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Archive for Dairy Markets

US$8 Billion in Whey Plants: Is Your Co‑op Letting Any Protein Money Reach Your Milk Cheque?

Wednesday, January 21st, 2026

US$8B in whey plants is coming online. Will any of that protein cash ever reach your milk cheque?

Executive Summary: Processors are spending about US$8 billion on new cheese and whey plants because GLP‑1 drugs and protein‑driven diets are pushing global whey demand to record levels. Yet most milk cheques still key off commodity dry whey prices, while the real “protein money” sits in higher‑value ingredients like WPC‑80 and WPI, inside co‑op balance sheets and patronage systems. This article shows, in plain language, how that gap forms—and then uses simple math (like turning a 30¢/cwt whey margin into roughly US$40 per cow per year) to show what it could mean on your farm. From there, it gives you a clear playbook: how to read your equity statement, how to benchmark your all‑in price, and the three questions to ask at your next co‑op meeting about project financing, whey division reporting, and cash vs retained patronage. It also compares what this whey boom means if you ship to an ingredient‑heavy plant in the Texas Panhandle or Upper Midwest, a more commodity‑focused co‑op in the East, or a quota system in Canada. In short, it’s a guide to turning the whey boom from a stainless‑steel story into a milk‑cheque strategy.

You know how every winter meeting seems to have the same slide deck these days? Somebody from a processor or a bank stands up, talks about protein, GLP‑1 weight‑loss drugs, and this “massive opportunity in whey,” and then you’re driving home thinking, “OK, but where does that show up in my milk cheque?”

What’s interesting here is that this time, the stainless is real. University of Wisconsin–Madison Extension dairy economist Leonard Polzin told Brownfield Ag News that more than eight billion dollars’ worth of stainless steel is being invested in new and expanded dairy processing in various parts of the U.S., with a few plants starting in February and more coming online “in 2025 and in future years,” across a range of products from cheese to fluid and other dairy categories. About US$8billion in new U.S. dairy processing investment through 2026, with a big share of that going into cheese and whey capacity.

And this isn’t just a Wisconsin or South Dakota story anymore. New cheese plants in Wisconsin, South Dakota, and Texas are expected to add roughly 360 million pounds of cheese annually by the end of 2025, and industry coverage points to big new facilities in the Texas Panhandle and eastern New Mexico, designed specifically to turn High Plains milk into cheese and high‑value whey ingredients. So while the Upper Midwest still matters, a lot of the newest “stainless” is actually being welded out West.

Region	Estimated New Capacity (2024–2026)	Primary Product Focus	Key New Facilities	Co-op / Processor Type	Whey Ingredient Emphasis
Upper Midwest (WI, MI, MN)	~$2.5–3.0B	Cheese + Whey	Established complexes + expansions	Ingredient-heavy co-ops (e.g., AMPI)	High (WPC-80, WPI, export)
Upper Plains (SD, ND)	~$1.5–2.0B	Cheese + Whey	Regional & private plants	Mixed (co-op + private)	Medium–High
Texas Panhandle + E. New Mexico	~$2.0–2.5B	Cheese + Whey	New-build, High Plains focused	Private processors + regional co-ops	High (WPC-80, sports nutrition)
Idaho + Pacific NW	~$1.0–1.5B	Cheese + Whey + Specialty	Existing + niche biorefinery	Ingredient specialists (co-op + private)	Very High (niche isolates, clinical)
Northeast + Southeast	~$0.5–1.0B	Fluid + Cheese (commodity focus)	Limited new builds	Commodity-focused regional co-ops	Low–Medium
Western Canada (QC, ON under quota)	~$0.5B (capacity additions under supply management)	Cheese + Specialty Whey	Quebec + Ontario expansions	Processor cooperatives	Medium (regulated pricing)

So here’s the real question many of us are asking: with all that stainless going into cheese and whey, how much of that value actually flows back to your farm—and how much stays inside the plant and on the co‑op balance sheet?

Let’s walk through that together, like we would over coffee.

Looking at This Trend: Why Whey Is Suddenly Center Stage

Looking at this trend from a distance, three big forces are pushing whey into the spotlight:

GLP‑1 weight‑loss drugs are changing how some people eat.
A long boom in sports and active nutrition.
A serious build‑out of processing capacity tied to cheese and whey.

GLP‑1 drugs are changing what some customers put in their carts

You’ve probably heard about Ozempic, Wegovy, and other GLP‑1 medications from TV ads or from your doctor. They started as diabetes drugs, but they’ve quickly turned into a major weight‑management tool. An economic evaluation in JAMA Network Open found that U.S. spending on GLP‑1 receptor agonists among adults jumped from about 13.7 billion dollars in 2018 to 71.7 billion dollars in 2023, more than a five‑fold increase in five years. That tells you right away this isn’t a niche anymore.

Retail analytics firm Circana has been digging into what that means at the grocery store. Their 2025 work, covered by food‑industry media, shows that households with at least one GLP‑1 user already make up around 23% of U.S. households and are projected to account for about 35% of all food and beverage sales by 2030. Those households don’t just buy less food; they tend to shift toward more nutrient‑dense, higher‑protein items.

In a 2025 industry report on GLP‑1 and dairy, they reported on a poll of GLP‑1 users showing that people in that sample cut their daily calorie intake by roughly 20%—about 800 kilocalories—and favoured lean proteins over fatty, salty, sugary, or highly processed foods. For our sector, they described a clear divide: pure proteins like skim milk and whey have “immense potential,” while more indulgent, high‑fat, high‑sugar dairy products such as certain cheese dips and frozen desserts face more headwinds.

Nutrition guidelines back this up. Clinical nutrition and obesity guidelines generally stress that when calories go down, protein and micronutrient density must increase, especially in older adults and people with chronic conditions. Dietitians and GLP‑1 programs are steered towards lean meats, Greek yogurt, cottage cheese, and protein shakes as tools to help keep weight off.

You can see where whey fits in that pattern: very concentrated, highly digestible protein in a small serving.

Sports and active nutrition aren’t niche anymore

On top of the GLP‑1 story, sports and active‑nutrition products have moved from the specialty aisle right into the heart of the store.

Market research from MarkNtel Advisors estimates that the global whey protein market was worth about 6.5 billion U.S. dollars in 2023 and is projected to reach roughly 19.2 billion dollars by 2030, growing at around 9% per year from 2024 through 2030. That’s a big leap for something that used to be a byproduct we hauled away or spread on fields.

Tanner Ehmke, lead dairy economist with CoBank, has explained in reports that whey used to be dumped or land‑spread, but by 2021 had reached almost 5 billion dollars in global market value, and that demand for whey protein concentrate has been growing for more than 25 years, driven mainly by export demand. He also notes that U.S. cheese production capacity is expected to expand by about 10% over a five‑year window, and that processors need state‑of‑the‑art technology to meet global whey needs, especially in Asia.

On the shelf, many of us have noticed the same thing: more ready‑to‑drink protein shakes, high‑protein yogurts, and fortified bars in Costco, farm stores, and even truck stops. The International Dairy Foods Association’s president, Michael Dykes, a veterinarian by training and long‑time dairy policy leader, told Dairy Forum attendees that most of the “protein‑added” products consumers see today are still built on dairy‑derived proteins, especially whey from cheese plants.

There’s growing clinical evidence backing whey’s role in health, too. A 2024 meta‑analysis in Clinical Nutrition ESPEN looked at randomized trials in older adults with sarcopenia (age‑related muscle loss) and found that whey protein supplementation, especially when combined with resistance training, improved lean mass and functional performance compared with control groups. Industry reports have summarized research on inflammatory bowel disease, showing that participants receiving whey‑based nutrition supplements alongside exercise gained more muscle mass and strength than those who exercised without whey. That kind of evidence gives doctors and dietitians a reason to keep whey‑based products in their toolbox.

So when you put all of that together—GLP‑1 users cutting calories but chasing protein, mainstream shoppers grabbing RTD protein drinks, and clinicians using whey to help protect muscle—it makes sense that whey demand looks strong.

And the stainless is really going into cheese and whey

Now, back to that eight‑billion‑dollar pile of stainless.

In a interview, Leonard Polzin lays out that more than eight billion dollars’ worth of stainless steel is being installed in new and expanded dairy processing plants across the U.S., with some plants starting in early 2025 and others coming online over the following years, covering cheese, fluid, soft, and hard dairy products.

Corey Geiger’s view from CoBank is that about eight billion dollars in new U.S. dairy processing investment is expected through 2026, and industry reports indicate that a large share of that is going into cheese and whey capacity. Dykes told Dairy Forum in 2024 that more than $7 billion in dairy processing expansions were underway, and later coverage has raised that figure to over $11 billion when you extend the horizon a few more years and count additional projects. He links that investment directly to the protein opportunity.

What I’ve found is that when you step back, you see three layers stacking:

Demand: GLP‑1 and protein‑focused diets plus sports and clinical nutrition.
Processing: a wave of new cheese and whey plants and expansions worth roughly eight billion dollars in this cycle.
Ingredients: continued shift from whey as a waste stream to whey as a core protein ingredient.

That’s a pretty big structural shift. The question is how much of it was built with your equity, and how much of it comes back as farm‑level pay price.

The Big Disconnect in the Milk Check

This is usually where the meeting room goes quiet: the space between whey’s ingredient value and what shows up in your milk cheque.

Most of the tools that touch your pay price—Class III formulas, many component programs, and a lot of co‑op base prices—are still built around commodity dry whey. USDA’s Dairy Market News for the Central region shows that through 2024, dry whey for human food often traded within a band from about 40 to 60 cents per pound, with “mostly” values often in the mid‑50s at times. Dry whey for animal feed typically sat lower, often in the high‑30s to low‑40s per pound.

Those dry whey numbers feed directly into the Class III formula. That’s the part your milk cheque “sees.”

But in a lot of bigger cheese and whey plants—especially in those new Western facilities and in long‑standing ingredient complexes in Idaho and the Upper Midwest—the whey stream doesn’t stop at dry powder. Potable whey is being:

Concentrated into whey protein concentrates (like WPC‑80),
Further refined into whey protein isolates (WPI),
Sometimes split into more specialized fractions for infant formula, sports, and medical nutrition.

Ingredient / Form	Typical Price Range (2024)	What’s Included in Your Class III Formula?	Market Margin vs. Commodity Dry Whey
Commodity Dry Whey (Human Food)	$0.45–$0.60/lb	✓ Yes—directly	Baseline (this is the “standard”)
Commodity Dry Whey (Animal Feed)	$0.38–$0.42/lb	Limited	−12 to −18¢/lb vs. human food
Whey Protein Concentrate (WPC-80)	$1.80–$2.40/lb	✗ No—stays internal	+$1.20–$1.80/lb over commodity dry
Whey Protein Isolate (WPI)	$3.20–$4.50/lb	✗ No—stays internal	+$2.60–$3.90/lb over commodity dry
Specialized Fractions (infant formula, clinical)	$4.00–$6.50/lb	✗ No—not in formula	+$3.40–$5.90/lb over commodity dry

Those ingredients sell at much higher per‑pound prices than bulk dry whey. Market research from MarkNtel and ingredient trade coverage show that high‑grade whey proteins typically command a multiple of whey powder prices, especially when export and sports demand are strong.

Obviously, there are extra costs—membranes, energy, drying, quality systems, and marketing. But even after that, the margin between the dry whey value that goes into your formula and the finished ingredient values can be significant.

So the real question isn’t whether whey has value. It’s this:

When your co‑op or processor turns your whey into higher‑value ingredients, how much of that extra value comes back to you—and how much stays inside the plant and on the balance sheet?

That’s where co‑op finance and governance make all the difference.

How Co‑op Finance Shapes Who Wins in the Whey Boom

In many dairy co‑ops, the year‑end pattern looks something like this:

The co‑op calculates its earnings and declares patronage refunds based on the volume or value of milk you delivered.
A portion of those refunds is paid out in cash.
The rest is retained as allocated member equity in your capital account.

