricing transparency—understanding calculation methodologies helps identify where value gets captured
Maintain operational flexibility—long-term commitments may limit options during structural market shifts

Longer-term Positioning:

Evaluate differentiation opportunities—value-added production or direct marketing can provide alternative revenue streams, though these require different skill sets and market development
Strengthen collective representation—producer organizations provide platforms for information sharing and advocacy
Engage in policy discussions—market structure issues ultimately require policy responses
Assess scale strategically—understanding where your operation fits in evolving market structures informs investment decisions

Essential Questions for Processors:

What methodology determines base pricing, and is the underlying data accessible?
What proportion of supply comes through formula versus cash transactions?
How does pricing compare across similar regional suppliers?
Where are capital investments being directed geographically?
How will any facility changes affect net returns after transportation?

Broader Implications for Agricultural Markets

The Tyson Lexington situation illustrates how market concentration—with four firms controlling 81-85% of beef processing, up from 25% in 1977—fundamentally alters market dynamics. Similar patterns in dairy, with comparable concentration levels, suggest these aren’t isolated incidents but structural trends.

What’s becoming increasingly clear:

Processor capacity decisions significantly influence regional pricing dynamics
Economic impacts flow predictably from rural communities toward corporate returns
Reduced price transparency through formula contract dominance creates structural advantages for processors
These patterns appear consistent across protein sectors

What remains less certain:

The potential for meaningful antitrust enforcement or policy intervention
Timeline and effectiveness of producer collective action
Whether technological or market innovations might create alternatives
How consumer preferences might influence market structures

Understanding these dynamics isn’t about pessimism—it’s about realistic assessment. Market structures have evolved significantly from previous generations’ experience. Success requires recognizing these changes, adapting strategically, and working collectively where appropriate to maintain competitive markets.

The fundamental question isn’t whether consolidation will continue—current trajectories suggest it likely will. The question becomes how producers can best position themselves within evolving market structures while advocating for policies that preserve competitive dynamics.

What unfolds in Lexington over the coming months may preview developments in other agricultural regions. Producers who understand mechanisms like basis compression, price discovery evolution, and formula contract implications will be better positioned to navigate these changes. Those who don’t may find themselves questioning why returns diminish even as demand appears stable.

Markets evolve. Producers who recognize and adapt to structural changes while maintaining operational excellence will be best positioned for long-term success. And perhaps, with sufficient understanding and collective action, we can influence how these markets develop rather than simply reacting to changes imposed upon us.

INDUSTRY RESOURCES

Wisconsin Farmers Union: 715-723-5561, www.wisconsinfarmersunion.com
Northeast Organic Dairy Producers Alliance: 413-772-0444, www.nodpa.com
National Milk Producers Federation: 703-243-6111, www.nmpf.org

KEY TAKEAWAYS

The $10,000 Question: When processors close regional plants, your cull cow basis widens $2-3/cwt—costing a 1,000-cow dairy $10,000-14,000 annually in lost revenue
Decode the Language: “Network optimization” = plant closures coming. “Supply challenges” = margin restoration through consolidation. “Efficiency improvements” = fewer buyers for your milk
The Math That Matters: 4 firms control 85% of processing + only 20% cash market trading = they set prices, you take them
Your Action Plan: Track basis monthly (the gap between futures and your check), build regional producer networks for price transparency, and avoid long-term contracts during consolidation periods
The Pattern Is Clear: The same consolidation that eliminated 61% of dairy farms in 25 years is accelerating—understanding it is your best defense

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The 90-Day Dairy Pivot: Converting Beef Windfalls into Next Year’s Survival – Provides a tactical roadmap for protecting margins when beef plants close, detailing specific culling thresholds and component strategies that generate an additional $266 per cow while navigating the volatile basis spreads affecting cull values.
Why Dairy Markets Can’t Self-Correct Anymore – Delivers a deep strategic analysis of the “economic handcuffs” and structural consolidation patterns—identical to those seen in the Tyson case—that are preventing traditional market corrections and permanently altering regional milk pricing dynamics.
Dairy Wins, Beef Loses: Inside the 18-Month Window Where $1,400 Calves Meet Record Component Premiums – Reveals how progressive herds are using genetic innovation to counter the beef industry’s contraction, demonstrating how to capture $600-$700k in new revenue by filling the supply void left by the very cattle shortages Tyson is citing.

Join the Revolution!

Categories : Dairy Markets

Tags : beef on dairy strategy, cattle basis pricing, Cull cow revenue, Dairy Farm Profitability, dairy market analysis, processor consolidation, US dairy outlook

The $11 Billion Reality Check: Why Dairy Processors Are Banking on Fewer, Bigger Farms

Saturday, November 22nd, 2025

The math is brutal: At $11.55/cwt margins, your 350-cow dairy bleeds $20K monthly. Here’s why processors still invest billions.

EXECUTIVE SUMMARY: American dairy is witnessing an unprecedented paradox: processors are investing $11 billion in expansion while margins have collapsed to $11.55/cwt, forcing 2,100-2,800 farms toward exit by 2026. The explanation is stark—processors have pre-secured 70-80% of future milk supply through exclusive contracts with mega-dairies, banking on industry consolidation from 26,000 to 15,000 farms. Current economics make this inevitable: mid-sized operations lose $20,000 monthly while 3,000-cow dairies maintain profitability through $4-5/cwt scale advantages that management excellence cannot overcome. A severe heifer shortage (357,000 fewer in 2025) ensures these dynamics persist regardless of price recovery, creating a biological ceiling on expansion. Farmers face three critical deadlines—May 2026 for viability assessment, August 2026 for processor clarity, and December 2026 as the final repositioning window. This transformation differs fundamentally from previous cycles: no government intervention is coming, traditional recovery mechanisms don’t exist, and the structural changes are permanent.

I was reviewing the October USDA milk production report with a group of producers, and we all noticed the same paradox. We’re producing 18.7 billion pounds of milk—up 3.9% from last year—yet margins have compressed from $15.57 to $11.55 per hundredweight since spring. Meanwhile, processors are committing approximately $11 billion to major new facilities through 2028.

One producer from central Pennsylvania put it perfectly: “How does massive processor expansion make any sense when we can barely cover feed costs?”

After months of analyzing this disconnect—visiting operations from the Central Valley to Vermont, reviewing research from land-grant universities, tracking processor announcements—what’s emerging is a fundamental restructuring of American dairy. This goes beyond typical market cycles into something more permanent, and understanding these shifts has become essential for strategic planning.

The Margin Meltdown: From Surviving to Drowning in 15 Months – Dairy margins collapsed 26% since September 2024, dropping from $15.57/cwt to just $11.55/cwt. For a 350-cow operation producing 6 million pounds annually, that’s $240,000 in lost income—enough to wipe out equipment budgets and force impossible decisions at kitchen tables across dairy country

Key Numbers Shaping Our Industry

Before we dive deeper, here are the metrics that matter most for operational planning:

Production & Margins:

Milk production: 18.7 billion pounds (October 2025, +3.9% year-over-year)
Current margins: $11.55/cwt (down from $15.57 in September 2024)
National herd: 9.35 million cows (highest since 1993)
Production per cow: 1,999 lbs/month (24 major states)

Processor Investment:

Total commitment: approximately $11 billion
Major new facilities through 2028
Supply commitments: 70-80% already locked through contracts

Heifer Shortage:

Current inventory: down 18% from 2018
Replacement cost: $3,000-4,000+ (previously $1,700-2,100)
2025 shortage: 357,000 fewer heifers
2026 shortage: 438,000 fewer heifers

Industry Projections:

Expected exits: 2,100-2,800 farms by end-2026
Exit rate: 7-9% of current operations
Most affected: 200-700 cow operations

The Production Paradox: Regional Perspectives

The latest USDA data shows we’re milking 9.35 million cows nationally—the highest count since 1993. But the story varies dramatically by region, and that variation matters for understanding what’s ahead.

Michigan operations are achieving a remarkable production of 2,260 pounds per cow per month. A producer near Lansing recently told me their herd’s averaging 95 pounds daily with consistent butterfat levels above 3.8%. That’s exceptional management paired with strong genetics.

Texas presents another fascinating case. They’re running 699,000 head now—the most since 1958—with production up 11.8% year-over-year. The panhandle operations I visited in September have adapted dry lot systems that work remarkably well in their climate, though water access remains a growing concern.

But regional differences create vastly different economic realities. A Wisconsin producer I work with regularly—running 300 cows with excellent grazing management—calculated that they’re facing approximately $240,000 less income than in September 2024. That’s based on their 6 million pounds annual production at current margins. For context, that’s their entire equipment replacement budget for the next three years.

Meanwhile, when I visited Tulare County last month, the 3,000-cow operations there are weathering margin compression better. Their operating costs run $4-5 per cwt lower than Midwest mid-size farms—not through better management, but through scale efficiencies in feed procurement, labor utilization, and infrastructure amortization.

The international dimension adds another layer. European production bounced back strongly in September—up 4.3% according to Eurostat data. France increased by 5.8%, Germany by 5%, and the Netherlands jumped by 6.9% despite their nitrate restrictions. A dairy economist colleague in Amsterdam tells me Dutch producers are maximizing production before additional environmental regulations take effect in 2026. This surge is pressuring our export markets precisely when domestic demand remains sluggish.

Understanding Processor Strategy: The View from Industry

The $11 billion processor investment initially seems counterintuitive. Why expand when farm margins are collapsing? The answer becomes clearer when examining specific projects and their strategic positioning.

Chobani’s $1.2 billion Rome, New York, facility—their largest investment to date—will process 12 million pounds daily upon full operation. That volume could come from about 40 mid-size farms, or more realistically, from 3-4 mega-dairies with guaranteed supply contracts.

During a recent industry meeting in Chicago, a procurement manager from a major processor (who requested anonymity) shared their perspective: “We’re not building for today’s milk market. We’re positioning for 2030 when global demand exceeds supply and premium products command higher margins.”

Walmart’s strategy offers another angle. Their third milk plant in Robinson, Texas, opens in 2026, continuing their vertical integration push. Based on standard industry practices and Walmart’s previous facility operations, these supply commitments typically extend for a minimum of 5-7 years.

The geographic clustering is noteworthy. Hilmar’s Dodge City facility and Leprino’s Lubbock plant—both processing 8 million pounds daily—are positioned in regions with concentrated mega-dairy operations and favorable logistics for export markets.

CoBank’s August analysis reveals that processors have already secured 70-80% of the required milk supply through long-term contracts, predominantly with operations milking 2,000+ cows. This pre-commitment strategy represents a departure from historical reliance on the spot market.

Follow The Money: Where Processors Are Building Your Replacement – New York leads with $2.8 billion (Chobani’s $1.2B Rome plant, Fairlife’s $650M facility), while Texas adds $1.5 billion targeting mega-dairy regions. This geographic clustering reveals processor strategy: invest near concentrated large operations with guaranteed supply. If your state isn’t on this map, ask yourself why

Ben Laine from Rabobank articulated this shift well during a recent webinar: “Companies aren’t investing hundreds of millions without secured supply. The relevant question for producers is whether they’re included in these long-term arrangements.”

The global context drives processor confidence. The International Dairy Federation’s April report projects a potential 30-million-ton global milk shortage by 2030, while even conservative IFCN estimates suggest a 6-10 million ton deficit. Chinese import data reinforces this outlook—cheese imports up 13.5%, whole milk powder up 41% through September, according to USDA Foreign Agricultural Service tracking.

There’s also an unexpected shift in demand for GLP-1 medications. With 30 million Americans now using these drugs, according to IQVIA’s pharmaceutical data, consumption patterns are changing dramatically. Whey protein demand increased 38% among users, while cheese and butter consumption declined 7.2% and 5.8% respectively. For processors with flexible infrastructure, this creates opportunities in high-margin protein products.

The Heifer Shortage: A Constraint Years in the Making

The replacement heifer situation deserves careful attention because it represents a multi-year constraint on expansion regardless of price improvements.

Current inventory sits 18% below 2018 levels according to CoBank’s analysis. At a recent sale in Fond du Lac, Wisconsin, quality springer heifers brought $4,500—compared to $2,200 for similar genetics five years ago. A producer from Idaho mentioned paying $4,800 for exceptional genetics last month.

The Perfect Storm: Vanishing Heifers, Exploding Prices – Since 2018, dairy heifer inventory plummeted 18% to a 47-year low of 3.91 million head while prices rocketed 50% to $3,010—with top genetics fetching $4,500. This biological ceiling locks the industry into its current structure until 2027, regardless of milk price recovery. Expansion is now mathematically impossible for most operations

The shortage—357,000 fewer heifers in 2025, rising to 438,000 fewer in 2026—stems from rational individual decisions that create collective constraints. When beef-on-dairy calves bring $1,400-1,600 while raising a replacement costs $2,800-3,200, the economics are clear.

A California dairyman running 1,500 cows told me they went 80% beef-on-dairy in 2023-2024. “At those prices, it was irresponsible not to,” he explained. Even traditionally conservative Midwest operations shifted 40-50% of breedings to beef genetics.

Dr. Kent Weigel from UW-Madison’s dairy science department frames it well: “Producers made financially sound individual choices that collectively created a demographic cliff for the industry.”

The regional impacts vary significantly. Idaho’s expanding operations are aggressively bidding for available heifers, driving prices higher across the West. Pennsylvania’s smaller farms face a different challenge—they simply can’t compete financially for limited replacement inventory.

This creates a biological ceiling on expansion that price signals alone can’t overcome. Even if milk prices reached $20 per cwt tomorrow, most operations couldn’t expand without available replacements.

Historical Context: Why This Cycle Differs

Having worked through previous downturns, the current situation presents unique characteristics worth examining.

The 2009 crisis saw milk prices crash from $24 to $8.80 per cwt—a devastating 63% decline. But Congress responded with $3.5 billion in direct support, and USDA purchased 379 million pounds of milk powder to stabilize markets. Those interventions, combined with natural supply adjustments, enabled recovery within 18-24 months.