Oklahoma State University Extension’s bulletin “Valuing the Cooperative Firm” lays this out neatly. In their sample, cash patronage ranged from about 21% to 70% of total patronage, with the rest retained as equity, and at least one co‑op paid as little as 15% in cash and 85% in equity. In dairy, because plants are so capital‑intensive, it’s common—and OSU’s data supports this pattern—to see something in the ballpark of 20–30% of patronage paid as cash and 70–80% retained in some co‑ops, but there is no single standard. Policies vary widely by co‑op and over time.

On top of that, most co‑ops use revolving equity. That means your retained patronage from a given year is supposed to be redeemed at some point in the future—either on a revolving schedule (oldest years first), at retirement, or a combination of both. USDA and extension guides emphasize that revolving timelines can range from a few years to decades, depending on each co‑op’s rules, performance, and board decisions.

So when a board approves a major whey or cheese expansion, the financing stack often looks like this:

A chunk of debt from banks or bond markets.
A big share of retained member equity that’s already on the books.
Sometimes, new per‑unit retains or special capital assessments on current milk.

From a board’s perspective, this can be perfectly rational. They’re trying to keep the co‑op’s equity‑to‑debt ratio strong enough to make lenders comfortable, while leaving room for future projects.

From your perspective, sitting at the kitchen table with your lender, a few fair questions pop up:

If my retained equity helped build this plant, when does that investment realistically come back to my farm as cash?
When the whey and ingredients division has a strong year, does that show up as better cash patronage or faster equity redemption, or mostly as accelerated debt pay‑down and a stronger co‑op balance sheet?
Can I actually see how the whey and ingredients business is performing as its own line, or is it lumped into one big profit number?

It’s worth noting something simple that often gets glossed over: every dollar the co‑op retains is a dollar you can’t use this year to pay down your operating line, improve fresh cow facilities, or tweak ventilation and cow flow to protect butterfat performance in summer.

Research on European dairy co‑ops in specialty cheese and ingredient markets, summarized in global dairy sector reviews, has found that co‑ops with clear segment reporting and active member participation tend to maintain member trust and perform more steadily across market cycles than those with opaque structures. Members in those systems may not love every decision, but they can see whether the whey or ingredients division is doing what it was supposed to do and how that performance connects to patronage and equity.

Key takeaway for co‑op finance:
If whey and ingredient projects are funded heavily with member equity and the performance of those divisions isn’t clearly reported or tied to cash patronage and equity redemption, it’s very easy for ingredient value to get “stuck” at the co‑op level instead of showing up in your milk cheque.

That’s why transparency and structure matter just as much as stainless steel and membranes.

Whey Investments Can Pay Off—But Not Automatically

A fair question at this point is, “Do these whey investments actually pay back fast, or is that just a nice line in a PowerPoint?”

Several techno‑economic and “dairy biorefinery” studies have worked through the numbers on whey valorization—turning whey into higher‑value products instead of low‑value powder or waste. Reviews in journals like Foods and Journal of Environmental Management have concluded that whey is a promising feedstock for higher‑value ingredients and bioproducts and that, under favorable conditions—strong demand, good utilization, reasonable energy costs—those projects can deliver relatively fast payback compared with some other dairy investments.

On the ground, I’ve noticed a pattern that fits that. Plants that bolt modern whey lines onto existing cheese operations often go through a bumpy “transition period”—membrane fouling, staffing issues, quality glitches. But once they settle in and run near design capacity, that whey-and-ingredients side often becomes one of the more attractive contributors to plant margins, especially when WPC‑80 and WPI exports are strong.

But there are some real “ifs” here:

If energy is expensive in your region, it can eat into those margins fast.
If multiple plants in a region all add similar whey capacity at the same time, ingredient prices can soften just as everyone’s ramping up.
If milk supply is flat or constrained by environmental rules, permits, or cow numbers, it’s harder to hit the utilization rates the original models assumed.

So yes, whey projects can pay back relatively quickly when they’re sized well, run well, and markets cooperate. But they’re not automatic winners. And even when they do pay off at the plant level, it’s still an open question how that success is shared between the co‑op’s books and your farm’s balance sheet.

Where You Sit Depends on Who You Ship To

What farmers are finding is that their place in this whey story depends a lot on who they ship to and which region they’re in.

Ingredient‑heavy co‑ops and processors

In Wisconsin, Idaho, parts of Michigan and South Dakota, and now in the Texas Panhandle and eastern New Mexico, quite a few producers ship to co‑ops and private processors running big cheese and whey complexes. Those plants:

Turn a lot of milk into cheese.
Run modern whey lines making WPC‑80, WPI, and sometimes more specialized ingredients.
Sell into sports, clinical, and active‑nutrition markets that are still growing.

CoBank’s outlook suggests U.S. cheese capacity will grow by around 10% over a five‑year period, with whey processing expanding alongside it. That means farms shipping into these systems—from the Upper Midwest to the High Plains—are sitting right on top of where much of the new ingredient value is being created.

In those regions, the coffee‑shop conversation often sounds like, “I’m glad our co‑op is serious about ingredients and not stuck in 1985. I just wish I could see where that whey plant shows up in my patronage and equity.”

If that’s you, some smart questions include:

Does our co‑op report whey and ingredients as their own division with at least basic volume, revenue, and margin information?
In strong whey years, do we actually see that reflected in cash patronage or faster equity revolvement, or does most of the gain show up as lower debt and a stronger balance sheet?
Once the project has essentially hit the payback window we were shown, is there a plan to adjust patronage or redemption policies so more of the ongoing margin flows back to members?

More commodity‑ and fluid‑focused systems

In parts of the Northeast and Southeast, and in some smaller regional co‑ops, the product line is still heavily weighted toward fluid milk, butter, and nonfat dry milk. Whey may be in the mix as a commodity powder, but it’s not a big branded-ingredient business.

For those farms, the whey story sounds different:

Some co‑ops simply don’t have the scale or balance sheet to build and run their own WPC/WPI plants.
They may sell whey as basic dry whey, or explore joint ventures and toll-processing arrangements with ingredient specialists.
The strategic question becomes: do we move up the whey value chain, or do we double down on being a lean, low‑cost commodity producer?

In those systems, it’s worth watching:

Whether your co‑op is actively exploring partnerships that let members participate in some ingredient value without carrying all the risk.
Whether being a “commodity‑lean” co‑op is a conscious strategy with clear economics, or just the default because big ingredient projects feel too risky.

Quota systems, like in Canada

Under Canada’s supply‑managed system, milk is produced under quota, and national and provincial boards determine farm‑gate prices. That changes how the whey value shows up.

Canadian processors still capture value from cheese and whey ingredients, especially in export and specialty product niches. But farm revenue is much less tied to spot commodity swings and much more to regulated prices and pooled returns. In that context, whey value tends to affect processor health, competition, and long‑term investment capacity more than you see in day‑to‑day cheques.

So for many Canadian producers, the whey question sounds more like:

Are processors capturing enough ingredient value to stay financially healthy and keep investing in plants and products?
Is competition between processors strong enough to reward farms that invest in components, cow comfort, and better housing—whether that’s freestalls, tie‑stalls, or dry lot systems?

In places like New Zealand and parts of Europe, the picture is further shaped by emissions rules, subsidy structures, and trade agreements. But the core issue is the same: who gets the whey margin, and does the farm see enough of it to justify continuing to invest?

Questions That Actually Move the Needle in Co‑op Meetings

So what do you do with all this when you’re one member in a district meeting, trying to decide whether to stand up?

What I’ve found is that one or two well‑aimed, respectful questions will do more than a long speech. Here are three that line up well with what co‑op finance specialists and extension folks suggest.

Question to Ask	What It Reveals	Weak Answer (Red Flag)	Strong Answer (Green Light)	Your Follow-Up Move
“How is this whey project being financed?”	Mix of debt vs. member equity; equity leverage risk	“We’re financing it the normal way” or vague numbers	“60% bank debt, 40% member equity retained over 3 years; target debt-to-equity 50:50 post-payback”	Ask: “When equity is fully retired, does the patronage policy change?”
“Will whey and ingredients be reported as their own division?”	Transparency; whether co-op sees whey as core profit driver or afterthought	“It’s in the consolidated number” or “We don’t break that out”	“Yes—volume in tonnes, revenue, EBITDA margin, and narrative explaining performance vs. plan, starting next annual report”	Follow-up: “What was last year’s volume and margin?” (tests if they have real data)
“What’s our patronage approach for higher-margin businesses?”	Whether co-op evolves policies as projects mature; whether members benefit from success	“We have a standard patronage policy; everybody gets the same”	“We’re targeting 30% cash payout on whey division within 2 years of payback; board will revisit if equity targets are hit”	Challenge: “Show me in writing how that ties to whey margin, not just total co-op earnings”

1. “How is this whey project being financed?”

Instead of “this feels risky,” you might ask:

Roughly what share of the capital is funded with debt from banks or bond investors?
How much is coming from retained member equity that’s already on the books?
Are there any new per‑unit retains or special capital assessments tied specifically to this project?
Once the plant is online, what equity‑to‑debt ratio is the board aiming for?

OSU Extension’s co‑op work stresses that you can’t really understand risk and return without knowing how much is coming from lenders versus members. If a project leans heavily on member equity, it’s natural to ask what the plan is for that equity to work back in your favour over time.

2. “Will whey and ingredients be reported as their own business?”

More producers are starting to ask for segment reporting, not just a single, blended profit number.

That might look like:

A line in the annual report for “whey and proteins” or “ingredients.”
Simple, high‑level metrics: tonnes sold (or equivalent), revenue, and a margin range.
A short narrative each year explaining whether that division performed above or below expectations and why.

Studies of European dairy co‑ops suggest that groups with clearer divisional reporting and stronger member engagement tend to maintain trust and ride out downturns more smoothly. When whey is clearly reported, members can see whether the business is working as promised.

And I’ll say this as gently as possible: if your co‑op consistently refuses to share even basic performance information about a big new division like whey and ingredients, that’s telling you something about how it views member‑owners.

3. “What’s our patronage approach for higher‑margin businesses like whey?”

Lots of co‑op patronage policies were written in a world dominated by commodity milk, butter, and powder. Higher‑margin, capital‑intensive businesses like whey can behave very differently.

Good questions here include:

In years when whey and ingredients do especially well, is there room—within our financial targets—to increase the cash portion of patronage tied to that division?
Once the project has effectively paid for itself, has the board considered accelerating equity revolvement or increasing the cash share from that business, as long as equity and debt ratios stay healthy?
Could the board walk through a simple, realistic example of how a strong whey year would show up for a 200‑cow or 400‑cow member, both in cash and in equity?

Farm Size	Annual Milk Volume	Scenario A: Co-op Retains 100% (Zero Cash)	Scenario B: Co-op Shares 50% of Whey Margin as Cash Patronage (+15¢/cwt)	Scenario B Impact: Dollars Per Cow Per Year	Farm-Level Decision Question
100-Cow Herd	27,000 cwt/yr	$0 additional cash	+$4,050 annual cash	+$40.50/cow	Worth 3–4 parlour upgrades or a genetics consultant annual fee
250-Cow Herd	67,500 cwt/yr	$0 additional cash	+$10,125 annual cash	+$40.50/cow	Worth deferring a major repair vs. doing it now; offsets half a veterinary rotation
500-Cow Herd	135,000 cwt/yr	$0 additional cash	+$20,250 annual cash	+$40.50/cow	Worth a part-time employee’s wages for one season; meaningful debt service relief

To give that some scale, here’s an example you can scribble in your notebook:

Suppose the whey and ingredients division lifts overall co‑op margins by 30 cents per hundredweight in a given year.
If the board decides to pass half of that—15 cents per cwt—through as extra cash patronage:
- A farm shipping 10,000 cwt/year would see about 1,500 dollars in additional cash.
- A farm shipping 20,000 cwt/year would see about 3,000 dollars in additional cash.
At around 270 cwt per cow per year (about 27,000 pounds), that 15¢/cwt adds up to roughly 40 dollars per cow per year. On a 250‑cow herd, that’s in the neighborhood of 10,000 dollars.

That’s not going to buy a whole new parlour, but it might be the difference between putting off a key repair and finally doing it—or between feeling forced to stretch your line of credit and sleeping a little better.

Seeing It from the Board’s Side Too

To keep this fair, it helps to slide into the board chair for a minute and think about what directors and managers are juggling.

They’re dealing with:

Lender expectations. Co‑op lenders want to see strong equity and comfortable coverage ratios, especially when whey, cheese, and powder prices are volatile.
Price and demand swings. CoBank’s work on whey markets has highlighted that strong demand periods can be followed by softer prices, especially when new capacity floods the market.
Utilization risk. A plant designed for 90% utilization looks fantastic on the spreadsheet; at 65–70%, especially in regions where cow numbers are flat or environmental rules are tight, the economics change quickly.
Future capital needs. Even if this whey project goes well, there are always other needs coming—dryer upgrades, cheese‑line modernization, wastewater and energy projects.

So when boards decide to retain a larger share of patronage during the early years of a big whey project, they’re often trying to keep the co‑op solid and bankable, not trying to short‑change members.

The tension comes when:

Retention policies don’t seem to evolve even after a plant appears to be past its payback window, or
Members don’t get enough information to judge whether their equity is being used well.

That’s why those three questions—about financing mix, segment reporting, and patronage for higher‑margin businesses—are so important. They help shift the conversation from frustration to shared problem‑solving.

Practical Moves for Your Farm Before the Next Wave of Stainless

With everything else on your plate—fresh cow management, labour, feed, keeping barns or dry lot systems in shape—it’s easy to shrug and say, “That’s co‑op stuff. I don’t have time for it.” But there are a few manageable steps that can put you in a much better spot without turning you into a full‑time analyst.

1. Really look at your co‑op equity statement

Start by grabbing your latest capital account statement:

How much total retained equity do you have?
How much of that has built up over roughly the last decade, during this wave of processing expansion?
Which patronage years are being revolved now, and what does the stated policy say about future revolvement?

Then sit down with your lender or adviser and look at that equity alongside your debt, age, and plans. OSU’s co‑op work points out that the value of co‑op equity depends heavily on your time horizon and the co‑op’s actual redemption practices. For a 35‑year‑old with 400 cows, a strong equity balance with predictable revolvementcan look like an asset. For a 60‑year‑old with 100 cows, a big equity number with no clear path to redemption may feel more like trapped capital.

2. Benchmark your all‑in price

Every year or so, it’s worth asking, “How do we actually compare?”

Calculate your average pay price per cwt (or per 100 litres) over the last 12–24 months, including both the cheque and any cash patronage you actually received.
Compare that with USDA mailbox prices or provincial benchmarks for your region.
Quietly compare notes with one or two trusted neighbours who ship to other buyers, adjusting for components, quality, and hauling.

You’re not reacting to every ten‑cent blip. You’re looking for patterns. If, over time, your all‑in price is consistently 25–50¢/cwt behind similar herds, that’s 2,500–5,000 dollars on 10,000 cwt and 5,000–10,000 dollars on 20,000 cwt.That’s enough to matter when you’re trying to catch up on deferred maintenance or manage your operating line.

3. Take one or two good questions into your next meeting

You don’t have to take over the microphone. One or two clear questions can change the tone of a district meeting:

“Could the board give a simple overview of how our whey or ingredients division performed last year—rough volume, revenue, and whether it was on track with what we were told when we approved the project?”
“When we first discussed this whey plant, what kind of payback window were we shown, and based on what you’re seeing now, are we roughly in that range?”
“As this project matures and we hit the equity and debt ratios we’ve targeted, has the board discussed changing the cash portion of patronage tied to that division?”

Those are owner‑level questions. They show you’re engaged and thinking like an investor, not just a supplier.

4. Use the experts who already work for dairy farmers

There’s a lot of good help already in the system:

Ask your university or provincial extension folks if they’ll run a winter session on whey markets, co‑op financials, and how processing investments connect to milk pricing.
Encourage your co‑op to invite its primary lender or a co‑op finance specialist to member meetings to explain how they look at equity, debt, and project risk around cheese and whey plants.
If your region has a co‑op development center or a similar organization, consider bringing together a small group of members to sit down with them and discuss governance tools and best practices.

These people see multiple co‑ops and processors. They know what “normal” looks like and where the outliers are, and they can help translate that into plain language.

The Bottom Line

So why spend this much energy thinking about whey when you’ve got cows to breed, feed to buy, and a to‑do list that never seems to shrink?

Because this isn’t just another short‑term price swing. The combination of:

GLP‑1 weight‑loss drugs are pushing a significant share of consumers toward fewer calories but more protein‑dense foods,
Strong, still‑growing global demand for whey protein, with the market projected to nearly triple from 6.5 billion dollars in 2023 to 19.2 billion by 2030,
And solid clinical evidence that whey helps older and medically vulnerable people maintain muscle and function,

…all point toward durable demand for high‑quality dairy protein.

At the same time:

The spread between commodity dry whey and higher‑value whey proteins is large enough to change plant economics materially.
More than eight billion dollars in new processing capacity—a big chunk of it in cheese and whey, including major builds in the Texas–New Mexico corridor and the Upper Midwest—is being built or expanded in this cycle.
And both techno‑economic research and real plant experience suggest that, when they’re sized and run well, whey investments can be among the quicker‑paying projects in a processor’s portfolio.

Those are the big structural forces. What’s still very much in our hands, as producers and co‑op members, is how those whey projects are financed, how their performance is reported, how patronage is structured, and how actively we choose to engage in those decisions.

There’s no one right answer. A 2,000‑cow dry lot in the Texas Panhandle, a 600‑cow freestall in Ontario, and a 120‑cow tie‑stall in Vermont are going to make different calls on risk, equity, and time horizon. But producers who:

Understand their co‑op’s equity structure,
Know where their all‑in price sits relative to neighbours and benchmarks,
And are willing to ask a few focused questions in the right rooms,

They are in a much stronger position to decide what this whey boom means for their own operation.

What’s encouraging is that we’re not starting from scratch. We’ve got solid data, extension specialists who understand both cows and co‑ops, lenders who will explain their thinking if we ask, and real‑world examples—here and overseas—of co‑ops and processors that have handled big investments in ways that kept both plants and farms healthy.

The opportunity now is to bring that same level of clarity and shared purpose to this “whey moment,” so that ten years from now we’re not just proud of the shiny stainless on plant tours—we’re also standing in barns and dry lot systems we’re proud to hand on to the next generation.

Key Takeaways:

US$8B in stainless, coming fast: New cheese and whey plants from Wisconsin to the Texas Panhandle are adding ~360 million pounds of cheese capacity by the end of 2025—with whey protein lines riding alongside.
Whey demand is structural, not hype: GLP-1 drugs and protein-obsessed consumers are pushing the global whey market from US$6.5B (2023) toward US$19.2B by 2030—a near tripling in seven years.
Your formula doesn’t capture the real value: Class III still prices whey at commodity dry whey levels (40–60¢/lb), while WPC-80 and WPI sell at multiples of that.
Co-op structure determines whether you ever see that margin: cash patronage splits range from 15–70%; equity can take years or decades to turn. If whey isn’t reported or tied to patronage, the value often stays parked on the co-op balance sheet.
Bring three questions to your next meeting: (1) How is this project financed—debt vs. member equity? (2) Will whey be reported as its own division? (3) When whey margins are strong, does cash patronage or redemption actually improve?

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 : co-op patronage, dairy processing, farm profitability, GLP-1 dairy, milk protein, whey market

Tariffs Cost Dairy Farmers $2.6 Billion Last Time. You’ve Got 60 Days Before It Hits Again.

Tuesday, January 20th, 2026

Tariffs stripped $2.6B from dairy farms last time. Use the next 60 days—or your milk check will make the decision for you.

Executive Summary: Tariffs stripped an estimated 2.6 billion dollars from U.S. dairy farms during the last China trade war, and today Mexico alone buys about 29 percent of all U.S. dairy exports while relying on the U.S. for more than 80 percent of its imported dairy. Using current data from USDA‑FAS, USDEC and CoBank, the article shows how that dependence on a few big buyers turns Washington’s tariff tools into direct Class III and milk‑check risk for every herd tied to cheese, powder, and whey markets. China’s experience—export value dropping to 377 million dollars and whey shipments collapsing 69 percent after retaliatory tariffs—illustrates how fast demand can vanish and how slowly it comes back once buyers switch to competitors like the EU. Against that backdrop, the piece lays out a plain‑spoken 60‑day decision window: put two price scenarios on paper, meet once with your co‑op and once with your lender, and use USDA/extension guidance to decide how DMC, LRP‑Dairy, and succession timing fit your risk tolerance. Written in a peer‑to‑peer, “over coffee” voice, it gives progressive dairy producers a clear, credible playbook to manage tariff risk before their milk check makes the decisions for them.

You know, if we were sitting down over coffee at World Dairy Expo or at a winter meeting in Ontario, with producers from Wisconsin freestalls, New York tiestalls, and California dry lot systems all at the table, I’d probably start with this: all the talk about presidential “emergency” tariff powers might sound like it belongs in Washington, but the impact doesn’t stay there. It flows through export channels and, sooner than most of us would like, it shows up in the milk check you’re depositing at home.

In early 2025, President Donald Trump signed executive orders imposing 25 percent tariffs on most goods from Mexico and Canada and 10 percent on goods from China, creating fresh uncertainty for U.S. dairy exporters and the farms that ultimately depend on those markets. Cornell University’s Charles Nicholson, Ph.D., an adjunct associate professor in the Charles H. Dyson School of Applied Economics and Management, told the Dyson Agricultural and Food Business Outlook conference that “if you pick a trade fight with our major export destinations… that has some substantive negative implications for dairy farms and processors”. What really made people sit up was his estimate that Chinese retaliatory tariffs alone cost U.S. dairy farms about 2.6 billion dollars in lost revenue from 2019 through 2021.

What’s interesting here is that this isn’t just a policy debate. It’s about timing, concentration risk, and how much room you’ve got to maneuver before that next shock hits your milk price.

Let’s walk through what the data actually shows.

Looking Back: What 2018–2019 Really Taught Us

Looking at this trend, the 2018–2019 tariff period remains the clearest case study we’ve got on how quickly things can change.

On the Mexico side, USDA’s Foreign Agricultural Service published a GAIN report in June 2018 showing that Mexico responded to U.S. steel and aluminum tariffs with retaliatory tariffs on a range of U.S. products, including multiple cheese tariff lines. That report laid out how certain U.S. cheese categories were hit with new tariff rates starting June 5, 2018, and then increased again on July 5, with some lines moving into the 20–25 percent range depending on the specific HS code. That shift happened in a matter of weeks, not years.

On the China side, the U.S. Dairy Export Council tracked the fallout as Beijing rolled out its own retaliatory measures. Cheese Reporter, summarizing USDEC’s January 2020 export review, noted that for the 12 months from December 2018 through November 2019, the value of U.S. dairy exports to China totaled about 377 million dollars—a roughly 47 percent decline from the prior 12‑month period. That’s a big haircut on a single key market.

In an April 2025, after China imposed a 20 percent retaliatory tariff on U.S. dry whey in 2018, U.S. dry whey exports to China dropped 69 percent from their April 2018 peak to their February 2020 low, measured on a 12‑month rolling basis. That’s not just noise; that’s a major demand hole for a key by‑product that helps pay the bills in a lot of cheese and whey plants.

As many of us have seen, once those kinds of volumes start moving, they don’t necessarily come back quickly. And if you wait to react until your milk check clearly reflects the problem, you’ve already given up most of your best options.

Mexico: Our Best Customer… and a Big Point of Exposure

You probably know this already, but the more recent numbers really drive home how central Mexico has become to U.S. dairy.