The 2015-2016 downturn followed a different pattern. Without direct payments, the industry relied on market forces. Global weather challenges and China’s growing imports eventually tightened supply, supporting price recovery by 2017-2018.

Today’s environment lacks these recovery mechanisms. Current USDA policy emphasizes market solutions over intervention. The Dairy Margin Coverage program triggers only at $9.50 per cwt—well below current margins of $11.55. Even when triggered, coverage caps at 5 million pounds annually, providing limited support for larger operations.

More significantly, processor supply commitments through 2030-2034 have pre-allocated market access in ways that didn’t exist during previous cycles. A Northeast cooperative board member recently described this as “musical chairs where the music has already stopped for many producers.”

Dr. Andrew Novakovic from Cornell’s dairy program observes that, unlike previous downturns with natural recovery mechanisms, “this transformation represents structural reorganization that doesn’t self-correct through normal market cycles.”

Scale Economics: The Widening Gap

The economic disparities between operation sizes have widened beyond what management excellence can overcome. Data from the University of Minnesota’s FINBIN system and USDA surveys reveals striking differences.

A typical Wisconsin 350-cow operation incurs costs of around $20.85 per cwt, with fixed costs accounting for 38% of that total. Compare that to a 3,000-cow Texas panhandle operation at $16.16 per cwt with only 25% fixed costs. That $4.69 difference translates to roughly $394,000 annually—often the difference between profit and loss.

The Unbridgeable Cost Gap: Why Scale Now Determines Survival – Mid-size operations hemorrhage $4.69/cwt more than mega-dairies—a $394,000 annual disadvantage that excellent management cannot overcome. While 350-cow Wisconsin farms struggle at $20.85/cwt, 3,000-cow Texas operations cruise at $16.16/cwt. This isn’t about farming better; it’s about farming bigger, and processors are betting accordingly with their $11 billion investment

Interestingly, California’s mid-size operations (500-750 cows) achieve competitive costs around $17-18 per cwt through different strategies. They utilize more contracted labor, which provides flexibility during margin compression despite higher hourly costs.

Beyond direct operating expenses, scale creates compounding advantages. Large Idaho operations negotiate feed contracts at $0.50-1.00 per cwt below spot prices. Labor efficiency reaches $183 per cow annually, compared with $343-514 for Northeast mid-size farms. A robotic milking system costs $83 per cow to amortize at a 3,000-head scale but $714 at a 350-head scale.

Dr. Christopher Wolf from Cornell captures this reality: “We’ve moved beyond management quality as the primary determinant of success. Structural economics now dominate, where excellent managers at smaller scales face insurmountable cost disadvantages.”

Processor Relationships: The New Reality

The evolution of processor-producer relationships represents a fundamental shift that many producers haven’t fully grasped.

Modern facilities require 5-12 million pounds per day from consolidated sources, typically through 5-10-year exclusive agreements. A central Pennsylvania producer recently shared their experience: offered a premium for exclusive supply but required a commitment to all production through the decade’s end—no spot sales, no price shopping during market spikes.

These contracts include strict confidentiality provisions, creating information asymmetry. While processors map regional supply commitments years in advance, individual producers lack visibility into capacity allocation. Your neighbor might have secured long-term access while you’re still assuming spot markets will continue.

The timing matters critically. Major processors locked supply agreements in 2023-2024 when planning current expansions. Producers now recognizing tightening access are discovering capacity is already committed through 2030.

Several New York producers mentioned their long-standing processor relationships—some spanning 30+ years—are being “reassessed” for 2026. That’s industry language for supply consolidation toward larger operations.

Community Impacts: Beyond the Farm Gate

The projected 2,100-2,800 farm exits by end-2026 create ripple effects throughout rural communities. The Center for Dairy Profitability at UW-Madison developed these projections based on current exit rates and economic pressures.

Consider Marathon County, Wisconsin, with approximately 180 dairy farms. An 8% exit rate means 14-15 operations closing. Each supports an ecosystem—equipment dealers, nutritionists, veterinarians, feed suppliers—all of which are losing revenue simultaneously.

Projection show that 40% of Northeast dairy equipment dealers will consolidate or close by 2027, as demand drops by 30%. The implications extend beyond sales to parts availability, service expertise, and technology support for remaining operations.

Veterinary services face particular challenges. The American Association of Bovine Practitioners projects service reductions of 15-25% in dairy regions. Northern Minnesota already has one large-animal practice serving five counties. When economic forces drive further consolidation, emergency coverage becomes problematic.

School districts in dairy-dependent counties could lose 5% of their property tax base. That translates to program cuts, route consolidations, and reduced educational opportunities for rural youth.

Bob Cropp, from the University of Wisconsin, quantifies what we’re losing: “These exits represent approximately 74 million farmer-years of accumulated expertise. That knowledge—built through generations of problem-solving and adaptation—cannot be quickly replaced.”

Decision Framework: Practical Steps Forward

Based on extensive discussions with financial advisors, producers, and industry analysts, here’s a framework for evaluating your operation’s position.

Immediate Assessment Priorities:

Calculate true operating costs, including family labor at market value. Many operations undervalue owner labor, distorting profitability assessments. If 80-hour weeks at zero value keep you “profitable,” that’s not sustainable.

Working capital should be at least 25% of annual revenue. Wisconsin’s Farm Credit offices recommend a 30% allocation given current volatility. Debt-to-asset ratios above 60% limit refinancing flexibility according to multiple ag lenders.

Most critically, seek clarity from milk buyers about 2026-2027 commitments. Vague responses or deferrals suggest capacity is already allocated elsewhere. February 2026 represents a critical deadline for securing clarity.

Warning Signals to Monitor:

Subtle changes often precede major shifts. Processors asking about “future plans” after years of routine relationships are assessing supplier consolidation options. Lenders requesting earlier reviews or suggesting consultants have identified concerning trends in your financials.

Regional consolidation patterns matter. Multiple exits within six months indicate accelerated structural change rather than normal attrition.

Critical Timeline:

May 2026: Assess whether operations can sustain through late 2026 without margin improvement. August 2026: Processor commitments and regional consolidation patterns become clear. December 2026: Final window for strategic repositioning before options significantly narrow

The 18-Month Decision Gauntlet: Three Deadlines That Determine Your Farm’s Future – May 2026: Assess if you can survive the year. August 2026: Know if processors want your milk. December 2026: Your last window to act deliberately. Miss these deadlines, and circumstances will decide your fate—not you. Processors and mega-dairies already know the 2030 structure; sharing information with neighbors is your only counterweight

Strategic Paths for Different Situations

Based on current operations, successfully navigating these challenges:

Strong fundamentals (positive cash flow, manageable debt, processor commitment): Focus on operational efficiency over expansion. Build reserves during any margin improvements. Avoid major capital investments without secured long-term processor agreements. An Idaho producer recently canceled planned parlor expansion despite available capital due to uncertain processor signals.

Structural challenges (tight cash flow, high debt, uncertain processor access): Consider neighbor consolidation to achieve viable scale. Three New York operations recently merged to create an 1,800-cow enterprise—complicated but preferable to individual failure.

Premium market transitions require time and capital. Organic certification takes three years. Grass-fed requires an appropriate land base. A2 genetics need development time. These aren’t immediate solutions.

Exit timing matters if that’s your path. Current cattle values ($3,000-4,000 for quality animals) and strong farmland prices create windows that may narrow if exits accelerate.

Universal recommendations: Maximize Dairy Margin Coverage despite current margins above trigger levels—premiums typically run $0.10-0.20 per cwt for basic protection. Document monthly production costs rather than quarterly estimates. Develop relationships with multiple milk buyers, even with satisfactory current arrangements in place.

Emerging Market Forces: The GLP-1 Factor

Dairy Product	Consumption Change	Primary User Group
Cheese	-7.2%	General Users
Butter	-5.8%	General Users
Ice Cream	-5.5%	General Users
Milk/Cream	-4.7%	General Users
Yogurt High-Protein	+38.0%	Fitness Focus
Whey Protein	+41.0%	Fitness Focus

Looking Forward: Industry Implications

What we’re experiencing transcends normal market cycles into fundamental restructuring. The convergence of processor pre-positioning, heifer constraints, and widening scale economics creates permanent rather than temporary change.

Operational excellence remains necessary but insufficient. A well-managed 350-cow Pennsylvania operation faces structural disadvantages that exceptional management cannot overcome when competing against 3,000-cow Texas operations with locked processor contracts.

Time-limited decision windows define positioning for 2027-2030. Information asymmetry—where processors and mega-operations understand supply commitments while smaller producers operate in the dark—compounds the challenges. Traditional crisis recovery mechanisms no longer exist in the current market structure.

The central question isn’t management quality but structural positioning within emerging industry architecture. For many operations, honestly assessing this question—though difficult—enables deliberate choices rather than outcomes driven by circumstance.

The dairy industry will certainly continue producing milk. Whether individual operations participate in that future, and in what form, depends on decisions made within current windows. What’s encouraging is that informed decisions still influence outcomes despite powerful structural forces.

Regional collaboration strengthens individual positions. Sharing information, comparing strategies, and coordinating responses—even when processors prefer confidentiality—creates collective strength. This remains our industry, even as it transforms more rapidly than many anticipated.

The path forward requires accepting new realities while maintaining the innovative spirit that has always characterized American dairy. Those who adapt deliberately rather than reactively will find opportunities within structural change. The key is acting on information rather than hope, making strategic choices rather than letting circumstances decide.

Key Takeaways:

The game has changed permanently: Processors invested $11 billion betting on 15,000 farms by 2030, pre-locking 70-80% of milk supply with mega-dairies—if you lack a long-term contract, you’re competing for scraps
Scale economics are now destiny: A 350-cow farm bleeds $20,000 monthly at current margins while 3,000-cow operations profit—this isn’t poor management, it’s structural disadvantage
Biological ceiling locks in consolidation: With 357,000 fewer heifers and beef-on-dairy economics, expansion is impossible for 2-3 years, regardless of price recovery
Three deadlines determine your fate: May 2026 (viability assessment), August 2026 (processor commitment), December 2026 (final repositioning)—decide deliberately, or circumstances will decide for you
Information asymmetry is real: While you see falling milk checks, processors and mega-farms already know the 2030 industry structure—sharing information with neighboring farms is your only counterweight

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

The Hidden Cost of Every $1,200 Beef Calf: A $4,000 Heifer Bill – Reveals the “Forward Replacement Inventory Formula” to prevent six-figure heifer shortages, demonstrating how weekly monitoring of pregnancy ratios can save operations from the current $4,000 replacement crisis.
Why Dairy Markets Can’t Self-Correct Anymore: The Hidden Forces Reshaping the Dairy Industry’s Future – Analyzes six permanent structural changes—from European cooperative mandates to digester revenue—that have broken traditional market cycles, explaining why waiting for a standard recovery is no longer a viable strategy.
The Tech Reality Check: Why Smart Dairy Operations Are Winning While Others Struggle – Provides a 5-dimension framework for AgTech investment, exposing why most robotic implementations fail to deliver ROI before year 4 and how to avoid the “lottery ticket” approach to modernization.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy farm consolidation, dairy processor contracts, farm profitability strategies, heifer inventory shortage, milk production margins, scale economics dairy

October’s 6,000-Cow Reality Check: Why the Smart Money Is Culling at Record Prices

Friday, November 21st, 2025

October data: Production ↑3.7%, Herd ↓6,000 cows. First reduction of 2025. What smart producers know that you might not.

EXECUTIVE SUMMARY: October revealed dairy’s inflection point: producers culled 6,000 cows while production rose 3.7%, proving that margin math now trumps expansion momentum. At $16.91 milk and $165 cull values, keeping a cow losing $45/month means refusing $1,950 in immediate cash—a calculation thousands of farm families have already made. The heifer shortage (the lowest since 1978) has pushed replacements to $4,200, effectively locking the industry into its current size regardless of dreams of price recovery. Geography has become destiny, with new processing plants creating permanent $1.50/cwt advantages that no amount of good management can overcome. While some wait for $22 milk to return, successful operations are already adapting through component optimization, forward pricing, and even geographic relocation. October’s 6,000-head reduction isn’t a statistic—it’s 6,000 individual decisions that collectively signal dairy’s new reality: adapt to $17-19 milk or exit.

This caught my attention because it suggests we’re witnessing a pivotal moment where operational economics are beginning to override expansion momentum. After spending the week talking with producers and economists across Wisconsin, Texas, Idaho, and New York, what struck me is how this single data point reflects deeper strategic shifts happening across the industry.

Looking at the USDA’s October milk production report released this afternoon, total production reached 19.47 billion pounds, continuing the growth trend we’ve seen all year. But that 6,000-cow reduction? That’s producers voting with their culling decisions, signaling that margin pressures are finally forcing hard choices.

**The economic calculation forcing dairy producers to choose between $1,950 immediate cash or continued monthly losses of $45 per marginal cow—explaining October’s historic 6,000-head reduction.**

Dr. Marin Bozic, who tracks dairy economics at the University of Minnesota, offered an interesting perspective during our discussion. He noted that these patterns remind him of previous structural adjustments in commodity markets—times when the industry had to recalibrate expectations.

“What we’re observing isn’t just price pressure—it’s the convergence of biological lags from past breeding decisions meeting current economic realities. The industry is essentially paying for decisions made three years ago.”
— Dr. Andrew Novakovic, E.V. Baker Professor of Agricultural Economics, Cornell University

Here’s what’s particularly interesting—industry perspectives vary considerably on what this means. Some analysts I’ve spoken with suggest we’re seeing a temporary oversupply that could resolve with strong export demand or weather-related production disruptions by late 2026. Others see signs of more fundamental market restructuring.

And honestly? Both camps make compelling arguments.