Citing USDA‑FAS data, it was reported that by September 2024, Mexico’s purchases accounted for 29 percent of all U.S. dairy product exports on a value basis. That same piece noted that the United States supplied Mexico with over 80 percent of its imported dairy products in 2024. So from Mexico’s side, the U.S. is the dominant supplier. From the U.S. side, Mexico accounts for close to a third of dairy export value.

CoBank’s December 2024 report, “Mexico Has Become America’s Most Reliable Customer for U.S. Dairy Exports,” put it into milk terms. Their analysts calculated that Mexico purchases the equivalent of about 4.5 percent of total U.S. milk production through imported dairy products and ingredients. Corey Geiger, CoBank’s lead dairy economist, noted that Mexico runs a dairy product deficit of roughly 25–30 percent each year, and that the U.S. supplies over 80 percent of that shortfall.

USDA‑FAS projections reinforce the idea that this isn’t going away overnight. In its May 2025 “Dairy and Products Semi‑annual – Mexico” report, FAS forecast Mexico’s fluid milk production to increase about 1 percent to 13.9 million metric tons in 2025 and projected similar modest growth in consumption. That same report highlighted that processors are expected to increase milk powder imports as they continue to favor lower‑cost raw materials for manufacturing.

What the data suggests is an asymmetric relationship:

For Mexico, U.S. dairy is the dominant source of imports, but those imports sit on top of a large and growing domestic production base.
For the U.S., Mexico is the single largest export destination—accounting for around 29 percent of total dairy export value and a major share of cheese, powder, and other products.

So when CoBank calls Mexico “America’s most reliable customer” for U.S. dairy exports, they’re leaning on hard numbers. But Nicholson’s warning comes back into focus too: if trade tools get used aggressively and provoke retaliation in a market that important, the downside for U.S. dairy farms and processors is substantial.

Key Numbers Worth Knowing

Looking at the numbers pulled together by USDA‑FAS, USDEC, and CoBank, a few datapoints really frame the risk:

Mexico’s share of U.S. dairy exports: about 29 percent by September 2024, based on USDA‑FAS trade data.
U.S. share of Mexico’s dairy imports: over 80 percent of imported dairy products in 2024, per USDA‑FAS data reported by CoBank.
Share of U.S. milk exported to Mexico: roughly 4.5 percent of U.S. milk production equivalent, according to CoBank’s 2024 analysis.
U.S. dairy export value to China (Dec 2018–Nov 2019): about 377 million dollars, a 47 percent decline from the prior 12‑month period, per USDEC numbers reported by Cheese Reporter.
Dry whey exports to China: a 69 percent drop from the April 2018 peak to the February 2020 low on a 12‑month rolling basis after China imposed a 20 percent retaliatory tariff, as documented by Hoard’s Dairyman.
Estimated U.S. dairy farm revenue loss from China tariffs (2019–2021): about 2.6 billion dollars, according to Nicholson’s analysis cited by Cornell.

Those numbers alone explain why tariff talk matters to your bottom line, even if all your cows are standing in a barn thousands of miles from the border.

China’s Lesson: When Demand Doesn’t Fully Come Back

Now let’s swing back to China, because what happened there is a warning about long‑term demand, not just short‑term pain.

USDEC’s review, as quoted in Cheese Reporter’s 2018–2019 tariff lessons column, showed that by 2017–2018, China had grown into a key destination for U.S. dairy—especially whey and other ingredients. Then the retaliatory tariffs hit. As mentioned earlier, USDEC’s tally showed the value of U.S. dairy exports to China fell to about $ 377 million in the 12 months from December 2018 through November 2019, a 47 percent drop from the previous year.

2025 whey analysis dug deeper into the ingredient side. With a 20 percent retaliatory tariff on U.S. dry whey, exports to China dropped 69 percent from that April 2018 peak to a February 2020 low, using a rolling 12‑month comparison. During that period, it was noted that Chinese buyers shifted toward more EU dry whey, which wasn’t facing the same tariff penalty.

Nicholson and other trade economists have pointed out that once buyers qualify alternative suppliers and re‑tool supply chains, not all of that business returns when tariffs ease or exemptions appear. A two‑ or three‑year disruption can change the growth path of a market for much longer than that.

For U.S. producers, the key lesson is simple: when tariffs push a major buyer to diversify, some of that lost demand can become permanent.

So, Where Does This Leave Your Farm?

So, with all of that in mind, what does this actually mean when you walk back into your parlor or robot room?

First, it means export exposure is real, whether you’ve ever thought of yourself as an “export farm” or not. If your milk goes to a cooperative or processor that makes cheese, nonfat dry milk, whey, or other export‑oriented products, then pieces of your check are indirectly tied to people buying pizza in Mexico City or feed products in Asia. The concentration numbers—Mexico taking 29 percent of U.S. dairy export value and importing the equivalent of 4.5 percent of U.S. milk output—make that pretty clear.

Second, it means that when tariffs and trade headlines start moving from talk to action, you don’t have unlimited time to react. The 2018–2019 episode showed that retaliatory moves can go from announcement to significantly lower export values in less than a year, and in the case of whey, the effect on shipments was both steep and persistent. That’s why thinking in terms of a “window” makes sense—there’s a period where you can still get ahead of it.

Third, it means that planning and conversations matter as much as any single policy announcement. And that part’s under your control.

Questions to Bring to Your Co‑op or Buyer

Looking at this trend, one of the healthiest shifts in the last few years is that more producers are asking pointed, respectful questions about how their milk buyer is positioned.

For co‑op members in the Upper Midwest, for example, where a lot of milk heads into cheese vats, it’s worth asking your board or management:

Roughly what share of our milk is going into export‑oriented products like cheese, skim milk powder, and whey, given the national export patterns CoBank and USDEC have outlined?
During the 2018–2019 tariff period, how did our average pay price compare to other buyers in our federal order—were we generally ahead, behind, or about in the pack?
What kinds of tools does the co‑op use today—hedging, product diversification, long‑term contracts—to buffer members from sudden export demand shocks?

If you’re shipping to a proprietary plant in Idaho or California that sells into both domestic and export markets, the questions are similar. You’re not trying to tell them how to run the business; you’re trying to understand how your farm fits into their risk picture.

Industry groups like the Wisconsin Cheese Makers Association have recently highlighted how trade tensions and export barriers shape decisions at cheese and whey plants, including product mix and market focus. Those kinds of articles make good conversation starters and show that processors are thinking about this, too.

And I’ve noticed that when producers come to meetings with numbers and questions rather than just frustration, the conversation usually improves for everyone.

Sitting Down With Your Lender Before There’s a Fire

What many lenders have said in interviews with dairy media and farm‑management educators is pretty consistent: the best conversations happen before there’s a cash‑flow emergency.

You don’t need perfect forecasts to have a useful meeting. What you do need are a few grounded scenarios you can walk through together:

One based on today’s outlook, using current futures and your local basis.
One that assumes a noticeable softening in prices for six to twelve months—something that would squeeze margins but not necessarily be catastrophic.

You might not know all your ratios off the top of your head, but you can bring a simple printout or spreadsheet with you:

Herd size and average production per cow.
Your recent butterfat performance and component levels.
Rough cost per hundredweight from your last farm financial review.
Current term debt schedule and operating line limits.

Then you can ask very practical questions:

“If prices moved into this softer scenario for half a year, what would you want to see from us to stay comfortable with our operating line?”
“Are there any term loans we could look at restructuring in advance to give us more breathing room on cash flow if things get choppy?”

Farm Credit associations and other ag lenders often publish their own dairy outlooks and risk‑management articles, and university extension programs pick them up and discuss them. Skimming one or two of those ahead of time can help you frame what your lender is already worrying about.

What’s encouraging is that lenders generally don’t expect perfection. They expect awareness and a plan.

Thinking About Risk Tools Without the Sales Pitch

Programs like Dairy Margin Coverage and Livestock Risk Protection are designed for exactly the kind of volatility we’re talking about.

USDA’s Farm Service Agency has documented how DMC payments supported participating farms during the margin collapses of 2020, especially for operations that chose higher coverage levels up to the Tier I cap of 5 million pounds per year at 9.50 dollars per hundredweight. USDA’s Risk Management Agency, in its LRP‑Dairy materials, explains how producers can buy coverage on expected milk prices for specific months, with indemnities paid when actual index values fall below the coverage level, allowing smaller‑volume coverage than traditional futures or options.

The data and case examples shared by land‑grant extension programs—like those from UW–Madison, Penn State, and Ohio State—suggest these tools tend to work best when they’re part of a thought‑out risk plan rather than a last‑minute scramble. Extension economists and dairy business management specialists have walked through examples of aligning DMC coverage with the cost of production and using LRP‑Dairy selectively on a portion of milk to cover the riskiest months.

So instead of treating these programs as “nice extras” or something you only look at when prices are already ugly, it’s worth asking yourself:

“Given my cost structure and butterfat performance, how much downside can I realistically ride out on my own?”
“Beyond that point, what portion of my milk do I want to insure, and with what mix of tools that I actually understand?”

Your local extension educator, FSA staff, and crop insurance agent can help you look at USDA summaries of past payouts and current premium tables so you’re making decisions based on numbers, not anecdotes.

If Exit Is on the Horizon, Timing Still Matters

This is a tough topic, but it’s part of the real conversation on a lot of farms, especially in regions like the Northeast and Upper Midwest, where farm numbers have been under pressure for years.

In some operations—where the next generation is unsure about taking over or where the main operators are dealing with health issues—the question isn’t just “how do we ride out another tough year?” It’s also “if we’re going to be done sometime in the next five to ten years, when and how do we want that to happen?”

Cull cow and bred heifer prices have gone through stronger periods recently, supported in part by tighter beef supplies and the growing use of beef‑on‑dairy genetics, which can improve the value of crossbred calves and cull animals. Farm‑management articles and extension transition resources from universities in Wisconsin, Pennsylvania, and Ontario have noted that planned dispersals in reasonably firm cattle markets often preserve more equity than forced liquidations after prolonged low‑margin periods and mounting debt, based on farm case studies and lender feedback.

The exact dollars will vary herd by herd. But the pattern is consistent enough that it’s worth a kitchen‑table discussion if you’re in that stage:

“If we did decide to exit in the next few years, what conditions—milk price, cattle price, debt level—would make that feel like a planned move rather than a last‑ditch sale?”
“What level of equity do we want to protect for the family, whether that’s land, retirement savings, or off‑farm investments?”

Extension farm‑transition specialists have checklists and meeting templates that can help you structure those conversations and bring everyone into the loop before circumstances force decisions.

It Might Not Be 2018–2019 All Over Again… But It’s Worth Being Ready

It’s worth noting that not every tariff scare becomes a full‑blown crisis.

USDA‑FAS’s 2025 outlook for Mexico shows continued growth in domestic dairy production and ongoing demand for imported powders and cheese, even in the face of broader trade tension. CoBank’s analysis frames Mexico as a structurally reliable customer for U.S. dairy, given its persistent deficit and heavy reliance on the U.S. supply. Trade press coverage has also highlighted that some announced tariff measures end up delayed, modified, or partially offset by exemptions and side deals, which can soften the blow for agriculture.

What’s encouraging is that the U.S. dairy sector has adapted to shocks before. Exporters have shifted product mixes and markets, processors have invested in new capabilities, and producers have improved fresh cow management, feed efficiency, and overall cost control in response to tough years. That doesn’t mean it’s easy; it means it’s possible.

At the same time, the data from the last tariff cycle—and Nicholson’s 2.6‑billion‑dollar loss estimate—are a reminder that when major markets pull back, the financial damage can be both large and long‑lasting. That’s why this isn’t about predicting doom; it’s about deciding how you want to be positioned if the road gets rough.

A Simple 60‑Day Framework You Can Actually Use

Metric	Current Outlook	Softer Scenario (6–12 mo)	Change
Class III Milk Price ($/cwt)	$18.50	$16.00	–$2.50
Butterfat Premium ($/lb)	$2.10	$1.85	–$0.25
Feed Cost per Cow/Day	$9.25	$9.50	+$0.25
Est. Margin per Cow/Day	$3.20	$1.15 ⚠️ RED	–$2.05

So, over the next couple of months, here’s a straightforward way to put all this into practice without turning it into a full‑time project.