Let me walk you through what the data tells us, and you can draw your own conclusions…

October 2025: The Numbers Behind the Decision

Metric	Value	Source
National Herd Size	9.35 million head	USDA Milk Production Report
Year-over-Year Change	+12,000 head	USDA NASS
October Adjustment	-6,000 head	USDA NASS
Milk Production	19.47 billion lbs (+3.7% YoY)	USDA NASS
Class III Milk Price	$16.91/cwt	USDA-AMS
Cull Cow Value	$165/cwt (Southern Plains avg)	USDA Direct Cattle Report
Replacement Heifer Cost	$3,010 (July avg)	USDA-AMS Auctions
Daily Feed Investment	$8.50/cow	UW Extension

The Math Behind October’s Culling Decisions

Here’s what struck me as particularly revealing: the national herd stands at 9.35 million head—essentially flat with only 12,000 more cows than in October 2024. Given all the processing capacity that’s come online recently, you’d expect more aggressive expansion. But that’s not what we’re seeing.

I spent time this week with a Wisconsin dairy operator managing 2,100 cows who walked me through their October decision-making. With Class III milk at $16.91 and feed costs around $8.50 daily, their bottom-quartile cows—those averaging 65 pounds versus the herd average of 85—were generating negative margins of about $45 monthly.

Meanwhile, cull values in the Southern Plains were hitting $165 per hundredweight.

Think about that calculation for a moment: $1,950 in immediate cash versus continued negative margins. It’s not an easy decision, but it’s becoming increasingly common.

What made October particularly significant was this convergence of pressures:

Milk prices are settling at $16.91, well below the $20-23 range that justified 2023-2024 expansion plans
Feed costs are stabilizing around $8.50 per cow daily (University of Wisconsin Extension’s November data)
Cull cow values are reaching near-historic levels at $165/cwt in the Southern Plains
Replacement heifers averaging $3,010, up from $1,720 in April 2023
December Class III futures are showing $17.21 on the CME—not exactly a recovery signal
Processing facilities are dealing with utilization challenges despite $10 billion in recent investments (CoBank’s August assessment)

An Idaho producer I spoke with, managing 450 cows near Twin Falls, described it this way: “We’re evaluating every animal’s contribution to cash flow. It’s about making data-driven decisions, not emotional ones.”

The Heifer Shortage Nobody Saw Coming (Except Everyone Should Have)

**Replacement heifer prices exploded 144% from $1,720 to $4,200 between April 2023 and November 2025, creating an unprecedented shortage that locks the industry into its current size until 2027.**

What’s fascinating—and honestly, a bit frustrating—is how predictable the current heifer shortage was, yet how unprepared we seem to be for it.

The price explosion from $1,720 to over $4,000 isn’t inflation; it’s the bill coming due for decisions made years ago.

According to USDA data, dairy heifer inventory hit 3.914 million head in January 2025—the lowest since 1978. I had to double-check that number because it seemed impossible. But it’s real, and it stems from entirely rational decisions made during the challenging price environment of 2015-2021.

When milk prices stayed in that $12-14 range for years, producers did what made economic sense: they bred with beef semen instead of raising dairy replacements. The National Association of Animal Breeders reports beef semen sales to dairy operations nearly tripled from 2017 to 2020.

We essentially removed 800,000 dairy heifers from the pipeline—about 130,000 per year.

Here’s the kicker that keeps me up at night: those breeding decisions from 2019-2021? Those missing heifers would be entering herds right now. Instead, we’ve got producers competing fiercely for the limited genetics available.

A procurement specialist for a large Texas Panhandle operation shared something revealing: “We locked in heifer contracts in early 2023 at $1,900, thinking we were being conservative. Those same genetics are $4,200 today. If we’d modeled $16.91 milk instead of $21, our entire expansion strategy would’ve been different.”

There’s a glimmer of hope, though. Gender-sorted semen sales jumped 17.9 percent from 2023 to 2024—1.5 million additional units, according to the National Association of Animal Breeders.

But meaningful relief? We’re probably looking at 2027.

Regional Realities: Why Your Zip Code Matters More Than Ever

Regional production growth reveals how new processing investments in Idaho (7.0%) and California (6.9%) create permanent $1.50/cwt advantages that no amount of management can overcome in lagging regions.

Looking at the October state-by-state data, what jumped out at me was how dramatically different the dairy economy looks depending on where you’re standing.

The growth stories:

California: Up 6.9 percent (though comparing against last year’s bird flu challenges)
Idaho: Up 7 percent (that new Glanbia cheese plant in Twin Falls is pulling everything)
Texas: Added 26,000 cows despite yield challenges
Michigan: Up 4.3 percent
New York: Up 4 percent

But here’s where it gets interesting. A Pacific Northwest producer managing 1,800 cows near Lynden, Washington, shared their reality: “We’re getting $16.16 per hundredweight while Idaho producers see $17.66. That $1.50 difference? It’s because we’re shipping to powder plants while they’re shipping to cheese plants.”

This illustrates something I’ve been tracking for a while—the growing divide between regions with new processing investments and those without. The Federal Milk Marketing Order system, despite updates in 2024, still creates these regional disparities based on fluid demand assumptions from another era.

Processing investments are reshaping the geography of dairy: Leprino Foods’ $870 million Lubbock facility, Fairlife’s $650 million New York expansion, and Great Lakes Cheese in Abilene.

These aren’t just plants; they’re creating new centers of gravity for milk production.

Success Stories: Adaptation in Action

While challenges dominate headlines, I’ve encountered several operations that have successfully navigated current conditions through strategic adaptation.

A 1,200-cow operation in central New York completely restructured their approach this summer. They shifted focus from volume to components, reformulated rations to optimize butterfat (accepting a 4 percent volume decrease in exchange for a 0.35 percent butterfat improvement), and locked in 70 percent of their 2026 production through forward contracts.

The result? They’re projecting positive margins even at $17.50 milk.

Another success story comes from a Wisconsin cooperative that pooled resources among five family farms to negotiate better component premiums directly with their processor. By guaranteeing consistent high-component milk, they secured an additional $0.85/cwt premium above standard pricing.

In Pennsylvania, a 600-cow operation near Lancaster took a different approach entirely. They invested in on-farm processing, launching a farmstead cheese operation that now processes 30 percent of their production.

“We realized we couldn’t compete on commodity milk,” the owner explained. “But we could capture more value through differentiation. Our cheese sales are covering the losses on our fluid milk.”

What these operations share is a willingness to challenge traditional approaches and adapt to new realities rather than waiting for old conditions to return.

The Export Paradox and What It Really Means

Here’s something that initially puzzled me: September exports were phenomenal—cheese up 28 percent, butterfat exports nearly tripled according to the USDA.

Yet farm-level milk prices remain depressed. How does that math work?

The answer reveals an uncomfortable truth about global competitiveness. CME cheese at $1.56 per pound versus European cheese at approximately $1.90 (converted from euros) gives us an 18 percent price advantage.

We’re competitive precisely because our prices have fallen.

After processing and logistics, that $1.56 cheese price translates to farm-level milk values around $12.40 per hundredweight. That’s below breakeven for most operations.

So yes, exports are strong, but they’re preventing collapse, not driving recovery.

Mexico accounts for about 30 percent of our exports, according to the U.S. Dairy Export Council. But Rabobank’s November analysis flags something concerning: Mexico is actively building domestic production capacity with government support.

If they reduce imports by even 20 percent, that would be a significant demand shock.

Risk Scenarios: What Could Change Everything

While I’ve focused on current trends continuing, it’s worth considering what could dramatically shift the market:

Disease outbreak: An H5N1 resurgence affecting 5-10 percent of the national herd would immediately tighten supply and drive prices higher. Nobody wants this scenario, but it remains a possibility.

Weather extremes: A severe drought across the Midwest in summer 2026 could quickly reduce production by 3-4 percent. Combined with current tight heifer supplies, this could push milk prices back above $20.

Trade disruptions: New tariffs or trade agreements could fundamentally alter export dynamics. A comprehensive trade deal with Southeast Asian nations could open significant new demand.

Processing consolidation: If one or two major processors face financial stress and close facilities, regional oversupply could quickly become undersupply.

These aren’t predictions—they’re reminders that dairy markets can shift rapidly when unexpected events occur.

Practical Strategies for Navigating Current Conditions

Based on conversations with producers successfully adapting to current conditions, several strategies deserve consideration:

Margin-Based Management

Evaluating individual cow contributions monthly provides objective retention criteria. Several producers mentioned using $40 monthly contribution as their threshold, though your specific number will depend on your cost structure.

Component Optimization

With butterfat premiums at $0.50-1.50/cwt above base (varying by cooperative), optimizing for components rather than volume can improve margins. This might mean accepting lower production for higher component percentages.

Geographic Assessment

Honestly evaluating your regional competitive position matters more than ever. If you’re in a structurally disadvantaged region, consider whether repositioning—through relocation, market channel changes, or value-added production—makes sense.

Risk Management Tools

Forward pricing isn’t about predicting markets; it’s about creating certainty. Several producers described securing 50-70 percent of future production at known prices, allowing them to plan with confidence.

Collaborative Approaches

Producer cooperation—whether through joint marketing, shared resources, or collective bargaining with processors—is gaining traction as a strategy for improving positioning.

Looking Ahead: Key Indicators to Watch

The November and December production reports will reveal whether October’s 6,000-head reduction was an isolated adjustment or the beginning of something bigger.

Here’s what I’ll be watching:

Herd trajectory: Another 5,000+ reduction would signal systematic adjustment. Stabilization suggests October was an anomaly.

Per-cow production: Changes exceeding seasonal norms could indicate compositional shifts in the national herd—are we keeping the best and culling the rest?

Regional divergence: Continued growth in Texas/Idaho, while other regions contract, would confirm geographic consolidation.

Component trends: Rising butterfat with declining volume would indicate a strategic focus on quality over quantity.

The Bottom Line: Adaptation, Not Capitulation

October’s 6,000-head culling amid production growth tells us something important: the industry is beginning to self-correct, with individual producers making rational decisions based on economic reality rather than expansion momentum.

This isn’t about doom and gloom—it’s about adaptation. The operations that recognize current conditions as a new reality rather than a temporary disruption are positioning themselves for long-term success.

They’re not waiting for $22 milk to return; they’re building businesses that work at $17-19.

What’s becoming clear from my conversations across the industry is that successful navigation requires three things: an honest assessment of your specific situation, a willingness to challenge traditional approaches, and the courage to make difficult decisions based on data rather than hope.

The dairy industry has weathered massive transitions before—the shift from small diversified farms to specialized operations, the technology revolution, and multiple trade upheavals. Each time, those who adapted thrived while those who resisted struggled.

Current conditions represent another such transition. How individual operations choose to respond will determine not just their immediate survival but their long-term positioning in whatever structure emerges.

As we await the next production reports, remember that behind every data point are real farming families making real decisions about their futures. The 6,000-head reduction isn’t just a statistic—it represents thousands of individual choices, each reflecting unique circumstances and strategic calculations.

The market is speaking. The question isn’t whether to listen, but how to respond thoughtfully and strategically to what it’s telling us.

Resources for Further Information:

USDA Milk Production Reports: www.nass.usda.gov
University Extension Dairy Programs: Contact your state extension service
Federal Milk Marketing Order Administrators: www.ams.usda.gov/about-ams/programs-offices/federal-milk-marketing-orders
Risk Management Tools: Contact your milk cooperative or CME Group Agriculture
Dr. Andrew Novakovic’s market analysis: Charles H. Dyson School of Applied Economics, Cornell University
Component Premium Information: Contact your regional cooperative

Key Takeaways:

The October Calculation: Keeping a marginal cow means refusing $1,950 cash today to lose $45/month tomorrow—that’s why 6,000 left the herd despite record milk production
The 2027 Reality: With heifers at $4,200 and inventory at 45-year lows, the industry is locked into current size until 2027, regardless of price recovery
Location Determines Survival: Processing investments have created permanent $1.50/cwt regional pricing advantages that no amount of good management can overcome
Three Paths Forward: Optimize for components (butterfat premiums worth $0.50-1.50/cwt), lock in 50-70% of production at $17-19, or relocate to advantaged regions
Bottom Line: October proved the market has fundamentally shifted—build a business that works at $17-19 milk or become a statistic

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Is Beef-on-Dairy causing America’s Heifer Shortage? – Reveals the structural root of today’s replacement crisis, detailing how the aggressive shift to beef genetics created the current inventory gap and why the recovery timeline is longer than market forecasts suggest.
Strategies for Dairy Farmers: Managing Feed Variation to Minimize Economic Stress – Provides actionable strategies for tightening feed bunk management and TMR consistency to protect margins, a critical tactical adjustment for producers navigating the current high-cost, tight-margin environment.
Optimize Your Dairy Farm: Lean Processes for Cleaner, More Efficient Operations – Demonstrates how to apply industrial “Lean” principles to dairy workflows, helping operations identify hidden inefficiencies and reduce labor costs without requiring significant new capital investment.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy impact, dairy culling strategies, Dairy Herd Management, farm profitability, heifer shortage, milk production report

Record Dairy Exports Hide a Brutal Truth: You’re Selling at a Loss

Wednesday, November 19th, 2025

Your co-op newsletter: ‘RECORD EXPORTS!’ Your milk check: -$2/cwt. Your banker: ‘We need to talk.’ The disconnect has never been wider.

EXECUTIVE SUMMARY: The U.S. dairy industry’s record cheese exports are actually distress sales, with producers losing $2/cwt as milk prices sit at $16.91 against $19 production costs. Mexico—buying 29% of our exports—is spending $4.1 billion to become self-sufficient, while China’s 125% tariffs have already destroyed our powder markets. The Class III-IV price spread has exploded to $4.06/cwt, the widest since 2011, forcing all production toward cheese that’s selling below profitability. Mid-size farms (500-1,500 cows) face extinction-level losses of $400,000+ annually, with survival limited to mega-dairies with 50% or less debt or premium operations near cities. Producers have 90 days to make irreversible decisions: scale massively, find niche markets, or exit before equity evaporates. The 800,000-head heifer shortage guarantees milk production will contract 3-5% through forced exits, but recovery won’t arrive until mid-2027—and only for the operations structured to survive.

On the surface, the numbers look fantastic. We exported 119.3 million pounds of cheese in August 2025—up 28% from last year, according to the Dairy Export Council. Butter exports nearly tripled. Processing plants are announcing $11 billion in new investments.

But check your bank account. The milk checks aren’t matching the celebration. The headlines say “Record Exports,” but the market reality says “Distress Sale.”

I’ve been talking with producers from Wisconsin down to Texas, and what I’m hearing doesn’t line up with these export headlines. Understanding this disconnect could be the difference between successfully navigating the next 18 months or becoming another casualty of industry restructuring.

The “record export” headlines your co-op newsletter celebrates tell only half the story. Yes, August 2025 cheese exports jumped 28% to 119.3 million pounds—but prices collapsed 13% to $1.82/lb. This is classic distress sale economics: moving volume at any price to avoid even bigger losses. When production costs sit at $18-19/cwt and you’re selling below $2/lb equivalent, every shipment deepens the red ink.

When Being the Cheapest Isn’t Actually Winning

The US dairy industry’s “record exports” mask a brutal reality: American cheese trades at $1.82/lb while European producers command $2.35/lb—a 45-60 cent disadvantage that signals desperation rather than competitive strength. When you’re underselling New Zealand butter by a full dollar per pound, you’re not winning global markets; you’re liquidating inventory below cost.

Here’s what’s bothering me about these export records. Global Dairy Trade auction results from November show American butter trading at $1.57 a pound. New Zealand? They’re getting $2.57. Our cheese is moving at $1.82 while Europeans fetch $2.27 to $2.42.

That 45 to 60 cent spread on cheese isn’t a competitive advantage. It’s desperation.

Penn State Extension’s 2025 dairy outlook shows that a typical 500-cow operation in Wisconsin or Minnesota has production costs running $18 to $19 per hundredweight. But milk prices? We’re at $16.91 for Class III according to CME October data. That’s annual losses of $32,000 to $62,000 for operations that size.

These record exports everyone’s celebrating are happening because we’re willing to sell at prices that don’t cover our costs. South Korean and Japanese buyers see cheap American dairy, and they’re stocking up. Can’t blame them. But volume at a loss isn’t success.

The Time Lag Trap We’re All Stuck In

The breeding decisions you made two years ago—when milk was over $20 per hundredweight—those heifers are just entering the milking herd now.

According to USDA’s latest milk production reports, we’ve added 200,000 cows to U.S. herds over the past 18 months. Every one of those additions made sense when the decision was made. But September production jumped 4.2% year-over-year, and we’re producing 18.3 billion pounds of milk at exactly the moment when global markets are saturated.

Your operation has maybe $300,000 to $500,000 in annual fixed costs—infrastructure doesn’t get cheaper just because milk prices drop. Equipment auction data from Machinery Pete shows you’re looking at 30 to 50% discounts from what things were worth two years ago if you try to sell now.

So we keep producing. We try to spread those fixed costs over more volume. It’s rational for each of us individually, but when everyone does it, oversupply drives prices even lower.

The Mexico Situation Nobody Wants to Talk About

While you’re focused on tariff headlines, Mexico is spending $4.1 billion to eliminate $1+ billion in US dairy imports by 2030. They’re not negotiating—they’re building processing plants in Campeche and Michoacán with 600,000-liter daily capacity and importing Holstein heifers from Australia. Mexico takes 29% of US dairy exports; losing even half that market erases profits for thousands of farms overnight.

While we’re celebrating that Mexico takes 29% of our dairy exports according to USDA Foreign Ag Service data, they announced last July that they’re spending $4.1 billion to become 80% self-sufficient in dairy by 2030.

They’re building processing facilities in Campeche and Michoacán that’ll handle 600,000 liters a day. They’ve imported 8,000 Holstein heifers from Australia—Dairy Australia confirmed that shipment. The Mexican government is guaranteeing their producers 12 pesos per liter.

Mexico buys 51.5% of all our nonfat dry milk exports, according to Export Council trade data. If they achieve even half their plan, we’re talking about losing a billion dollars or more in annual exports. This isn’t a trade dispute that’ll blow over. They’re building the infrastructure right now.

Why Powder Is Collapsing While Cheese Keeps Moving

Class III-IV pricing spread explodes to $4.06/cwt—matching 2011’s record gap and exposing dairy’s new geography of pain. Same cows, same work, but if your milk goes to butter and powder plants instead of cheese, you’re losing $15,000 monthly on a 500-cow operation. This isn’t market volatility; it’s structural divergence that’s rewriting the profitability map.

August export data shows cheese exports up 28%, but powder exports down 17.6%—the lowest August volume since 2019.

The October CME Spread tells the story:

Class III (Cheese): $17.81/cwt
Class IV (Powder/Butter): $13.75/cwt
Spread: $4.06/cwt—widest since 2011

For a 500-cow dairy, that’s a $50,000 swing in annual income depending purely on which plant takes your milk.

China put 125% tariffs on our dairy products back in March. We used to send them 70-85% of our whey exports. That market disappeared overnight. Processors are pushing every pound they can toward cheese because at least there’s still some margin there. Powder production? They’re running the minimum.

Different Operations, Different Realities

The dairy industry’s brutal bifurcation in one chart: mega-dairies break even at scale, mid-size operations hemorrhage $62K annually, while premium niche players bank $120K. If you’re running 500-1,500 conventional cows, you’re in the kill zone—producing milk at $17.05/cwt and selling it at $16.91. The math doesn’t work, and hoping for better prices won’t save you.

Based on the Center for Dairy Profitability at Madison and the Farm Credit System data:

Mega-dairies (3,500+ cows): Costs around $14.20 to $15.80/cwt thanks to automation and efficiency, according to Michigan State’s benchmarking study. If debt’s under 50% of equity, they can weather this storm. Some are buying out struggling neighbors at 30 to 50 cents on the dollar.

Mid-size operations (500-1,500 cows): The toughest spot. Production costs $16.30 to $17.80 based on Kansas State farm management data. With current milk prices, annual losses could exceed $400,000. Without a path to massive scale or premium markets, options are limited.

Premium niche (organic/grass-fed): Capturing $36 to $50/cwt through outfits like CROPP Cooperative are doing okay. But you need established customers near a city. Operations that went organic without premium market access are worse off than conventional farms due to higher feed costs.

Decision Time: The Next 90 Days Matter

Decision Path	Capital Required	Timeline	Equity Retained	Success Rate	Key Requirements
Exit Now (Controlled)	$0	90-120 days	85-95%	95% (preserve wealth)	Act before March 2026
Scale to Mega (3500+ cows)	$8-15 million	18-36 months	20-40% (high debt)	60% (if debt <50%)	Low debt + expansion capital
Pivot to Premium Niche	$500K-1.2M	36 months (organic)	70-85%	70% (w/ city proximity)	Within 50-100mi of major city
Status Quo / Wait & Hope	$0	Indefinite bleeding	0-50% (forced exit by 2027)	15-20% (statistically)	Hope for market recovery

Based on Purdue’s Commercial Ag projections and USDA’s long-term outlook, you’ve got critical decisions to make in the next three to six months.

Considering expansion? Interest rates are 7.5 to 9% according to the Fed, ag credit conditions. Kansas State data shows that expanding when prices are falling rarely works. Maybe pay down debt instead.

Considering exit? Asset values today versus 18 months from now could be the difference between keeping most of your equity or losing it all. Equipment markets have declined for 25 straight months, according to Equipment Manufacturers data.

Considering organic/grass-fed? It’s a three-year conversion with negative cash flow. You need to be within 50 to 100 miles of a major city, based on consumer research. Penn State Extension says you need off-farm income during transition.

The Heifer Shortage Silver Lining

Here’s your silver lining in a crisis: an 800,000-head heifer shortage over two years mathematically guarantees milk production will contract 3-5% by 2027. Replacement inventory sits at 20-year lows while heifer prices exploded from $1,140 to $3,010—a 164% jump that makes expansion impossible. This forced contraction is exactly what balances supply-demand and triggers recovery. The question: will you survive to see it?

CoBank’s latest report shows we’re at 20-year lows for dairy replacement heifers. We’re short about 800,000 replacements over the next two years.

When you can get $3,500 to $4,500 for a beef-cross calf versus keeping a dairy heifer worth $800 to $1,200 in this market, the math is obvious. Progressive Dairy’s breeding survey shows most producers are making that same decision.

The dairy herd has to shrink—probably 3 to 5% by 2027, according to USDA projections. That might balance supply and demand. Rabobank and CoBank project stabilization by mid-2027, with gradual improvement into 2028.

How Geography Changes Everything

California’s Central Valley faces water costs up 40% according to UC Davis Cost Studies. Meanwhile, South Dakota State University Extension’s 2025 Feed Cost Analysis shows operations there seeing feed costs $1.50 to $2.00/cwtbelow the national average.

Texas added 50,000 cows while Wisconsin stayed flat. That’s economics playing out in real time.

What This All Means for You

Those record export numbers? They don’t mean what the headlines suggest. Moving volume at a loss is a distress sale on a national scale.

The decisions you make in the next 90 days are more important than what you do over the next year. By March 2026, many options available today won’t exist.

Mexico’s self-sufficiency plan is real. We need to plan for our biggest customer becoming a competitor. The Export Council knows it, but I’m not seeing contingency planning at the farm level.

Scale alone won’t save anyone. I’ve seen big operations with too much debt go under, and small operations with good positioning thrive. It’s about your total situation—debt levels, geographic location, market access.

The bifurcation—where you’re either huge or niche—is accelerating. If you’re in that middle range, especially 200 to 1,000 conventional cows, you need to decide which direction you’re heading.

Recovery is coming through contraction. The heifer shortage guarantees that. The question is whether you’ll be around to see it.

Looking Down the Road

By 2028, based on projections from Texas A&M and Cornell, we’ll have fewer, larger operations handling commodity production and smaller, specialized operations serving premium markets. That middle ground where many of us operated for generations is disappearing.

This isn’t random volatility. It’s industry restructuring in response to global competition, changing consumer preferences, as the Innovation Center for U.S. Dairy has tracked, and the reality of 2025 production costs.

When you see export headlines in your co-op newsletter and wonder why your milk check keeps shrinking, remember—it’s not about volume. It’s about margins. The difference between acting strategically now versus hoping things improve could be the difference between preserving or losing your family’s equity.

The herd is heading off a cliff. The record exports are just the dust they’re kicking up. Don’t follow the volume—follow the margin. The next 90 days will decide if you’re a casualty of the restructuring or one of the few left standing to see the recovery.

KEY TAKEAWAYS

Your daily reality: At current prices, a 500-cow dairy loses $175/day ($62,000/year). The Class III-IV spread of $4.06/cwt means the same milk yields $50,000 in different income based purely on plant destination.
The export trap: Record volumes are happening BECAUSE we’re desperate—selling cheese at $1.82/lb while New Zealand gets $2.42/lb isn’t winning, it’s liquidation.
90-day decision window: By March 2026, you must choose—scale to 3,500+ cows, secure premium markets at $36+/cwt, or exit, preserving 85% equity (vs 0-40% if forced out later).
Geographic survival map: Texas/South Dakota operations save $1.50-2.00/cwt on feed. California faces +40% water costs. Location now determines viability as much as management.
The guarantee: 800,000-heifer shortage forces 3-5% production cut by 2027, ensuring recovery for survivors—but 40-50% of current operations won’t make it.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Your 2025 Dairy Gameplan: Three Critical Areas Separating Profit from Loss – Provides actionable protocols for optimizing silage density, methionine usage, and transition cow spacing to lower production costs below the $18/cwt break-even point, directly addressing the profitability gap highlighted in the main article.
2800 Dairy Farms Will Close This Year—Here’s the 3-Path Survival Guide for the Rest – Analyzes the industry bifurcation into premium, scale, or exit strategies, offering a concrete decision matrix for the 7-9% of mid-size operations facing immediate closure risks due to consolidation and regulatory pressure.
Smart Dairy Tech Isn’t Just Hype Anymore—It’s Your Competitive Survival Plan – Demonstrates how integrating IoT monitoring and automated systems can reduce feed costs by 15% and administrative labor by 40%, providing a proven pathway for family-scale operations to compete with mega-dairy efficiency.

Join the Revolution!

Categories : Dairy Markets

Tags : cost of production, Dairy Farm Profitability, dairy industry consolidation, farm equity protection, heifer shortage, milk price outlook, US dairy exports

Butter Down €270, Processors Up 25%: Europe’s Dairy Collapse Hits Home

Wednesday, November 19th, 2025

European dairy farmers are discovering that traditional market cycles no longer apply—and the implications reach far beyond the Netherlands

EXECUTIVE SUMMARY: When butter prices dropped by €270 in one week while processors reported 25% profit growth, it confirmed what many farmers suspected: the game has fundamentally changed. European cooperatives now profit from processing cheap milk rather than serving members, while retail algorithms lock in permanent price suppression—the recovery isn’t coming. With the Netherlands buying out farms for €1 million each and Germany losing eight operations a day, this isn’t a crisis; it’s a restructuring. Yet farmers capturing €0.95/liter through direct sales prove success is possible—just different than before. Smart operators are adapting now through specialty contracts, solar revenue, or value-added production, because after May 2027, government support ends, and today’s options disappear. The same patterns are emerging from Wisconsin to New Zealand, making this Europe’s story today, but everyone’s tomorrow.

You know, when butter prices in the Netherlands dropped €270 per tonne in a single week this November—hitting €5,040, the lowest we’ve seen in two years—the phone lines lit up across dairy country. Had a Dutch producer near Utrecht tell me something that really stuck: “This isn’t like 2015. Back then, we knew it would bounce back. Now? Nobody’s sure what normal looks like anymore.”

He’s right. The European Dairy Association’s November report shows this was the steepest drop they’ve recorded since they began monitoring weekly prices in 2018. But here’s what’s got everyone talking over morning coffee—processors like FrieslandCampina are reporting strong profits while our milk checks keep getting smaller. That disconnect… well, we need to understand what’s really happening here.