Put two price scenarios on paper.
Use your own numbers—your butterfat performance, average production per cow, and local basis. Start with something close to today’s outlook based on current futures. Then sketch a second scenario in which prices are meaningfully softer for 6 to 12 months. You don’t need to be perfect; you just need to see roughly where cash flow turns from positive to negative and what that looks like in dollars per month.
Take those scenarios to one meeting with your co‑op or buyer.
At a member meeting in Wisconsin, a one‑on‑one with a field rep in New York, or a call with a plant in the West, use the Mexico and China numbers as a backdrop and ask: “If export markets got choppy like they did in 2018–2019, how would that likely show up in our pay price, and what options would you have beyond just dropping the check?” Co-op and processor leaders have been talking publicly about trade risk and export barriers in venues like the Wisconsin Cheese Makers Association and national dairy policy forums—referencing those discussions shows you’re paying attention.
Take the same scenarios to one meeting with your lender.
Sit down with your banker or Farm Credit officer and say: “Here’s what our cash flow looks like at these two price levels. If the softer scenario showed up for half a year, what would you want to see from us to stay comfortable? Are there things we could adjust now to give both of us more confidence?” Dairy‑focused lenders interviewed by farm media and extension often point to debt‑service coverage, working capital, and equity as the main gauges they watch. Ask them which ones they’re watching on your operation.
Ask good questions about risk tools.
With your extension educator, FSA office, or insurance agent, walk through how DMC and LRP‑Dairy actually performed in 2020 and other recent years for farms your size, using USDA and extension summaries as your guide. You’re not committing on the spot; you’re making sure you understand what they can realistically do for your operation and the costs involved.
If succession or retirement is a live topic, name the “trip wires.”
If the family’s talked about being “done at some point,” put rough thresholds on paper—maybe a certain milk price, debt‑to‑asset ratio, or cattle value—and discuss at what point a planned exit might be better than pushing through at any cost. Extension farm‑transition specialists and case studies from Wisconsin, Pennsylvania, and Ontario can give you examples of how other families have navigated those choices.

None of this requires you to guess which tariff will be announced next or how Mexico or China will respond. It just puts you in a better position to decide, rather than react.

Closing Thoughts: Deciding While You Still Have Room

As many of us have learned, nobody—whether it’s USDA, USDEC, your co‑op, or your lender—has quite the same focus on your farm’s future as you do. They all bring tools and information to the table, but they’re looking across hundreds or thousands of farms, not just yours.

What’s encouraging is that you don’t need to control court decisions, trade negotiations, or election outcomes to tilt the odds a bit more in your favor. You can use this “60‑day window” idea as a reminder: there is a period between policy talk and milk‑check pain where you still have room to adjust your plan.

If things stay relatively calm, you’ll have invested some time in understanding your operation better and strengthening relationships with the people who help finance and market your milk. If tariffs and trade disputes start biting into exports again, you’ll be glad you didn’t wait for your milk statement to tell you there was a problem.

Because once the damage is printed on that check, you’re not really deciding anymore. You’re reacting.

Right now, you still have room to decide.

Key Takeaways

$2.6 billion lost: Chinese retaliatory tariffs alone cost U.S. dairy farms an estimated $2.6B in revenue from 2019–2021, per Cornell economist Charles Nicholson.
29% in one market: Mexico buys about 29% of all U.S. dairy exports and relies on the U.S. for over 80% of its imported dairy—one trade dispute could ripple through the entire sector.
Demand doesn’t snap back: After China imposed 20% tariffs on U.S. dry whey, exports dropped 69% and buyers shifted to the EU; much of that volume never fully returned.
You have a 60-day window: From tariff announcement to milk-check impact is roughly 60–90 days—enough time to run price scenarios, schedule one meeting each with your co-op and lender, and review your DMC/LRP position.
Decide now or your check decides later: Farms that act in the window keep their options open; farms that wait until the damage prints are already reacting instead of choosing.

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 : Class III milk, Dairy Industry, dairy risk management, dairy tariffs, Mexico dairy exports, milk price risk, trade retaliation

6% Milk at Costco, 4.0% in Your Tank: Who’s Getting the $50,000 Butterfat Premium – You or Your Processor?

Monday, January 19th, 2026

Costco is selling 6% milk. Your tank’s butterfat is over 4.0%. So who’s actually getting the $50,000 premium—your farm, or your processor?

Executive Summary: In 2024, U.S. bulk‑tank butterfat is on track to clear 4.0% every single month, according to USDA data showing annual averages rising from about 3.7% a decade ago to over 4.1% today. At the same time, component markets now pull close to 60% of milk check income from butterfat, per‑capita butter consumption has climbed to a record 6.8 lb, and organic fluid milk volumes have grown nearly 70% since 2010—all strong signs that the market will pay for fat when it’s packaged and positioned properly. This article uses Amul’s new 6% milk at Costco and Alexandre Family Farm’s 6% regenerative organic A2 milk to show how processors and brands are already turning rich milk into high‑margin products. For a 120‑cow herd averaging 80 lb at 4.2% fat, the math is straightforward: moving just 5% of your volume into the right premium channel can conservatively add about $50,000 a year, or roughly $400 per cow, if you control the story and the contract. From there, the piece lays out a clear playbook—component income audits, smarter conversations with co‑ops about where your milk really goes, tightly scoped premium milk trials, and breeding/feeding plans aligned with realistic markets—for small, mid‑size, and large herds. The core takeaway is uncomfortable and straightforward: in a 4.0% butterfat world, the question isn’t whether rich milk will sell, it’s whether the butterfat premium ends up on your milk check or on someone else’s.

You know that feeling when you walk past the milk case, and something just doesn’t look like the “usual” gallon? That’s been happening a lot lately with one particular jug: Amul Gold – 6% butterfat milk – sitting in U.S. Costco coolers.In March 2024, Michigan Milk Producers Association (MMPA) inked a deal with Gujarat Cooperative Milk Marketing Federation (GCMMF), the massive Indian co‑op behind the Amul brand, to supply Amul‑branded fresh milk in the U.S., with MMPA providing the milk and processing and Amul handling the marketing and brand. In MMPA’s own Milk Messenger article “The Taste of Home,” the co‑op lays out the product line: Amul Gold at 6% milkfat, Shakti at 4.5%, Taaza at 3.25%, and Slim ‘n’ Trim at 2%, all bottled at Superior Dairy in Canton, Ohio, which MMPA acquired through its 2021 purchase of Superior’s parent company to expand extended‑shelf‑life and value‑added capacity.

Indian coverage, including the Times of India and GCMMF’s own press release, describes how Amul Gold’s U.S. launch in 2024 put 3.78‑liter (1‑gallon) jugs of 6% milk into Costco stores on the East Coast, with plans to expand into hundreds of warehouses. You can see the product yourself in Costco’s same‑day grocery listings as “Amul Gold 6% Fat Milk 1 Gal.”

On the surface, it’s just another SKU. What’s interesting here is that this high‑fat jug showed up right as three big forces were already shifting under your feet: your cows’ butterfat performance, consumer demand for milkfat, and school milk policy.

Your Butterfat Has Quietly Gone to the Next Level

If you look back a decade, you’ve probably felt it in your own bulk tank: butterfat is not what it used to be. USDA component data showed that from 1966 through 2010, the national average butterfat held within a narrow 3.65–3.69% band. Starting in 2011, things began to change. From 2011 to the present, U.S. bulk‑tank butterfat has increased from 3.70% to 4.15% annually, reaching 4.06% in 2022 and 4.15% in 2023—each year a new record. They described it as U.S. dairy finally earning a “4.0‑plus GPA” on butterfat.

The seasonal detail is important. In 2022 and 2023, some warm‑weather months still dipped just under 4.0%; July 2023, for example, averaged 3.99% fat. In 2024, that last “holdout” disappeared when July came in at 4.07% butterfat. Reports showed that 2024 isn’t fully “in the books” yet, but based on long‑term seasonal patterns, the 4.07% in July is likely the low point, meaning every month of 2024 lands at or above 4.0% for the first time on record.

You see the same pattern up close in regional data. In the Mideast Federal Order (FO 33), covering Ohio and parts of surrounding states, the January 2024 bulletin shows 2023 producer milk averaging 4.06% butterfat and 3.22% protein, with monthly butterfat ranging from 3.91% in July to 4.25% in December. Regional butterfat variation shows several orders in the Upper Midwest and Pacific Northwest now averaging over 4.0% butterfat on an annual basis, not just in the cool months.

On the ground, that lines up with what many of us hear in barns and on service calls. In Wisconsin operations and other Upper Midwest freestall herds, it’s become pretty normal to see Holstein bulk tank butterfat in the low 4% range and protein just above 3.2% when fresh cow management, the transition period, and cow comfort are all dialed in. Those numbers match the Federal Order averages. Out west and in the Pacific Northwest, extension and breed statistics often show Jersey herds averaging in the high 4s for butterfat, and field reports from Jersey and Jersey‑cross dry lot systems and grazing herds in California and the PNW frequently mention herd tests in that high 4% range when rations and dry cow programs are tuned for components.

Genetics are pushing in the same direction. In its April 2025 update, the Council on Dairy Cattle Breeding (CDCB) adjusted the Net Merit index to place greater emphasis on fat yield and slightly less on protein yield, while increasing the weight on health and efficiency traits such as productive life and disease resistance. CDCB and USDA’s Animal Genomics and Improvement Laboratory outlined these changes as part of the 2025 index revision, and analysts summaries made it clear that solids as a whole still drive the index, but the tilt has moved more toward butterfat to reflect current price relationships.

So, what farmers are finding is that butterfat performance has already moved up a full notch. Between genetics, better fresh cow management, improved transition protocols, and more attention to cow comfort in freestalls, robots, and even dry lot systems, your bulk tank is richer than it was ten years ago. Amul Gold just happens to be one of the first big retail labels to shout “6%” from the cooler.

Why Plants Keep Skimming Cream Instead of Bottling 6%

Now, if you flip the cap around and look at this from inside the processing plant, some of the decisions that frustrate us on the farm side start to make more sense.

Most fluid plants are built around standardization. Milk comes in at whatever butterfat level your cows produce that day—often north of 4.0%. The plant uses separators and blenders to standardize “whole milk” to 3.25% butterfat, set 2% and 1% at their proper levels, and strip out the excess cream. That cream becomes butter, whipping cream, and other fat‑rich products that flow through established channels.

From a processor’s standpoint, there are some solid reasons to stick to that routine:

Labeling and consistency. Keeping whole milk at 3.25% keeps labeling consistent and straightforward across huge volumes.
Cream as a revenue stream. As bulk‑tank butterfat levels rise, that “extra” cream is not just a by‑product; it’s a major source of income. U.S. butter production hit 2.15 billion pounds in 2020, the highest on record at the time, and, through November 2024, had already reached 2.20 billion pounds, setting up 2024 as the new record year once December numbers are in. They also emphasized that from January to November 2024, the U.S. imported a record 204.4 million pounds of butter and milkfat, up 27% from 2023 and roughly 10 times the 2013 level, underscoring just how strong demand for milkfat has become.
Risk management. Butter and nonfat dry milk prices feed into the Class IV formula, and co‑ops have long‑established hedging tools and risk strategies built around those commodities. A 5–6% fluid milk SKU doesn’t slot neatly into those existing tools.

Retailers add another layer. Fluid milk has long been treated in grocery research as a “known value item”—one of those core products, like bread and eggs, that shoppers use to judge whether a store is “expensive.” Category managers are very sensitive to shelf prices on those items. They know that if a gallon looks high, it can hurt the store’s price image out of proportion to the profit on that gallon.