“This isn’t like 2015. Back then, we knew it would bounce back. Now? Nobody’s sure what normal looks like anymore.”
— Dutch dairy farmer near Utrecht

What we’re seeing across Europe right now—this mix of cooperative changes, retail evolution, and policy shifts—it’s creating something genuinely new. And I think these patterns offer insights for all of us, whether you’re milking in Wisconsin’s rolling hills or managing pastures down in New Zealand.

KEY FACTS AT A GLANCE

The Market Situation:

€270/tonne butter price drop in one week (November 2025)
€5,040/tonne current price—24-month low
56,500-tonne European butter surplus H1 2025

The Financial Picture:

FrieslandCampina: 25.7% profit increase H1 2025
Same period: 5.92 cent/liter milk price cut for farmers
US butter: €4,246/tonne vs. European: €5,100-5,500/tonne

The Demographics:

12% of EU farmers are under 40 years old
58% over 55 years old
Germany is losing 2,800 farms annually

The Policy Framework:

€32 billion Dutch nitrogen reduction program
€1 million average transition support per farm
70% nitrogen reduction targets in 131 areas by 2030

With 58% of EU dairy farmers over 55 and Germany bleeding 8 operations daily, the demographic cliff isn’t coming—it’s here. This isn’t a crisis; it’s a restructuring that’s creating opportunities for prepared operators while crushing those waiting for ‘normal’ to return.

The Numbers Tell a Story We Can’t Ignore

European butter prices collapsed €270 in a single week to hit €5,040 per tonne—the lowest level in 24 months. This isn’t your grandfather’s market cycle; it’s a structural breakdown that signals permanent change in dairy economics.

So here’s what’s interesting—and the scale is pretty remarkable when you dig into it. The Agriculture and Horticulture Development Board’s latest assessment shows that European butter production alone created a 56,500-tonne surplus in the first half of 2025. That breaks down to 37,500 tonnes from increased production, 6,500 from exports drying up, and another 12,500 from higher imports. We aren’t talking minor fluctuations here.

What really gets me is how the processors are doing. FrieslandCampina’s July report showed their profits jumped 25.7% in the first half of 2025—we’re talking €301 million to €363 million. Then October rolls around, and they announce a 5.92-cent-per-liter cut to November milk prices. That’s… that’s one of the biggest monthly drops I’ve seen in years.

Dr. Alfons Oude Lansink over at Wageningen put it perfectly when talking to Dairy Global recently. He said we’re seeing processor profitability completely decouple from what farmers are getting paid. The old assumption—that cooperative success meant member success—well, that’s being challenged in ways we haven’t seen before.

And the international price gap? Man, that’s something else. Vesper’s August analysis has European butter at €5,100-5,500 per tonne, while the USDA shows American butter at €4,246 per tonne. That’s a $1.26-per-pound difference. Usually, these gaps close within months, right? This one’s been hanging around nearly a year now. Makes you think we’re dealing with something more permanent than temporary market hiccups.

How Our Cooperatives Changed While We Weren’t Looking

I’ve been watching cooperatives for over twenty years, and what’s happened recently… it’s remarkable how fast things shifted. Remember when cooperatives were basically just marketing organizations for our milk? That model—the one many of us grew up with—has morphed into something way more complex.

Take FrieslandCampina. Their 2024 annual report shows they’re processing 19 billion kilograms of milk across 30 countries. Think about that scale for a minute. It requires management structures that would’ve been unimaginable when most of us started farming. There’s now multiple layers between your morning milking and the boardroom decisions that affect your milk check.

While FrieslandCampina’s profits soared 25.7% to €363 million, member farmers saw milk prices slashed 11.4% to 54 cents per liter. This is the fundamental disconnect reshaping European dairy—cooperatives now profit from cheap milk rather than serving members.

Jan Willem Straatsma—farms 140 cows near Leeuwarden and serves on the Members’ Council—he told me something that really resonates: “We still have voting rights, but the distance between my morning milking and boardroom decisions has grown considerably.” I think that captures what a lot of us are feeling, doesn’t it?

What’s really shifted in these modern cooperatives:

They’re pouring money into processing assets—FrieslandCampina spent over €500 million on capital expenditure in 2024 alone
Member equity requirements? Up about 40% over the past decade, according to Rabobank’s analysis
Governance now includes folks who, let’s be honest, probably haven’t mucked out a stall in their lives
Payment formulas have gotten so complex that neighbors with nearly identical operations can have vastly different milk checks

The guaranteed price system—€55.63 per 100kg in the first half of 2025—sure, it provides some stability. But when butter tanks while cheese holds steady, cooperatives have to make allocation decisions. And understanding how those decisions get made… that’s becoming crucial for all of us.

The Retail Game Has Completely Changed

Here’s something that might surprise folks back home: German grocery retail has consolidated to where just four groups control between 65.9% and 85% of the market. We’re talking Edeka, Rewe, Aldi, and Schwarz Group—they run Lidl and Kaufland. The German Federal Statistical Office confirmed these numbers for 2025, and honestly, the implications are huge.

But what’s really wild is how technology’s changed pricing. Had a procurement manager from one of these chains explain it to me recently—didn’t want his name used, understandably. He said their systems constantly scan competitor prices, and when one store drops butter to €1.59, the others match within hours. All automatic. The computers handle the routine stuff while humans oversee strategic decisions.

“Our systems continuously monitor competitor pricing. When one retailer adjusts butter to €1.59, others typically match within hours.”
— German retail procurement manager

This creates what the academics call price convergence. Studies of German retail markets found butter prices across major chains vary by less than 2% on any given day. That’s… that’s basically identical pricing achieved through algorithms, not people sitting down together.

What’s this mean for us? Well, I was working with some Bavarian producers recently, and we calculated that retailers are selling butter at €1.59 per 250g while the actual milk cost for butter production runs about €11.50 per kilogram. That’s an €8 per kilo loss they’re taking.

Professor Hermann Simon at Cologne’s Retail Research Institute explained it pretty clearly—butter’s just the hook. Gets customers in the door. Then they make margins of 40-70% on everything else in the cart. So basically, our product is subsidizing their profit model. Tough pill to swallow, isn’t it?

Policy Changes That Are Reshaping Everything

The Netherlands’ nitrogen rules—probably the biggest agricultural policy shift we’ve seen in Europe in decades. Government documentation outlines requirements for a 70% reduction in 131 areas near protected sites by 2030. And folks, these aren’t minor tweaks we’re talking about.

Dutch farmers face brutal math: invest €300,000 to meet nitrogen mandates or take the €1 million buyout and retire with dignity. With that typical 58-year-old farmer whose son’s an Amsterdam engineer, the spreadsheet tells the story before emotion enters the room.

The money behind it is substantial, I’ll give them that. Parliament confirmed €32 billion for the program, with €25 billion specifically for farm transitions. Works out to roughly a million euros per farm for those taking the exit package. Real money.

Met a producer near Zwolle recently who’s taking the buyout. He’s 58, son’s an engineer in Amsterdam. His logic was pretty straightforward: “Continuing would mean over €300,000 in compliance investments. The transition support lets me retire with dignity.” Hard to argue with that, you know?

The ripple effects are everywhere:

Lely can’t keep up with demand for their Sphere systems—€180,000 to 250,000 installed, and they’re backordered
Feed companies pushing additives like Bovaer—runs about €50 per cow annually, but cuts emissions 30%
Land prices have gone crazy—saw a hectare near Utrecht sell for €140,000, triple its agricultural value

And demographics make it all worse. Eurostat’s latest census shows only 12% of EU farmers are under 40, while 58% are over 55. Germany’s losing about 2,800 farms a year, according to their Agriculture Ministry. That’s eight operations calling it quits every single day.

What’s Happening Elsewhere

Similar patterns are popping up globally, though the details vary. Understanding these helps put our own challenges in perspective.

The American Situation

USDA’s January report documented 1,420 dairy farms closing in 2024—that’s 5% of all operations. What’s interesting is these weren’t just small farms. Average herd size was 280 cows, way above the 180-cow national average. Seems like pressure’s hitting operations across the board.

Dairy Farmers of America, which handles about 30% of U.S. milk, is facing its own issues. Court documents from Vermont show that DFA began sending more member milk to its own processing plants after buying Dean Foods. Jumped from 50% in 2019 to 66% by 2021.

Dr. Marin Bozic from Minnesota testified before Congress about this, saying that when cooperatives own processing assets, their economics benefit from lower milk procurement costs. Creates real tension with member interests. That hits home for cooperative members everywhere, doesn’t it?

Had a Minnesota producer tell me recently they’re seeing the same disconnect—cooperative doing well while members struggle. “We’re basically funding their expansion while our margins shrink,” he said. Sound familiar?

New Zealand’s Big Move

Fonterra is selling their consumer brands to Lactalis for NZ$3.2 billion—that’s huge. Works out to about NZ$1,950 per farmer-shareholder. Meaningful money, but it’s also a fundamental strategy shift.

Alan Bollard, former Reserve Bank Governor, wrote in the Herald that it shows cooperative structures can’t compete with multinational capital in value-added markets. Sobering thought, but it reflects what many cooperatives are wrestling with.

The implications? Fonterra focuses on ingredients, while Lactalis—a private French company—focuses on premium brands. That’s a big shift in who captures value.

Australia’s Retail Challenge

The Competition Commission’s recent inquiry shows Coles and Woolworths expanding beyond retail into processing. Combined 65% market share plus direct farm sourcing creates unique dynamics.

Professor Frank Zumbo from the Dairy Products Federation notes that when retailers control processing and shelf space, traditional bargaining just disappears. We’re seeing this pattern everywhere now.

Strategies That Are Actually Working

Despite all these challenges—and they’re real—I’m seeing folks find viable paths forward. Not every approach works for everyone, but understanding what’s working helps us all.

[Visual suggestion: Infographic showing labor savings with robotic systems]

Going Direct to Consumers

Visited a 65-cow operation near Cologne that switched to farmstead cheese three years back. They invested €420,000 in equipment and aging rooms—a big risk. But now they’re getting €28 per kilo for their Gouda through direct sales and restaurants.

The farmer showed me his books—they’re showing about €0.95 per liter, compared to €0.54 through traditional channels. “Building customers took two years,” he said, “and my wife handles marketing full-time. It’s really a different business entirely.”

“I’d rather be profitable at 60 cows than losing money at 600.”
— Successful small-scale producer

What makes direct marketing work:

Location matters: Need to be within 40km of population centers
Capital requirements: €300,000-500,000 minimum—banks won’t touch these projects without collateral
Marketing skills: Quality alone won’t sell cheese—you need marketing
Regulations: EU hygiene requirements are mandatory and expensive

Small-scale farmers capturing €0.95 per liter through direct sales prove success is still possible—just radically different than before. That’s a 76% premium over the €0.54 commodity treadmill, and it’s why smart operators are adapting now rather than waiting for markets to ‘recover.

Smart Technology Choices

A 200-cow operation in northern Germany cut costs by 22% by carefully adopting technology. Nothing flashy—just practical improvements.

Their approach:

Used robots: €180,000 for two DeLaval units, eliminated one full-time position
Feed optimization: TMR mixer with sensors cut feed costs by 12%
Solar income: €42,000 annually from barn-roof panels

“Every percentage point matters when margins are this tight,” the manager told me. “Can’t control milk prices, but we can control costs.”

Seeing similar success in the States. A Wisconsin friend installed used robots for about $165,000, with the same labor savings. California dairy added solar across their barns—covers all electricity plus $35,000 extra annually. And up in Idaho, a 300-cow operation retrofitted their parlor with activity monitors and automated sort gates for under $80,000—cut breeding costs by 25% and improved pregnancy rates. These aren’t revolutionary—just practical adaptations that work.

A 200-cow German operation slashed costs 22% with €302K in strategic tech investments delivering €120K annual savings. Nothing revolutionary—just robots for labor, solar for energy, sensors for precision. Can’t control milk prices, but you damn sure can control costs.

Creative Revenue Streams

The innovation I’m seeing is really encouraging. Bavarian operation raising 120 replacement heifers annually at €3,200 each—better margins than milk, less volatility.

Successful diversification approaches:

Custom heifer raising: Five-year contracts provide stability that commodity markets never offer
Solar leasing: €1,100 per hectare annually, minimal labor
Specialty contracts: Amsterdam farm getting €0.78/liter for distillery milk—44% premium

In Vermont, a farm partnered with a local creamery for cultured butter—high-end restaurants pay $0.85 per liter equivalent. The Ohio operation makes $120,000 from agritourism while maintaining 150 cows. Shows innovation isn’t always about scale.

Making Sense of the Path Forward

After all these conversations and analysis, several things are becoming clear.

Markets have fundamentally shifted. The structural changes—retail consolidation, pricing algorithms, cooperative evolution—created new equilibrium points. Planning based on old cycles won’t work anymore.

Scale doesn’t guarantee success. I’ve seen all sizes struggle and succeed. It’s about positioning and differentiation. Like one farmer said, “I’d rather be profitable at 60 cows than losing money at 600.”

Cooperative engagement matters now. Can’t be passive members anymore. Either engage actively or develop alternatives.

Compliance is permanent. Whether it’s nitrogen, water quality, or animal welfare, these requirements aren’t going away. Early adoption usually costs less than fighting it.

Demographics create opportunity. With 60% of European farmers over 55, lots of assets will change hands. Prepared operators can build good operations—just avoid the debt traps that hurt previous generations.

The Critical 18-Month Window

What I’m seeing suggests we’re in a crucial period through May 2027 where decisions really matter.

Government programs are funded, cooperative equity’s stable, land markets haven’t crashed, and interest rates are elevated but manageable. But this could all shift quickly as more people make decisions.

For that typical 55-year-old with 80 cows and €2 million debt—and I meet lots in this situation—the math’s pretty clear. At €0.54/liter milk and €0.52 costs, including debt, you’re barely breaking even. Without succession plans or premium markets, continuing might cost more than transitioning.

Financial advisor who specializes in dairy told me recently: “I don’t tell people what to do, but I make sure they understand their real numbers. Emotions are understandable, but math doesn’t lie.”