Put that all together, and it’s not surprising that plants and co‑ops tend to standardize most fluid milk to fixed butterfat levels and capture the majority of butterfat value through cream and butter sold into manufacturing and retail channels. The Amul–MMPA venture doesn’t tear up that playbook, but it does show that with the right plant capacity, a strong brand, and a clear target audience, processors can occasionally step outside of it and get paid for richer milk in the jug.

What the Nutrition Science Actually Says About Dairy Fat

For years, much of what happened to fluid milk fat levels was driven less by economics than by nutrition policy. So it’s worth taking a quick look at where the science stands today.

You probably remember that earlier versions of the Dietary Guidelines for Americans strongly pushed low‑fat and fat‑free dairy. That was based on a broad concern about saturated fats in general. Over the last decade, though, the evidence has become more nuanced regarding dairy fat.

In 2021, a PLOS Medicine study led by Kathy Trieu used odd‑chain saturated fatty acids—15:0 and 17:0—as biomarkers of dairy fat intake in a large Swedish cohort and then pooled results from 18 similar prospective studies worldwide. That research team found that higher levels of these dairy fat biomarkers were associated with a lower risk of cardiovascular disease in the pooled analyses.

A 2020 review in the journal Advances in Nutrition, led by Jean‑Philippe Drouin‑Chartier of Université Laval, took a broader look at dairy fat and cardiometabolic health. They concluded that, within typical intake ranges and in the context of overall dietary patterns, current evidence doesn’t support a clear harmful association between consuming most full‑fat dairy products and cardiovascular disease risk in the general population.

Now, that doesn’t mean more saturated fat is always better. Some controlled feeding trials still show LDL cholesterol rising when people eat diets heavily loaded with saturated‑fat‑rich dairy foods, and a 2024 review in Foods discussed how altering cow diets and processing can shift the fatty acid profile of milk and potentially change its health effects. But taken together, these studies have pushed the conversation away from “full‑fat dairy is bad” toward “it depends on the food, the overall diet, and the person.”

Policy is slowly catching up. USDA and HHS have repeatedly said that the 2025–2030 Dietary Guidelines will emphasize overall dietary patterns over single nutrients. Recent USDA communications around school meals and nutrition suggest that full‑fat dairy can fit within healthy patterns when it’s part of a balanced diet, not the only source of saturated fat.

The clearest sign of that shift on your farm is the Whole Milk for Healthy Kids Act that was recently signed by President Donald Trump, allowing schools in the National School Lunch Program and related child nutrition programs to once again offer whole and 2% milk alongside 1% and fat‑free options, including flavored and unflavored, conventional and organic. USDA’s Economic Research Service and school nutrition associations note that the NSLP typically serves close to 30 million students per day across roughly 95,000 schools and institutions.

To make that concrete, schools and child care centers in federal programs can now serve:

Flavored or unflavored whole milk
Flavored or unflavored 2% (reduced‑fat) milk
1% and fat‑free milks
Approved non‑dairy alternatives meeting nutrition standards

That change doesn’t mean every district will rush to whole milk, but it does remove a big legal barrier that kept fuller‑fat milk out of cafeterias for years.

What Consumers Are Actually Buying: Butter, Organic, and Cottage Cheese

While the scientific and policy debates have been shifting, shoppers haven’t been waiting around for permission to eat fat.

On the butter side consumption hits new all-time high in 2024″ reports that per‑capita butter consumption reached 6.8 pounds in 2024, a 0.3‑pound increase from 2023 and about 2.3 pounds higher than in 2000. The International Dairy Foods Association, using USDA Economic Research Service data, has also highlighted that butter consumption hit 6.8 pounds per person in 2024, surpassing all previous records. Butter market analysis shows 2020 holding the butter production record at 2.15 billion pounds, and that by November 2024 production had already hit 2.20 billion pounds, putting 2024 on pace to be the new record year once all months are counted. At the same time, as noted earlier, butter and milkfat imports are up 27% from 2023 and nearly tenfold compared to 2013.

Year	U.S. Butter Production (B lb)	Butter & Milkfat Imports (M lb)	Per-Capita Consumption (lb/person)
2013	1.65	21	5.5
2015	1.72	35	5.8
2018	1.89	68	6.1
2020	2.15	112	6.4
2022	2.10	168	6.6
2023	2.18	178	6.7
2024	2.20 (est. Nov.)	204 (Jan–Nov)	6.8 (projected)

That combination—record domestic production plus record imports—only happens when demand is strong, and margins are there. This development suggests that there’s no shortage of homes for milkfat, even if much of that value is captured beyond the farm gate.

Organic fluid milk tells another part of the story. RaboResearch’s 2025 report on U.S. organic milk found that from 2010 to 2024, organic fluid milk sales grew 67.7%, while conventional fluid milk sales fell 21.3%. Over that period, organic’s share of total fluid milk more than doubled, from 3.3% to 7.1%, with organic accounting for 7.6% of all fluid milk sales in July 2024. Rabobank senior dairy analyst Lucas Fuess noted that this growth is driven both by conventional decline and real organic volume growth, supported by dedicated organic supply chains and long‑term contracts.

Retail price data back up what many of you have seen. USDA retail milk reports and chain pricing snapshots show organic whole milk in major metro markets often selling in the $4.50–$6.50 per half‑gallon range, while conventional store brands typically sit closer to $2.50–$3.50. That roughly 2‑to‑1 gap can only persist if consumers buy into the story and are willing to pay for the combination of fat, production practices, and brand.

Then there’s the cottage cheese story. In 2024, cottage cheese was the third-fastest-growing edible dairy segment in the U.S., with 11.7% brand growth and 5.7% private label growth according to Circana, and that, in the year to May 19, 2024, volumes were up 13.5% and prices up 16%. Circana’s senior vice president of client insights for dairy, John Crawford, shared that this wasn’t just a pricing effect—usage and social media‑driven recipes have driven real volume growth, and he expected the category to stay in positive territory rather than fall off a cliff.

CNN and other business outlets later reported that cottage cheese sales jumped around 20% in the 52 weeks through June 15, 2025, following roughly 17% annual growth in both 2023 and 2024 and an 11% rise in 2022, marking a clear turnaround after declines in 2021. Brands like Good Culture and Daisy have responded by expanding production to keep up.

So, if you step back for a second, the pattern is pretty clear: butterfat‑rich products—whether that’s butter, organic whole milk, or high‑protein cottage cheese—are not scaring consumers off. They’re pulling them in.

A Homegrown 6% Example: Alexandre Family Farm

Before we circle back to your own operation, it’s worth looking at a U.S. example that’s already turned 6% milk into a premium story.

Alexandre Family Farm on California’s North Coast is recognized as America’s first certified regenerative organic dairy. Their program combines organic certification, regenerative practices, and A2/A2 genetics. They market a 6% whole milk as part of their lineup, positioned as richer, grass‑based, and easier to digest for some consumers.

If you check the online store for Bristol Farms, a California specialty grocer, you’ll see “Alexandre Family Farm Certified Regenerative A2/A2 6% Whole Milk 12 oz” priced at about $4.29. That’s roughly $0.36 per ounce, or about $17–18 on a gallon‑equivalent basis—orders of magnitude above commodity fluid prices.

In early 2024, children’s nutrition brand Once Upon a Farm entered the dairy space with organic A2 whole milk shakes and smoothies using organic A2 milk from Alexandre Family Farm. Their leadership emphasized Alexandre’s status as a fifth‑generation, regenerative organic dairy and stressed that the A2, grass‑fed profile fit the nutritional and environmental message they wanted to deliver to parents.

Most of us aren’t going to flip overnight to regenerative organic A2/A2 production. That’s a specific, demanding lane. But this example shows that when strong butterfat performance, credible production claims, and the right partners come together, 6% milk can command a price that has nothing to do with the commodity Class I mover.

Where the Butterfat Money Actually Goes

So, let’s bring this back to your milk check, because that’s where the rubber meets the road.

Most producers in the U.S. are paid under some version of the Federal Milk Marketing Order. In simple terms, that means:

Class III prices are based mainly on cheese and whey values.
Class IV prices are based on butter and nonfat dry milk values.
Class I fluid prices are derived from Class III and IV using the Class I mover formula.
Component pricing in many orders pays you separately for butterfat, protein, and sometimes other solids, with additional premiums (for quality, volume, special programs) and deductions (hauling, balancing) layered on.

That structure absolutely pays you for butterfat. It’s why Net Merit, Cheese Merit, and other indices have leaned heavily into solids, and it’s why your co‑op has invested in butter churns, powder towers, and cheese plants over the years.

But here’s the hard truth I’ve noticed when looking at this value chain end‑to‑end: the system does a very good job of capturing milkfat value somewhere in the chain. It’s just not always clear how much of that value is being shared back to the farm, especially when butterfat ends up in premium fluid products or branded products rather than commodity butter or cheese.

Processors have to keep plants full, balance fluid, cheese, butter, and powder, and meet retailer demands for sharp pricing on “known value” items like gallons. Understandably, they default to standardizing fluid milk and building most of their butterfat strategy around butter and cream, where the market tools are familiar.

The myth that “the market just pays what butterfat is worth” glosses over many decisions made in plants and boardrooms, not at the CME screen. If you don’t know how much of your milk ends up in higher‑margin channels, you’re effectively letting someone else quietly decide what your butterfat is really worth.

The Big Math: What Premium Butterfat Could Mean for Your Herd

Let’s put some numbers to this, because that’s where decisions get real.

Herd Size	Herd Count	Milk/Cow/Day (lb)	Butterfat %	Annual Production (lb)	5% Volume into Premium (lb)	Premium/Gal	Gross Annual Premium	Typical Costs (Labor, Delivery, Marketing)	Net Annual Premium	Per-Cow Value
Small	120	80	4.2%	~3.5M	~175K (20K gal)	$2.50	$50,000	~$8,000	~$42,000	$350
Mid-Size	400	75	4.1%	~11M	~550K (65K gal)	$2.50	$162,500	~$20,000	~$142,500	$356
Large	2,000	75	4.0%	~54.75M	~2.74M (325K gal)	$2.50	$812,500	~$60,000	~$752,500	$376

Small herds – under about 200 cows

If you’re milking 80–150 cows in places like New York, Wisconsin, Ontario, or the Pacific Northwest, your strength usually isn’t volume. It’s flexibility and your connection to your community.

Here’s a small piece of “big math” that tends to focus the mind. Say you’ve got:

Factor	Value
Herd size	120 cows
Daily production	80 lb/cow/day
Butterfat test	4.2%
Annual production	~3.5 million lb
5% of volume	~175,000 lb (~20,000 gal)
Premium per gallon	$2.50
Annual premium potential	$50,000
Per-cow value	~$400/cow/year

For many small herds, that’s the kind of number that could cover a tractor payment, help with a parlor upgrade, or give you some breathing room on repairs.

There are practical constraints:

Co‑op or processor contracts may limit diversions or set rules about branding and markets.
Regulations require Grade A facilities, inspections, and proper labeling.
Labor is tight; adding marketing and delivery is a real strain.

That’s why many smaller herds that are experimenting with premium milk treat it as a structured trial, not an identity shift. They partner with a licensed plant to co‑pack a few hundred gallons a week, place product in one or two outlets they know well—a farm store, farmers’ markets, a local café, or an independent grocer—and then run it for 60–90 days. During that time, they track:

How quickly the product actually sells.
What net margin remains after every cost.
What does it does to their workload and stress level.

If the numbers don’t work, they scale back without having bet the whole farm on a brand experiment. If the numbers dowork, they have real data to bring to family discussions, lenders, and co‑op leadership.

For Canadian quota herds: The math is framed differently, but the questions are similar. Butterfat levels directly influence how efficiently you use quota and participate in pooled returns, and some processors in provinces like Ontario and Quebec are exploring higher‑fat or specialty fluid products. The concept of moving a small share of milk into a higher‑value use still applies; the trick is to do it within the rules of the quota system and processor agreements.

Mid‑size herds – roughly 200 to 800 cows

If you’re milking 300–600 cows in freestalls in the Upper Midwest or Northeast, or running 200–400 cows under Canadian quota, you’re big enough that a tiny farm‑store play won’t move the needle, but you may feel too small to have huge leverage on your own.