WHAT THIS MEANS FOR YOUR OPERATION

Under 100 Cows:

Focus on being different—direct sales, specialty products beat commodity competition
Technology should cut labor, not boost production
Consider partnerships for resources and market access

100-500 Cows (The Squeeze Zone):

Too small for mega-efficiency, too large for niche marketing
Make strategic choices: scale up with clear planning or pivot to value-added
Get involved in your cooperative—you need to influence decisions

Over 500 Cows:

Efficiency is everything—every percentage point counts
Diversify into energy or services for stable revenue
Succession planning is critical—the next generation needs a clear profitability path

The Industry Keeps Evolving

This €270 drop in butter prices isn’t just volatility—it shows fundamental changes reshaping dairy globally. Success requires different thinking than what built our industry.

Resilient operations share traits: diversified revenue streams, strong customer relationships, smart technology use, and—crucially—realistic assessment paired with decisive action.

Not everyone will make it through. We need to acknowledge that. But those who recognize the new reality early and adapt, they’ll find opportunities. Just different ones than we’re used to.

“Farming isn’t just about producing milk. It’s about making decisions that protect your family’s future. Sometimes that means knowing when to change course.”
— Dutch farmer preparing for transition

Standing in that Dutch farmer’s parlor last week, watching him prepare for his final season after decades of dedication, his pragmatism struck me. “Farming’s more than milk production,” he said thoughtfully. “It’s stewarding family resources. Sometimes wisdom means recognizing when things have fundamentally changed.”

And you know what? That might be the key insight here. Success isn’t just about perseverance anymore. Sometimes it’s recognizing when the rules changed and having the courage to adapt—whether that’s innovation, diversification, or transition.

What’s happening in European dairy right now… it’s not doom and gloom, but it’s not false hope either. It’s just reality: an industry transforming where old strategies don’t guarantee old outcomes. For those willing to see clearly and act decisively, that clarity becomes an advantage.

What matters is honest evaluation. Not wishful thinking, not catastrophizing, just a realistic assessment of where we are and where we’re headed. That’s how we make decisions that serve our operations and families.

The industry’s changing. We can change with it or get left behind. As always, the choice is ours.

KEY TAKEAWAYS:

The old dairy economics are dead: When processors profit from your losses, the game has fundamentally changed
Your cooperative isn’t your partner anymore: They profit from cheap milk, not member success—act accordingly
Success formula flipped: Small + specialized beats large + commodity (€0.95/L direct vs €0.54 commodity proves it)
18 months until options vanish: Government support, buyout programs, and stable markets end May 2027
Only three strategies work now: Go direct to consumers, cut costs with technology, or exit strategically—waiting isn’t a strategy

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Learn More:

Decide or Decline: 2025 and the Future of Mid-Size Dairies – Provides a critical survival roadmap for the “squeeze zone” operations (100-500 cows) identified in this article, offering specific financial benchmarks and debt-to-asset ratios needed to navigate the current restructuring.
Beyond the Milk Check: How Dairy Operations Are Building $300,000 in New Revenue Today – Expands on the diversification strategies mentioned above, delivering the actual math behind beef-on-dairy premiums and renewable energy contracts that are stabilizing revenue for progressive producers.
Robotic Milking Revolution: Why Modern Dairy Farms Are Choosing Automation in 2025 – breaks down the ROI of the labor-saving technology discussed in this piece, offering case studies and data on how automation is lowering breakeven costs for family-scale operations.

Join the Revolution!

Categories : Dairy Markets

Tags : automated milking ROI, cooperative governance, Dairy Farm Profitability, dairy market trends, European dairy crisis, farm diversification, milk price volatility

The Math Doesn’t Lie: Why $16 Billion Can’t Save American Dairy

Tuesday, November 18th, 2025

Disaster Relief Reality: $278 per Cow Recovers Loss—But a $5,600 Annual Gap Proves Dairy’s Deeper Crisis.

Executive Summary: The USDA’s $16 billion Supplemental Disaster Relief Program (SDRP) Stage 2, announced in November 2025, is targeted emergency relief approved by Congress to help producersrecover documented weather-related and natural disaster losses from 2023–2024—including forage quality, dumped milk, and infrastructure impacts—not a general economic support program or market ‘bailout’ for the dairy sector. While these funds are critical for actual disaster recovery, they highlight a deeper divide: the permanent cost-of-production gap between small and mega-dairies—a gap disaster relief cannot and is not designed to resolve.

$16 billion in weather disaster aid is historic relief, but it’s also a wake-up call about the underlying economic wounds that disaster payments alone cannot heal.

Here’s what’s happening right now with the SDRP Stage Two payments from the Farm Service Agency—the ones announced on November 16th. A typical 300-cow Wisconsin operation with documented disaster losses could receive around $83,000. That’s roughly $278 per cow, give or take. Meanwhile, that 2,000-cow dairy out in Idaho? They hit the payment cap at $250,000, which works out to just $125 per cow.

On paper, smaller operations may appear to benefit more from per-cow relief. But these disaster payments, crucial for documented weather-related recovery, are not intended nor able to equalize ongoing production costs or ensure long-term survival in commodity markets.

What SDRP Stage 2 Actually Is: Appropriated by Congress, SDRP Stage 2 is strictly designed to compensate documented weather and natural disaster losses—such as drought-, flood-, smoke-, or freeze-driven impacts on milk, forage, or storage. This is not an open-ended economic aid or safety net for all farms, but targeted disaster coverage accompanying events in 2023 and 2024. Producers seeking specific payment estimates or qualification should review the official USDA checklist and apply through their local FSA office. Official details and eligibility: www.fsa.usda.gov/sdrp.

Understanding the Real Math Behind These Payments

The structural cost disadvantage facing small dairy operations is mathematically insurmountable—no disaster payment can bridge a $23.56/cwt permanent gap when mega-dairies operate at less than half the cost of farms with fewer than 50 cows

You know, I’ve been going through the payment structures with a few neighbors, and it’s easier to see the whole picture when you lay it out in a table:

Farm Size	Est. Relief Payment	Payment Cap	Cost of Production/cwt
300 Cows	~$83,000 ($278/cow)	$125k-$250k	~$25-28
2,000 Cows	~$250,000 ($125/cow)	$250k (Capped)	~$19.14
Small (<50 cows)	~$13,900 ($278/cow)	$125k	~$42.70

What’s really telling here—and the folks at the Center for Dairy Profitability at UW-Madison have been tracking this all year—is that many 300-cow operations in Wisconsin have been running negative margins for months now. So when you get a payment that covers maybe 16 months of those losses… sure, it helps. Absolutely. But it’s not changing the fundamental math we’re all dealing with.

Let’s be brutally honest about what even historic emergency relief can—and can’t—do for long-term economics. The SDRP Stage 2 payments, as outlined by USDA in November, are strictly for compensating weather and disaster losses: milk dumped, forage destroyed, inventory ruined. But once those bills are paid, the day-to-day reality is still a cost structure gap so wide that no single disaster relief check closes it.

USDA Data Reveals Massive Cost of Production Gap

The USDA Economic Research Service published some data in their 2024 cost of production report that… well, it’s eye-opening. You ready for this?

Small operations—we’re talking under 50 cows—are averaging $42.70 per hundredweight in total production costs. The mega-dairies with 2,000-plus cows? They’re down at $19.14 per hundredweight.

That’s a $ 23.56-per-hundredweight permanent disadvantage—over $5,600 per cow annually.

Just… think about that for a minute. When you run those numbers annually—and most of us figure about 240 hundredweight per cow per year—you’re looking at a structural disadvantage that no disaster payment can overcome. Not this one, not the next one.

I was reading through some research from dairy economists at UW-Madison recently, and they make a point that’s hard to argue with: these aren’t inefficiencies that better management can fix. We’re talking structural cost advantages here:

Labor utilization—one worker handling 80 cows versus 150 or more
Feed purchasing power—buying by the ton versus by the rail car
Equipment costs are spread over way more units of production

You can be the best manager in the world with 100 cows—and I know some who are—and still face these disadvantages.

What Different Sized Operations Are Actually Doing

While small farms receive higher per-cow payments ($278 vs. $125), they face an insurmountable $5,600 annual structural cost disadvantage—making these relief funds temporary breathing room, not救ue solutions

I’ve been talking with extension folks across Wisconsin, Pennsylvania, and Idaho lately, trying to get a sense of how farms are actually using these payments. The patterns are pretty revealing—and they vary dramatically by operation size.

Operations Under 200 Cows: Buying Time or Buying Out

Based on what extension educators across Wisconsin are observing, there’s been a notable uptick in farms asking about exit strategies right alongside their SDRP payment applications. It’s particularly noticeable among operations under 150 cows, and honestly, who can blame them?

But here’s what’s encouraging—the ones staying in traditional dairy are getting creative:

Direct-to-consumer relationships—farm stores, delivery routes, that kind of thing
Organic certification—and those $8-12 per hundredweight premiums that USDA’s Agricultural Marketing Service has been tracking are real
On-farm processing—cheese, ice cream, yogurt operations that capture those retail margins

Mid-Size Operations (200-500 Cows): The Efficiency Push

This group’s in a tough spot, you know? They’re too big to pivot to niche markets easily, but not quite large enough for full economies of scale.

What I’m hearing from Farm Credit folks and in extension discussions throughout 2025 is that there’s a strong interest in technology investments among these mid-size operations. They’re using relief funds as the capital they’ve been waiting for:

Activity monitors for better reproduction management
Automated calf feeders—especially with labor running $15-20 per hour plus benefits, according to National Milk Producers Federation data
Parlor upgrades targeting real efficiency gains

Cornell PRO-DAIRY’s analyses have emphasized that these farms need to get below $22 per hundredweight to remain viable in the long term. The smart ones I’ve talked to are using these payments for targeted investments toward that goal. It’s strategic thinking, not panic spending.

Larger Operations (500+ Cows): Environmental and Expansion

The bigger operations? Different game entirely. Many are putting relief funds toward environmental compliance—and honestly, that’s just smart planning. California’s methane reduction requirements are going full force by 2030, and you know other states are watching closely. Better to get ahead of it than scramble later.

The Young Farmer Perspective: Mathematically Impossible Entry

Here’s something that keeps me up at night. The average dairy farmer is 58 years old—that’s from the 2022 USDA Census of Agriculture. The barrier to entry for a 25-year-old today isn’t just hard—it’s mathematically impossible without inheritance or massive leverage.

Federal Reserve Bank of Chicago’s agricultural land value reports from the first three quarters of 2025 show dairy-quality farmland in Wisconsin ranging from approximately $8,000 to $12,000 per acre. Add in livestock, equipment, and facilities—you’re looking at a minimum of $3-5 million for a competitive operation. That’s before you’ve produced a single pound of milk.

“If farms with no debt are struggling, what chance does someone have starting with modern debt loads?”

That’s what a young farmer asked me last week, and I didn’t have a good answer.

Some young farmers are finding creative entry paths, though:

Management agreements with retiring farmers—gradual ownership transition
Starting with contract heifer raising before moving into milking
Intensive grazing systems that need less upfront capital
Minority ownership partnerships in established operations

But let’s be honest—these are exceptions, not the rule.

The Mental Health Crisis Nobody’s Measuring

Here’s something that doesn’t show up in any payment calculations but affects every decision we make: the stress factor. Research on farmer mental health—and university extension services have been tracking this closely—consistently shows elevated stress levels among dairy producers. Younger farmers are particularly affected.

Agricultural economists have noted that farmers often make decisions based on stress reduction rather than pure economic considerations. A payment providing 16 months of breathing room might be worth more psychologically than financially. And you know what? That’s completely valid.

Extension agents are reporting increased interest in:

Simplified systems that reduce management complexity
Seasonal calving to create actual downtime
Partnerships that share the management burden
Exit strategies that preserve dignity and family relationships

There’s no shame in any of those choices. None whatsoever.

Cross-Border Reality Check: Canadian “Stability” at What Cost?

Can’t really discuss American dairy economics without acknowledging what’s happening north of the border. Canada’s supply management system maintains about 9,000 dairy farms with remarkable stability. They announced 2025 price adjustments to account for inflation, maintaining their cost-of-production pricing formula. No emergency payments needed. No mass exodus from dairy.

But here’s the catch—and Canadian farmers will tell you this immediately—according to Dairy Farmers of Ontario quota exchange data, quota values have been running CAD $25,000 to $30,000 per kilogram of butterfat in recent transactions. That’s essentially a mortgage on your right to produce milk—something we don’t face here in the States.

The tradeoff? Well, predictable margins enable completely different business planning than our volatile commodity markets. Whether that’s “better” is a political debate for another day—probably best saved for when we’re not trying to figure out how to pay next month’s feed bill.

Five Brutal Truths About Making Decisions Right Now

For many farms, the $83,000 weather disaster relief payment—while life-saving after catastrophic losses—only buys about 16 months at current structural margins. When SNOW, drought, or fire is past, cost-of-production gaps remain; that’s why 2,800 operations closed this year, even with relief. For some, these disaster payments are a bridge as much as a recovery grant.

After all this analysis and talking with farmers across multiple states, here’s what seems most relevant if you’re trying to make decisions right now:

1. Know your real position: Calculate your actual cost per hundredweight. The Dairy Profit Monitor tools from Wisconsin, Cornell, and Penn State extension services can help with this. If you’re producing at $35 or more when efficient operations are at $20… that gap won’t close without fundamental changes.

2. Treat relief payments as capital, not income: Strategic improvements compound over time. Operating losses? They just come back next quarter.

3. Set realistic timelines: Give yourself 3-5 years to hit profitability targets. If structural disadvantages—not just bad years—prevent reaching those targets, having an exit strategy isn’t giving up. It’s responsible management.

4. Explore alternative models seriously: Grass-based systems, organic production, on-farm processing, agritourism—these aren’t easy pivots, but they can offer margins that commodity production just can’t match anymore. Cornell’s Dairy Farm Business Summary shows that organic operations often see $3-5 per hundredweight higher margins, though with different risk profiles.

5. Protect your mental health: Farm Aid’s hotline at 1-800-FARM-AID offers confidential support. Many states now have farm-specific mental health programs, too. No operation—and I mean this—is worth destroying your family or your wellbeing.