In that bracket, what I’ve seen pay off is clarity plus conversation.

Step one is a component income audit. Take the last 12 months of milk checks and total:

Dollars from butterfat.
Dollars from protein.
Dollars from all premiums (quality, volume, programs).
Dollars lost to hauling, balancing, and other deductions.

Once you know those numbers, you can approach your co‑op or plant rep with a different conversation. Instead of asking, “How are prices this month?” you can ask:

Roughly where does my milk usually go—what share into fluid, cheese, butter, powder, and branded or specialty products?
How much of your overall supply is going into higher‑margin or branded products, and how is that value shared with members or suppliers?
Are there current or potential programs that pay differently for higher butterfat, A2 milk, organic, grass‑fed, or other traits?

Those questions signal that you understand they have a business to run, but you also want transparency about how your butterfat is being used.

From there, it’s smart to pull your nutritionist and genetics adviser into the conversation. We know from Hoard’s and FMMO data that average butterfat still has some room to climb in many herds. Ask them:

Realistically, what would it take in sire selection and ration adjustments to add 0.15–0.25 points of butterfat over the next few years?
Under our current pay program, what is each additional 0.1 point of butterfat worth per cow per year?
If our co‑op or processors launch richer or specialty lines, what kind of component profile are they likely to want, and how close are we already?

Larger herds – 1,000 cows and up

If you’re running 1,000–5,000 cows in places like Idaho, Texas, New Mexico, or California’s Central Valley, your context looks different again. A handful of branded jugs won’t change your P&L, and your biggest levers tend to be efficiency, contracts, and positioning.

At this scale, the butterfat strategy is usually about three things:

Component efficiency. A 0.05–0.10 point bump in butterfat across tens of millions of pounds of milk can translate into serious dollars, especially when combined with strong protein and low SCC. That makes fresh cow management, transition cow programs, ration design, and cow comfort in freestall or drylot systems central to your butterfat playbook.
Contract terms. Many large herds ship under supply agreements that specify butterfat, protein, quality thresholds, and, sometimes, sustainability metrics. Knowing exactly how you’re rewarded (or penalized) for component changes is critical before you aim for higher fat.
Strategic positioning. Even if most of your milk ends up in cheese or powder, being known as a high‑component, reliable supplier with a strong stewardship story matters when processors and retailers choose farms for higher‑margin or branded programs.

When you see stories like Amul Gold at Costco or Alexandre’s 6% in natural food stores, the takeaway for big herds isn’t “copy this.” It’s that brands looking to push richer or more specialized fluid products will need reliable pools of high‑butterfat milk. Being one of the herds already hitting strong butterfat performance, with good cow health and consistent supply, puts you at the front of the line if those programs come to your region.

Your Playbook for the Next 12–24 Months

Let’s pull this into something you can act on.

In the next 30 days: Audit your component income.

Grab your last 12 months of milk checks. Put numbers on:

Total dollars from butterfat.
Total dollars from protein.
Total premiums and total deductions.

That’s your baseline. Without it, you’re flying blind on what butterfat is really worth to you.

In the next 90 days: Have the tough but necessary conversation with your buyer.

Go to your co‑op or plant rep with those numbers and ask:

Where does my milk usually go—what share to fluid, cheese, butter, powder, and branded lines?
How much of your total milk ends up in higher‑margin products like branded fluid, specialty cheeses, or premium cultured dairy, and how is that value shared?
Are there current or developing programs that reward higher butterfat, A2 milk, organic, grass‑fed, or other traits?

If you’re in a Canadian quota system, make sure you also ask how butterfat levels affect your quota utilization and your ability to participate in any specialty programs.

Over the next year: Consider a tightly scoped premium trial if your situation allows.

If your contracts and local regulations give you some room, test moving a small share of your milk—say 5%—into a richer or differentiated product. Do it with a licensed processor, keep volumes modest, and commit to tracking:

Net margin compared with your regular milk check.
Additional labor, stress, and logistics.
Retailer and consumer response.

Let the hard numbers and lived experience decide whether you scale up, tweak, or step back.

Over the next 12–24 months: Align breeding and feeding with the markets you can realistically serve.

Take what you learn from your milk check, your buyer, and your own herd data and plug it into your breeding and feeding plans. Ask:

Under our current pay program, what’s the marginal value of another 0.1 point of butterfat per cow per year, and how does that compare with gains in protein, fertility, or health?
If premium opportunities (like richer fluid milk, A2, organic, grass‑fed) emerge where we are, what milk profile will those programs likely require, and how far are we from that?

With Net Merit now placing more emphasis on fat and health, and with markets rewarding fat across multiple product categories, it makes sense to ensure your sire selection and ration design are calibrated to where the money is likely to be, not just where it used to be.

Keep watching the small signals.

Monitor:

USDA and ERS reports on trends in whole, reduced‑fat, and skim milk consumption and organic share.
Co‑op and processor announcements about ESL capacity, A2 launches, organic and grass‑fed programs, and partnerships like Once Upon a Farm–Alexandre or MMPA–Amul.
What’s actually on your local shelves: more high‑fat fluid options, more organic, more A2 and regenerative labels—or less?

These details often tell you where butterfat value might move before it shows up in the pay formula.

The Bottom Line: Who Really Gets Paid for Your Butterfat?

When you step back from the day‑to‑day and look at the full picture—Amul Gold’s 6% jug at Costco, the steady climb of U.S. bulk‑tank butterfat past 4.0%, record per‑capita butter consumption, the surge in organic fluid milk, the cottage cheese boom, shifts in dairy fat science, full‑fat milk returning to school menus—it’s hard to miss the pattern.

You and your cows have already turned butterfat into one of your herd’s biggest assets. Genetics, better fresh cow management and transition programs, and improved cow comfort have pushed butterfat performance to record levels. Consumers are not shy about eating fat when it comes in the form of butter, organic whole milk, and high‑protein cultured dairy. Policy has backed off fighting full‑fat milk as hard. Processors and brands are starting to bottle richer milk when they see a clear story and a receptive audience.

What’s encouraging is that, for once, genetics, consumer demand, and policy are roughly aligned. The part that still needs your attention is everything between your bulk tank and the retail shelf: the contracts, the plant decisions, and the product mix.

Staying on autopilot means your butterfat keeps rising while your share of the value may not. Leaning in—even a little—means you start steering where those extra dollars land.

Audit your component income. Ask where your milk really goes. Run small, smart experiments where they make sense. And make sure your breeding and feeding plans reflect the markets you’re in, not the ones you left behind ten years ago.

Because the real question behind that 6% jug at Costco isn’t “Will rich milk sell?” The data says it already does. The real question is: when your cows put that extra butterfat in the tank, are you capturing the premium—or is someone else?

Key Takeaways

Your tank just hit 4.0%—finally. U.S. butterfat averaged over 4.15% in 2023, and 2024 is on track to be the first year every single month clears 4.0%.
Consumers are all in on fat. Record 6.8 lb per-capita butter consumption in 2024. Organic whole milk up nearly 70% since 2010. Cottage cheese posting double-digit growth three years running.
Processors are already capturing the premium. Amul’s 6% milk at Costco and Alexandre’s $17/gallon regenerative A2 milk prove high-butterfat products sell—and sell well.
The math: $50,000 from 5% of your milk. On a 120-cow herd at 4.2% fat, shifting just 5% of volume into a premium channel can add roughly $400 per cow per year.
Your move: audit, ask, test, align. Know your component income. Press your co-op on where your milk really goes. Run a small premium trial. Match genetics and feeding to markets you can actually reach.

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

Learn More

Maximizing Milk Components: It’s Not Just Genetics – Stop leaving money in the gutter by mastering transition cow protocols. This breakdown arms you with management tweaks to squeeze every tenth of a point of butterfat from your current ration before you even look at a bull catalog.
Whole Milk for Healthy Kids Act: A Win for Dairy Farmers and Students – The legislative tide has turned. This analysis exposes the massive volume shift coming to fluid markets and reveals how to position your herd’s component profile to capitalize on the return of full-fat milk to American schools.
2025 Genetic Evaluations: Net Merit and the Push for Components – Forget 4.0%—the new indices are already pushing the goalposts. Discover the genomic strategies that deliver a “butterfat first” approach, ensuring your future herd is built for the high-margin retail jug and evolving component pricing.

Join the Revolution!

Categories : Dairy Markets

Tags : butterfat content, Dairy Farming, dairy profitability, farm efficiency, fluid milk marketing, Milk Production

$14 Milk, $4 Corn, and the Cows Nobody Will Cull: This Week’s Global Dairy Reckoning

Monday, January 19th, 2026

Cheap feed is a trap. Every cow that should’ve been culled is still milking—and $14 Class III is the price we’re all paying.

EXECUTIVE SUMMARY: Class III is testing $14. EU butter crashed 43% year-over-year. Cheddar blocks hit $1.29—their lowest since May 2020. Welcome to synchronized oversupply: EU-27+UK November milk surged 4.6%, the U.S. dairy herd is near a 30-year high, and cull rates are at historic lows because $4.25 corn makes even marginal cows cash-flow positive. That’s the trap—cheap feed was supposed to ease the pain, but it’s keeping underperforming cows in barns across the industry and delaying the correction prices desperately need. GDT Pulse finally showed signs of life Sunday (WMP +1.0%, SMP +2.1%), but until someone starts culling, $14 milk isn’t going anywhere.

Futures Markets: Still Searching for a Floor

The futures boards told a grim story last week—and frankly, nobody’s quite sure where the bottom is yet.

EEX European Futures moved 4,550 tonnes (910 lots), with Wednesday posting the busiest session at 1,905 tonnes. Butter futures took the worst of it. The Jan26-Aug26 strip dropped 4.5% to average €4,199. SMP held up better, down just 0.2% to €2,200, while whey slipped 0.7% to €1,021.

Over on the SGX Asia-Pacific exchange, volume ran heavier at 15,116 lots—dominated by WMP at 12,287 lots. The Jan26-Aug26 curves tell you pretty much everything about current sentiment:

Product	Average Price	Weekly Change
WMP	$3,359	–1.2%
SMP	$2,703	–0.8%
AMF	$5,821	–1.4%
Butter	$5,278	–0.1%

What’s particularly notable on the CME is how Class III futures tested sub-$14 territory multiple times last week. January through May contracts all notched life-of-contract lows before bouncing slightly Friday. February settled at $15.05—down a dime on the week. Class IV fared worse, with February closing at a brutal $13.86, down a nickel.

For producers who don’t actively trade futures, here’s why those life-of-contract lows matter: they signal that professional traders—people who make a living betting on where milk prices are headed—see no near-term catalyst for recovery. When the market establishes new lows across multiple contract months simultaneously, it’s pricing in an extended period of pain.

What this means for your operation: If you’re not already penciling out cash flow at $15 Class III and $14 Class IV through mid-year, you’re planning with the wrong numbers. DMC payments look increasingly likely for January through at least April, according to analysts at Ever.Ag.

European Quotations: The Butter Collapse Continues

The weekly EU quotations released January 14 painted a picture of a market still trying to find its footing after months of oversupply pressure.

Butter took another beating. The index dropped €171 (–3.9%) to €4,237. French butter got hit hardest—down €513 (–10.6%) to €4,310 in a single week. German and Dutch butter held steadier at €4,300 and €4,100 respectively.

Here’s the number that should grab your attention: EU butter is now down €3,176 (–42.8%) year-over-year. That’s not a correction. That’s a fundamental repricing of European milkfat. I’ve been covering dairy markets for years, and you rarely see a commodity give back nearly half its value in twelve months without some structural shift underneath.

SMP actually showed some strength—climbing €38 (+1.9%) to €2,085. German SMP rose €45 to €2,085, Dutch jumped €100 to €2,100, while French slipped €30 to €2,070. Still, SMP sits 17.3% below year-ago levels, so “strength” is relative here.

Whey eased €5 (–0.5%) to €996, though it’s actually up €123 (+14.1%) year-over-year. That makes whey one of the few genuine bright spots in European dairy commodity markets right now.