The Bottom Line: Dairy’s Structural Transformation Is Here

Dairy consolidation accelerates as America loses three farms daily while milk production increases—mega-operations with 2,500+ cows now drive industry growth, rendering the traditional family dairy model economically obsolete

Looking at how these payments land across different operations, it’s clear we’re witnessing a structural transformation, not just another rough patch. Based on consolidation patterns we’ve seen over the past decade, we’re likely to continue seeing fewer but larger farms—the National Milk Producers Federation and various agricultural economists have all been pointing to this trend.

But here’s what’s important, and what often gets missed in these discussions: fewer farms doesn’t automatically mean less opportunity for those who remain or enter strategically. The operations that survive and thrive will be those that either achieve commodity-scale efficiency or successfully differentiate into premium markets. There’s not much room left in the middle, unfortunately.

Success increasingly depends less on production excellence alone and more on strategic positioning.

You can have the best cow care and highest production in the world—and I know farmers who do—but if you’re in the wrong cost structure for your market position, excellence alone won’t save you.

These disaster relief payments offer crucial help after real, often catastrophic losses. But as storms pass and immediate recovery ends, the economic realities for U.S. dairy remain unchanged. Surviving and thriving beyond the next weather event will require structural solutions—relief alone isn’t enough. In an industry where crisis so often drives decision-making, that breathing room might be the most valuable aspect of all.

Because at the end of the day—and we all know this deep down—what matters isn’t whether you get $278 or $125 per cow in relief. What matters is understanding where your operation fits in dairy farming’s evolving structure and making informed decisions based on that reality.

The farms that do that, regardless of size? Those are the ones that’ll still be shipping milk in 2030 and beyond. And I hope yours is one of them.

The Bullvine’s analysis is grounded in publicly available research (USDA ERS, land-grant university economics, and direct extension interviews). All numbers are attributed, and cost estimates are taken directly from federal research. If your real-world experience varies or you have case-study data, we invite you to contribute insights or corrections for future reporting.

Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.

Key Takeaways:

Your True Position: If your operation depends on recurring weather disaster relief but your costs exceed $30/cwt, these programs help you recover from one storm—not from year-over-year competitive losses.
Strategic Capital Decision: That $83,000 payment offers three real choices: invest in efficiency tech (if you’re within striking distance of $22/cwt), pivot to premium markets ($8-12/cwt organic premiums), or exit with dignity while equity remains.
16-Month Clock: Most disaster payments cover up to 16 months of losses; use this window for strategic plans, not hoping tough math will disappear.

Learn More:

2,800 Dairy Farms Will Close This Year—Here’s the 3-Path Survival Guide for the Rest – Provides actionable survival strategies for farms facing the exact structural challenges outlined in this article, with specific paths for scaling up, specializing, or strategically exiting while preserving equity and dignity.
Pick Your Lane or Perish: The 18-Month Ultimatum Facing 800-1,500 Cow Dairies – Explores the vanishing middle ground for mid-size operations with October’s $2.47 Class spread data, offering strategic decision frameworks for farms caught between commodity efficiency and premium market differentiation.
Building a Beef-on-Dairy System: Capturing $360,000 in Annual Farm Profit – Demonstrates how farms are generating alternative revenue streams through beef-on-dairy breeding programs that jumped from 50K to 3.2 million head, potentially offsetting the cost disadvantages discussed in the main analysis.

Join the Revolution!

Categories : Dairy Markets

Tags : Dairy Cost Analysis, dairy profitability strategy, Farm efficiency gains, herd management strategy, Milk production cost, operational optimization

The $300 Million Overrun You’re Paying For: Inside Dairy’s $11 Billion Labor Crisis

Tuesday, November 18th, 2025

What farmers are discovering about the gap between processing expansion and workforce reality—and the practical lessons emerging from projects like Darigold’s Pasco plant

EXECUTIVE SUMMARY: The U.S. dairy industry is pouring $11 billion into processing plants it can’t staff—and farmers are paying for this disconnect through devastating milk check deductions. Darigold’s Pasco facility exemplifies the crisis: costs exploded from $600 million to over $900 million, forcing 300 member farms to cover the overrun at $4 per hundredweight, slashing their income by 20-25%. This infrastructure boom collides with an existential workforce crisis where immigrant workers, who produce 79% of America’s milk, face deportation while dairy remains locked out of legal visa programs that other agricultural sectors freely use. Farmers had no vote on these massive expansions, yet cooperative governance ensures they absorb all losses while contractors pocket overrun profits and board members face zero consequences. Some producers are finding lifelines through direct-to-consumer sales (commanding 400-600% premiums), smaller regional cooperatives, and strategic production management, but these are individual escapes from a systemic failure. Without fundamental reforms in cooperative governance and immigration policy, the industry will complete these factories just in time to discover there’s nobody left to run them—or milk the cows.

dairy governance risk — The largest ever investment in Darigold’s 100-year history, the Pasco plant stands to solidify the Northwest region among dairy producing regions for generations to come.

You know that feeling when you watch a neighbor build a massive new freestall barn, and you can’t help but wonder—who exactly is going to milk all those cows?

That’s not just a neighborhood curiosity anymore. It is the $11 billion question hanging over the entire dairy industry. Except we aren’t talking about barns; we’re talking about processing plants. And the answer is costing you $4.00 per hundredweight.

[IMAGE TAG: Wide shot of massive dairy processing plant under construction with empty parking lots]

So here’s what’s happening. When Darigold opened its new Pasco, Washington processing facility this past June, they had every reason to celebrate. The 500,000-square-foot facility can handle 8 million pounds of milk daily—that’s enough capacity to churn out 280 million pounds of powdered milk and 175 million pounds of butter annually. The technology really is impressive—state-of-the-art dryers, low-emission burners, the whole nine yards.

But here’s where it gets complicated, and you probably know where I’m going with this. That shiny new plant ended up costing over $900 million, even though the original budget was $600 million. That’s a 50% overrun, and if you’re shipping to Darigold, you already know who’s paying for it—their 300 member farms are covering it through that $4 per hundredweight deduction from milk checks.

***Darigold’s Pasco plant overran by $300M—and 300 member farms absorbed it all through $4/cwt deductions***

I’ve been talking with producers who say it accounts for 20-25% of their payments. Think about that for a minute. You’re already juggling feed costs that won’t quit, trying to find workers who’ll actually show up, dealing with market swings that’d make your head spin, and suddenly a quarter of your milk check disappears to cover someone else’s construction overrun.

“A quarter of your milk check disappears to cover someone else’s construction overrun while you struggle with feed costs, labor shortages, and market volatility.”

What’s interesting is that Pasco isn’t some weird outlier. The International Dairy Foods Association released their October report showing we’re looking at over $11 billion in new processing capacity coming online between now and 2028. We’re talking over 50 major projects here—it’s the largest infrastructure expansion I’ve seen in… well, honestly, ever.

And yet—and this is the kicker—this massive bet on processing capacity is running headfirst into a reality that anyone who’s tried to hire a milker recently knows all too well. We simply can’t find enough workers to operate the facilities we’ve already got, let alone staff new ones.

Quick Facts: The $11 Billion Reality Check

Total Infrastructure Investment: $11+ billion (2025-2028)
Major Projects: 50+ processing facilities announced or under construction
Darigold Overrun: $300 million (50% over budget)
Farmer Impact: $4/cwt deduction = 20-25% payment reduction
Farms Closing in 2025: 2,800 operations
Workforce Reality: 51% immigrant workers producing 79% of the U.S. milk

Understanding the Infrastructure Surge

Let me walk you through what’s actually being built out there, because the scale really is something else.

Chobani broke ground on a $1.2 billion facility in Rome, New York, back in April. Governor Hochul’s office is promising 1,000+ jobs and the capacity to process 12 million pounds of milk daily. Now, I’ve driven through that region recently—beautiful country, no doubt about it. But here’s what’s nagging at me: New York lost more than half its dairy farms between 2009 and 2022. The Census of Agriculture data doesn’t lie. So where exactly is all that milk going to come from?

Then you’ve got Hilmar Cheese Company’s operation in Dodge City, Kansas. It’s a $600+ million plant that started running this past March. They designed it to process 8 million pounds of milk daily, supposedly creating 250 jobs. But here’s what’s interesting—and this is November, mind you—they’re still scrambling to fill critical positions. Maintenance mechanics, facilitators, and milk receivers for night shifts. These aren’t entry-level gigs where you can train someone up in a week. These are technical roles that require people who know what they’re doing.

Fairlife—you know, the Coca-Cola folks—they’re building a $650 million ultra-filtration facility in Webster, New York. It’s part of what the state’s calling a $2.8 billion surge in dairy processing investments. Largest state investment in the nation, they say.

Michael Dykes, over at the International Dairy Foods Association, he’s confident about all this expansion. In their October industry report, he said: “Don’t fret for one moment—dairy farmers hear the market calling for milk. Milk will come.”

I appreciate the optimism, I really do. And on paper, it makes sense. Global dairy demand is growing, especially in Southeast Asia. Export opportunities are expanding. Processing innovation is creating new product categories we couldn’t have imagined ten years ago.

What could go wrong, right?

Well, let me tell you what’s already going wrong.

The Labor Reality Check

[IMAGE TAG: Split screen showing empty milking parlor positions vs. ICE raid at dairy farm]

Here’s the number that should keep every processor awake at night—and probably keeps many of you awake too. Texas A&M did a study in 2023, and the National Milk Producers Federation confirmed it: 51% of the dairy workforce consists of immigrant workers who produce 79% of America’s milk supply. I’ve cross-checked these numbers with multiple sources. If anything, they might be conservative.

Meanwhile—and this is where it gets frustrating—the H-2A temporary agricultural worker program has grown from about 48,000 certified positions back in 2005 to nearly 380,000 in fiscal 2024. Department of Labor tracks all this. But dairy? We’re completely locked out. Why? Because their regulations say work has to be “seasonal or temporary.”

Last I checked, cows need milking 365 days a year. They don’t take vacations.

“51% of the dairy workforce consists of immigrant workers who produce 79% of America’s milk. Yet dairy is locked out of H-2A visas because cows don’t take vacations.”

***51% of dairy workers produce 79% of U.S. milk—the uncomfortable truth about American agriculture***

What really gets me is that sheep herding operations—sheep herding!—have H-2A access, even though that’s year-round work too. It’s right there in the H-2A Herder Final Rule if you want to look it up. Jaime Castaneda, who handles policy for the National Milk Producers Federation, he’s been beating this drum for years. As he told me, “We have written to the Department of Labor a number of different times and actually even pointed to the fact that the sheep herding industry has access to H-2A, and it’s a very similar industry to dairy.”

But nothing changes.

And it’s not just dairy facing this squeeze. The Associated Builders and Contractors released its 2025 workforce report: the construction industry needs 439,000 additional workers this year just to meet demand. This labor shortage is exactly what’s driving delays and cost overruns on these dairy processing projects. Darigold learned that the hard way.

Workforce Crisis by the Numbers

Let me give you the regional breakdown, because it varies depending on where you’re farming:

Wisconsin: The University of Wisconsin School for Workers did a survey in 2023. Found that 70% of dairy workers are undocumented. Seven out of ten.
South Dakota: The Bureau of Labor Statistics shows unemployment under 2%. You literally cannot find local workers.
Looking ahead, USDA’s Economic Research Service forecasts 5,000 unfilled dairy jobs by 2030.
Worst-case scenario: Cornell’s research suggests that if we saw full deportation, milk prices could rise by 90% and we’d lose 2.1 million cows from the national herd.

Lessons from the Darigold Experience

So let me dig into what actually happened with Darigold, because if you’re in a co-op—and most of us are—there are some important lessons here.

What Went Wrong

Back in September 2024, Darigold sent out an update to members trying to explain the delays and cost overruns. I’ve reviewed their communications and spoken with affected producers. Here’s what really happened.

First off, supply chain disruptions hit way harder than anyone expected. And I’m not talking about generic delays here. The specialized dairy processing equipment—most of it comes from Europe—faced 12-18 month lead times instead of the usual 6-9 months. When you’re building something this complex, one delayed component throws everything off. It’s like dominoes.

Second, building regulations changed mid-construction. The Port of Pasco confirmed this in their regulatory filings. These weren’t just minor tweaks either. We’re talking structural changes that required completely new engineering calculations, new permits, and the works.

Third—and this is what really killed them—labor shortages in construction trades meant paying absolutely premium rates for skilled workers. You need specialized stainless steel welders who can work to food-grade standards? You can’t just grab someone off the street. Local construction sources tell me these folks were commanding $45-50 per hour plus benefits. And honestly? They were worth it because you couldn’t get the job done without them.

The plant was originally supposed to open in early 2024. It didn’t actually start operations until mid-2025. By September 2024, Stan Ryan, Darigold’s CEO, had to admit to the Tri-City Herald that it was only 60% complete, with costs already over $900 million.

How Farmers Are Paying the Price

This is where it gets personal for a lot of us. To cover the overrun, Darigold implemented what they’re calling a “temporary” deduction structure. I’ve seen the letters they sent to members. The language is… well, it’s stark.

Jason Vander Kooy runs Harmony Dairy near Mount Vernon, Washington—about 1,400 cows with his brother Eric. What he told Capital Press in May really stuck with me:

“There are a lot of guys who don’t want to quit farming, but can’t keep farming if this continues. The problem is we don’t have any other options. We just can’t leave the plant half constructed and walk away.”

Dan DeRuyter’s operation in Yakima County? They lost almost $5 million over 2 years due to these deductions. Five million. He told Capital Press, “It’s awful. I can’t go on much longer. I don’t think producers will be able to stay in business.”

“Dan DeRuyter’s dairy lost almost $5 million over two years from deductions to cover Darigold’s construction overruns. ‘I don’t think producers will be able to stay in business.'”

What strikes me about these stories—and maybe you’re feeling this too—is that these aren’t struggling operations. These are successful, multi-generational farms that suddenly find themselves cash-flow negative because of decisions they had no real say in making.

John DeJong’s family has been shipping to Darigold for 75 years. Seventy-five years! He put it pretty bluntly: “The deduction has eliminated investment. We’re more in survival mode. This is not a sustainable position—to dip into producers’ pockets.”

The Governance Question

Now, this is where things get interesting—and maybe a little uncomfortable—from a cooperative governance perspective.

Darigold said in their June announcement that “farmer-owners approved the Pasco project in 2021.” But when you dig into what that actually means… well, it’s not what most folks would consider democratic approval.

Based on how cooperative governance typically works—and on the extensive research by agricultural law experts at the University of Wisconsin—the approval probably came through board representatives rather than a direct member vote. Think about it. When was the last time your co-op asked you to vote on specific project budgets? On contractor selections? On who bears the risk if things go sideways?

Cornell’s cooperative research program has documented this pattern. Major capital investments often proceed based on board decisions, with members learning about cost overruns only when the deductions appear on milk checks.

I should mention that when I reached out, Darigold declined to provide specific details about their member approval process. They cited confidentiality of internal governance procedures. Make of that what you will.

The Immigration Policy Disconnect

You can’t talk about dairy labor without addressing the elephant in the barn—immigration policy. And boy, is this getting complicated.

Farmers Caught in Political Contradictions

I’ve spent a lot of time talking with farmers about this lately, and the cognitive dissonance is real.

Take Greg Moes. He manages a four-generation dairy operation near Goodwin, South Dakota, with 40 workers—half of them foreign-born. There was this CNN interview back in December that’s been making the rounds. Moes said: “We will not have food… grocery store shelves could be emptied within two days if the labor force disappears.”

Then there’s John Rosenow, who runs Roseholm-Wolfe Dairy up in Buffalo County, Wisconsin. Eighteen workers, half foreign-born. He told PBS Wisconsin this past October: “I’m out of business. And it wouldn’t take long.”

“We’re voting against our own workforce. I’m not making a political statement here, just observing the contradiction that’s tearing rural communities apart.”

What’s fascinating—and frankly, a bit troubling—is how many of these same farmers vote for politicians promising strict immigration enforcement. It’s like we’re voting against our own workforce. I’m not making a political statement here, just observing the contradiction that’s tearing rural communities apart.

Real-World Impact of Enforcement

And this isn’t theoretical anymore.

This past June, Homeland Security Investigations raided Isaak Bos’s dairy in Lovington, New Mexico. Multiple news outlets covered it. The operation lost 35 out of 55 workers in a single day. Milk production basically stopped. Bos had to scramble—brought in family members, high school students on summer break, anybody who could help keep the livestock alive.

Nicole Elliott’s Drumgoon Dairy in South Dakota went through an I-9 audit. The Argus Leader reported she went from over 50 employees down to just 16. As she told reporters, “We’ve effectively turned off the tap, yet we have not made any efforts to establish a solution for acquiring employees in the dairy sector.”

What I’ve noticed—and maybe you’ve seen this too—is that after these raids, remaining workers often self-deport out of fear. It creates this cascade effect that ripples through entire dairy regions. One raid, and suddenly everybody’s looking over their shoulder.

Understanding the Financial Flow

[IMAGE TAG: Infographic showing money flow – $300M overrun split between contractors, designers, vendors vs farmers]

When we talk about a $300 million cost overrun, it’s worth understanding where that money actually goes—and who absorbs the losses. This isn’t abstract accounting. It’s real money from real farms.

Who Profits from Overruns

So I’ve been looking into this based on construction industry analysis and Engineering News-Record’s contractor rankings.

Construction contractors like Miron Construction—they had $1.74 billion in revenue in 2024, according to ENR’s Top 400 list—typically operate under cost-plus contracts. Their fees increase in proportion to project costs. When projects run over? Their percentage-based fees go up, too. It’s built into the system.

Design firms like E.A. Bonelli & Associates, who designed Darigold’s facility, typically charge 6-12% of total construction costs. That’s standard according to the American Institute of Architects. So a $300 million overrun? That can mean millions more in design fees. Not a bad day at the office.

Equipment vendors benefit from supply chain premiums and change orders. When specialized European equipment is scarce—and it has been—vendors can command premium prices. I’ve seen quotes for processing equipment jump 30-40% during the pandemic supply crunch. Supply and demand, right?

Public entities, such as the Port of Pasco, invested $25+ million in infrastructure to support the project, according to port commission records. They get the economic development win, the ribbon-cutting photo ops, regardless of whether farmers can afford the milk check deductions.

The Processor’s Perspective

Now, to be fair, I did reach out to several processor representatives to get their side of the story. Darigold declined specific comment, but an IDFA spokesperson—speaking on background—made some points worth considering:

“Processors are caught between rising global demand and workforce constraints just like farmers. These investments are made with 20-30 year horizons. Yes, there are challenges today, but we believe in the long-term future of American dairy. The alternative—not investing in capacity—means losing market share to international competitors.”

That’s a reasonable position. It really is. Even if it doesn’t help farmers paying today’s deductions for tomorrow’s theoretical benefits.

Who Bears the Cost

But at the end of the day, it comes down to this: the financial burden falls squarely on cooperative members. The 300 Darigold farms absorbed every penny of that overrun through milk check deductions. They had no direct vote on contractor selection. No control over budget management. No recourse when costs exploded.

“300 Darigold farms absorbed every penny of a $300 million overrun. No vote on contractors. No control over budgets. No recourse when costs exploded.”

Practical Paths Forward for Farmers

Given all these structural challenges, what realistic options do we actually have? I’ve been tracking several strategies that producers are using to create some alternatives.

1. Diversification Beyond Cooperatives

Direct-to-consumer sales are providing some farmers with genuine pricing power. The Farm-to-Consumer Legal Defense Fund tracks this—28 states now allow raw milk sales in some form. Farmers I’ve talked with are getting $8-12 per gallon. That’s a 400-600% premium over conventional farmgate prices.

***Direct-to-consumer sales command 400-600% premiums over commodity milk—a viable escape route from cooperative dependency***

Cost Comparison Reality Check: Let me break down the numbers:

Conventional milk price: $18-20/cwt (works out to roughly $1.55-1.72/gallon)
Direct raw milk sales: $8-12/gallon
Investment needed: $50,000-150,000 for on-farm processing setup
Payback period: Generally 18-36 months if you shift 20% of production to direct sales

Even moving 20% of your production to direct sales can fundamentally change your negotiating position. You’re no longer completely dependent on that co-op milk check.

Dan Stauffer, a California dairy farmer I know, started an on-farm creamery specifically because—as she put it—”the $4.00 deduct combined with all the other standard deductions has made it impossible for us to cash flow.” She didn’t wait for reform. She built an alternative.

One important note, though: regulations vary significantly by state. What works in Pennsylvania won’t necessarily fly in Wisconsin. Always check with your state department of agriculture before making any moves.

2. Regional Cooperative Alternatives

Some farmers are successfully exploring smaller, regional cooperatives with more transparent governance. Research from the University of Wisconsin Center for Cooperatives shows these smaller co-ops often feature:

Direct member voting on major investments (imagine that!)
Transparent pricing tied to actual costs
Limited or no speculative facility construction
Focus on value-added products rather than commodity volume

The challenge? Leaving a major cooperative often involves exit fees, equity complications. But here’s what I’m seeing—when groups of farmers coordinate their intentions (legally, of course), cooperatives sometimes become more flexible on governance reforms. Funny how that works.

3. Advocacy for Practical Reforms

Rather than waiting for comprehensive federal legislation—which, let’s be honest, probably isn’t coming anytime soon—farmers are pursuing achievable state-level reforms.

In Wisconsin, a group of farmers filed formal complaints with the state Department of Agriculture regarding violations of cooperative governance. Outcomes are still pending, but it’s gotten attention.

Similarly, farmers in New York are working with their state attorney general’s office on transparency requirements for agricultural cooperatives. These aren’t radical demands. Just basic stuff like seeing the actual construction contracts before being asked to pay for overruns.

4. Strategic Production Management

This one’s delicate, but some farmers are discovering they can influence cooperative behavior through coordinated (but legal) production decisions. If enough members strategically manage production volumes, it creates leverage for governance reforms.

I’m not talking about illegal collusion here. Just individual business decisions that happen to align. When cooperatives see milk volumes dropping, board meetings suddenly become much more interesting.

Key Industry Trends to Watch

Based on conversations I’ve had with industry analysts and extension economists, here’s what I’m tracking:

Processing capacity utilization: Multiple sources suggest plants will operate at 65-75% capacity through 2026 due to milk supply constraints from labor shortages. That’s going to create margin pressure throughout the system. No way around it.

Consolidation acceleration: USDA data shows 2,800 farms closed in 2025. And that’s not the peak—it’s the baseline. Mid-size operations (500-1,500 cows) are facing the greatest pressure. I’m particularly worried about dairies in that sweet spot—too big to go niche but too small to achieve mega-dairy economies of scale.

***2,800 dairy farms closed in 2025 alone—nearly double the baseline. The consolidation accelerates while processors invest $11 billion***

Immigration policy evolution: Watch for potential executive orders creating temporary pathways for dairy workers. Congressional solutions remain blocked, but I’m hearing administrative workarounds are being discussed at USDA. Sources familiar with the discussions say something might be coming, but I’ll believe it when I see it.

Cooperative governance pressure: The Darigold situation has awakened member interest in governance reform across multiple cooperatives. I’m hearing rumblings from DFA and Land O’ Lakes members about demanding more transparency. About time, if you ask me.

Alternative marketing growth: Direct sales, regional brands, on-farm processing—all continuing to expand. The economics are compelling. Capturing even a portion of that processor-to-retail margin changes everything.

Practical Takeaways for Dairy Farmers

After researching this issue and talking with dozens of farmers, here’s my best advice:

1. Understand your cooperative’s governance structure. Get copies of the bylaws. Read them. Actually read them. Request documentation of how major capital decisions are made. Know your rights—you might have more than you think.

2. Evaluate diversification options. Run the numbers on direct sales or value-added processing. Even if you don’t pull the trigger, knowing your alternatives strengthens your position.

3. Document workforce challenges. Keep detailed records of recruitment efforts, wage offers, and position vacancies. This data matters for policy advocacy and might be required for future visa programs.

4. Build regional alliances. There’s strength in numbers. Coordinated action among neighboring farms—whether for governance reform, marketing alternatives, or workforce solutions—multiplies individual leverage.

5. Monitor capacity developments. Understanding regional processing capacity and utilization rates helps inform production and marketing decisions. If your processor is running at 60% capacity, that affects your negotiating position.

6. Prepare for workforce disruption. Develop contingency plans now. Cross-train employees, investigate automation options where feasible, and build relationships with temporary labor providers. Hope for the best, plan for the worst.

The Road Ahead

Looking at this $11 billion infrastructure investment, I see both dairy’s ambition and its fundamental challenge. We’re building world-class processing capacity while the workforce foundation—both on farms and in plants—is crumbling beneath us.

The Darigold experience isn’t just a cautionary tale. It’s a preview of what happens when expansion proceeds without addressing underlying structural issues. Farmers pay the price while contractors, consultants, and executives move on to the next project.

What’s become clear to me is that the disconnect between processing infrastructure and workforce reality isn’t just a temporary mismatch. It’s a structural crisis that requires fundamental reforms in how cooperatives govern themselves, how immigration policy treats agricultural workers, and how the industry plans for the future.

For dairy farmers navigating this environment, waiting for top-down solutions while writing checks for bottom-up failures isn’t sustainable. The operations that survive and thrive will be those that recognize the current system’s limitations and actively build alternatives—whether through direct marketing, governance reform, or strategic cooperation with like-minded producers.

The infrastructure bet has been placed. The steel is welded, and the dryers are installed. Now we need to ensure farmers aren’t the only ones covering the spread when the dice don’t roll our way.

Because at the end of the day, all those shiny new plants don’t mean a damn thing if there’s nobody left to milk the cows—or if the farmers have gone broke paying for the factory’s cost overruns.

KEY TAKEAWAYS

Check your cooperative governance NOW: If your board can approve $50M+ projects without direct member vote, you’re one announcement away from a $4/cwt deduction. Demand to see construction contracts, board votes, and risk allocation before the next expansion—farmers discovering they have legal recourse for unapproved overruns.
Build your escape route before you need it: Direct-to-consumer sales command $8-12/gallon (vs. $1.72 conventional) with $50-150K setup costs and 18-36 month payback. Moving just 20% of production creates leverage and covers deduction losses—28 states allow it, but check regulations first.
Document everything related to the workforce crisis: keep detailed records of every recruitment attempt, wage offers ($45-50/hr for skilled positions), and unfilled positions. You’ll need this evidence when immigration reform finally comes or when explaining why you can’t meet production contracts after raids.
Power comes from numbers, not hoping: Cooperative boards ignore individual complaints but panic when 10+ farms coordinate action. Whether demanding governance reforms, exploring alternative cooperatives, or strategic production management—allied farmers are getting results while solo operators just get bills.

Learn More:

Why This Dairy Market Correction Feels Different – and What It Means for Our Farms – This article provides direct, actionable strategies for surviving the extended 24-month market downturn. Discover how to leverage direct-to-consumer sales for 40-60% premiums and identify alternative revenue streams like carbon credits that stabilize your operation.
Your Milk Check Just Got $337M Lighter – And Your Co-op Helped Plan It – Go deeper into the crisis of cooperative governance. This piece reveals how regulatory changes (like FMMO make allowance hikes) are systematically slashing your milk price by 85-90¢/cwt, and outlines strategies for producer alliances and reform.
ICE Raids Resume: Why Dairy’s $48 Billion Labor Crisis Exposes Our Innovation Failure – Stop depending on fragile immigration policy. Learn the financial case for automation, including how robotic milking systems achieve 18-24 month payback and eliminate up to 70% of routine labor, building operational independence.

Join the Revolution!

Categories : Dairy Markets

Tags : cooperative governance, dairy labor solutions, dairy profitability, farm cost reduction, on-farm diversification, robotic milking ROI

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