Cheese indices were mixed:

Commodity	Current Price	Weekly Δ	Y/Y Δ	Market Status	Strategic Note
EU Butter	€4,237/100kg	–3.9%	🔴 –42.8%	CRISIS	Demand collapse
Class III (CME)	$13.95/cwt	–0.7%	🔴 –32.0%	CRISIS	Life-of-contract lows
Cheddar Block	$1.29/lb	–1.9%	🔴 –27.5%	WEAK	Multi-year lows
SMP (EU)	€2,085/100kg	+1.9%	🟡 –17.3%	WEAK	Algeria returning
WMP (GDT)	$3,359/MT	–1.2%	🟡 –18.5%	WEAK	Pulse bounce +1.0%
Nonfat Dry Milk	$1.255/lb	–0.8%	🟡 –14.2%	STABLE	Mexico demand OK
Whey (CME)	73.5¢/lb	+4.8%	🟢 +14.1%	STRENGTH	Protein demand high
Milk Price (U.S. avg)	$14.05/cwt	–0.7%	🔴 –30.5%	CRISIS	Feed savings insufficient
Corn (March)	$4.25/bu	–4.5%	🟢 –52.0%	STRENGTH	Record crop relief

USDA’s Dairy Market News describes European conditions as “orderly” and “measured”—values are cautiously higher to start the year after what can only be called the bloodbath of Q4 2025.

GDT Pulse: Finally, a Sign of Life

Sunday’s GDT Pulse Auction (PA098) delivered the first meaningful uptick we’ve seen in months (Global Dairy Trade, January 18, 2026).

Fonterra Regular C2 WMP won at $3,395—up $35 (+1.0%) from the last full GDT event and up $240 (+9.0%) from the previous pulse auction. That’s a real move, not just noise.

Fonterra SMP Medium Heat – NZ came in at $2,660, up $55 (+2.1%) from the last GDT and up $165 (+8.4%) from pulse.

Arla SMP Medium Heat – EU hit $2,485, up $95 (+4.0%) from the last GDT.

Total volume was modest at 2,358 tonnes with 54 bidders participating. The question everyone’s asking: genuine trend change, or dead cat bounce?

Tomorrow’s GDT Event TE396 will be the real test. Fonterra’s offered volumes:

Product	Volume (MT)
WMP	15,588
SMP	5,630
Butter	1,920
AMF	2,680
Cheddar	540

Butter and AMF volumes were adjusted for Cream Group Flex at 15% applied to C1 and C2, while total milkfat supplied remains unchanged on the forecast. What I’ll be watching closely is whether the buying interest that showed up Sunday sticks around when larger volumes hit the auction block.

U.S. Spot Markets: Whey Holds While Everything Else Sinks

CME spot trading told a mixed story last week.

Butter bounced off multi-year lows, climbing 5.5¢ to $1.355 per pound. That’s still near the basement, but at least the bleeding stopped for now.
Cheddar blocks kept sinking, down 2.5¢ to $1.29—a level we haven’t seen since May 2020. Twenty loads traded, bringing the YTD total to 63 loads—a record for early January. When you see that kind of spot volume combined with falling prices, people are desperate to move product. That’s not a healthy market dynamic.
Nonfat dry milk slipped a penny to $1.255. Demand from Mexico is improving, and inventories are “tight” according to USDA’s Dairy Market News, but it wasn’t enough to hold the line.
Whey was the standout, rallying 3.5¢ to 73.5¢. Strong demand for whey protein concentrates is driving this—Dairy Market News reports some cheese processors are actually ramping up production “ultimately to produce more whey as prices and demand of whey protein concentrates remain high.”

Let that sink in for a moment: they’re making cheese not because cheese demand is strong, but because they need the whey. That’s a complete inversion of traditional dairy economics, and it tells you something important about where the real demand growth is happening right now.

The Culling Connection: Why Cheap Feed Is Delaying Recovery

Cheap corn isn’t just helping your margins—it’s keeping marginal cows in the herd longer and delaying the supply correction that would help prices recover.

The numbers are stark. Dairy cow culling dropped to historic lows through the first half of 2025, down 7.3% from the same period in 2024 (Southern Ag Today, January 13, 2026). The seven-month total through July was the lowest since 2008 (eDairy News, August 2025). Even as milk prices slid through the fall, weekly dairy cow slaughter through the last four weeks of 2025 was only slightly above year-earlier levels (USDA Livestock, Dairy, and Poultry Outlook, January 2026).

Why aren’t producers culling more aggressively?

Two factors, and they’re both working against a price recovery:

First, cheap feed makes borderline cows profitable enough to keep. When corn was running $6+, and soybean meal was north of $400, that seven-year-old cow giving 60 pounds was bleeding money. At $4.25 corn and $290 meal, she’s suddenly cash-flow positive—barely. So she stays. Multiply that decision across thousands of operations, and you’ve got an oversupply situation that won’t self-correct.
Second, the heifer shortage makes replacement expensive. Beef-on-dairy economics have drained the replacement pipeline. Springer heifer prices are at or near records, and with 800,000+ fewer dairy heifers in the system (Dairy Herd Management, November 2025), producers can’t easily replace culled cows even if they wanted to. Cull rates dropped to 29.6% in 2024—well below the typical 35-37% turnover that supports strategic herd improvement (Dairy Herd Management, August 2025).

The U.S. dairy herd now sits at approximately 9.49 million head—near the highest level since the early 1990s. USDA’s January Livestock, Dairy, and Poultry Outlook revised the annual dairy cow inventory to 9.490 million head and projects the herd will remain large well into 2026.

What’s interesting here is the game theory at play. Every individual producer benefits from keeping their cows in milk when feed is cheap. But collectively, those decisions are extending the timeline for everyone’s price recovery. It’s a classic tragedy of the commons, playing out in real-time across American dairy barns.

The strategic response some progressive operations are taking: Rather than culling primarily based on age or reproductive metrics, they’re calculating income over feed cost (IOFC) for each cow and moving out animals consistently below $1.50 per cow per day (The Bullvine, December 2025). That’s the math-based approach that makes sense when feed is cheap, but margins are thin.

Cow Profile	Prod’n (lbs)	BF/Protein	Daily Revenue	Daily Feed	Daily IOFC	Decision
Cow A: 4yr, 75# prime	75	3.8% / 3.2%	$10.50	$8.20	$2.30	✅ KEEP
Cow B: 6yr, 65# good	65	3.7% / 3.1%	$9.10	$7.80	$1.30	🔶 BORDERLINE
Cow C: 7yr, 55# fading	55	3.6% / 3.0%	$7.70	$7.40	$0.30	🔴 CULL
Cow D: 5yr, 70# solid	70	3.8% / 3.2%	$9.80	$8.00	$1.80	✅ KEEP
Cow E: 8yr, 48# poor	48	3.5% / 2.9%	$6.72	$7.10	–$0.38	🔴 CULL
Cow F: 3yr, 82# premium	82	3.9% / 3.3%	$11.48	$8.40	$3.08	✅ KEEP

Don’t expect a supply-side correction to rescue prices anytime soon. The cows that would have been on trucks six months ago, when feed was expensive, are still in stalls today. That’s good for individual cash flow in the short term, but it’s extending the pain for everyone.

The Production Surge: Why This Is Happening

November milk collections confirm what the futures already priced in—global oversupply is real and accelerating.

European Production Explosion

EU-27+UK pumped out 12.94 million tonnes in November, up 4.6% year-over-year. To put that in perspective, that’s nearly 1.2 billion pounds more milk than November 2024—equivalent to adding all of Michigan’s November production to the global supply, plus change.

Country	Nov 2025 Production (kt)	Y/Y Growth	Key Signal
Germany	2,643	+7.5%	🔴 Highest absolute growth
France	1,954	+5.9%	Steady surge
UK	1,329	+5.6%	Post-Brexit stabilization
Netherlands	1,145	+7.3%	🔴 Second-highest % growth
Poland	1,089	+5.3%	Eastern EU leading
Belgium	375	+10.1%	🔴 Highest % growth—warning sign
Denmark	449	+0.7%	Only modest growth
EU-27+UK TOTAL	12,940	+4.6%	1.2B lbs MORE than Nov 2024

Cumulative EU-27+UK production through November hit 150.75 million tonnes, up 1.9% year-over-year after adjusting for the leap year. Milksolid collections were up 5.2% in November alone, which tells you butterfat and protein content are running strong across European herds.

French milksolids jumped 6.6% in November, with cumulative 2025 collections at 1.63 million tonnes (+1.5% y/y). French butter production hit 28.3kt in November (+0.8% y/y), with YTD production up 5.2% to 337.6kt.

Danish milksolids were up 1.5% in November, with cumulative collections at 431kt (+2.7% y/y).

What I find notable is how broadly based this European production surge is. It’s not just one country driving the numbers—Germany, France, the Netherlands, Poland, and the UK are all posting substantial gains. That kind of synchronized growth is rare, and it explains why European commodity prices have fallen so hard.

U.S. Production Outlook

USDA kept their 2025 forecast unchanged at 115.70 million tonnes in the January WASDE—a 2.4% increase over 2024. But they raised the 2026 forecast, citing “higher production per cow” as the primary driver (USDA WASDE, January 2026). If realized, that’s another 1.3% increase on top of an already elevated base.

Spot milk loads traded as much as $4 under Class III last week (Dairy Market News). When processors are paying that far below class price for spot loads, it tells you they have all the contracted milk they need—and then some.

Where’s the Demand? Following the Money

The good news: low prices are finally attracting buyers. The bad news: it’s not enough yet.

Algeria is back in the market. ONIL, their national dairy purchase program, is bidding for milk powder again. That’s significant—Algeria is historically one of the world’s largest SMP importers, and their return to active purchasing is exactly what you’d expect when global prices fall this far.

Chinese buyers are consistently attending GDT auctions. Chinese SMP inventories dropped to a one-year low in November, so merchants may need to step up purchases even though domestic consumption remains soft. It’s worth noting that Chinese dairy demand has been disappointing for nearly two years now, so I’d want to see sustained buying before getting too optimistic.

EU exports surged 12.3% in November:

Product	Y/Y Change	Key Destinations
SMP	+39.6%	Algeria, Egypt, Saudi Arabia, Morocco
Butter	+14.9%	Most destinations except S. Korea, China
Cheese	+8.9%	Japan, Korea, and China improved
WMP	+33.2%	—
Casein	+66.8%	—

U.S. exports are holding firm. The U.S. is currently the least-expensive global supplier for cheese and butter, shipping enough product abroad to keep inventories in check despite record output (Dairy Market News). For cheese, domestic demand is “solid,” and export demand is “strengthening.” For butter, Dairy Market News reports that “interest from international buyers is keeping domestic bulk butter spot loads tight.”

This is actually one of the more encouraging aspects of the current market. Demand isn’t collapsing—it’s growing. The problem is that production is growing faste than it isr.

Feed Markets: The One Bright Spot

USDA’s January WASDE dropped a bombshell on corn markets (USDA WASDE, January 13, 2026).

Corn yield came in at a record-shattering 186.5 bushels per acre—half a bushel higher than December estimates. Total production hit 17.021 billion bushels, smashing the previous record by 11%.

Ending stocks jumped to 2.227 billion bushels, on par with stockpiles from 2016-2019 when corn averaged roughly $3.50 per bushel. That historical comparison gives you a sense of where corn prices might be headed if demand doesn’t materialize.

March corn dropped 20¢ on the week to settle at $4.25 (CME Group). March soybean meal closed at $290 per ton, down $13.70.

What this means for your operation: Feed costs are genuinely cheap—the lowest since October 2020 on a DMC basis (Ever.Ag). But here’s the math problem that keeps coming up: milk prices are dropping faster than feed costs are falling. A 35-50¢ per cwt feed savings doesn’t offset a $1.80 drop in the all-milk price.

The record corn crop is a real relief for your feed bill. But if you’re counting on cheap feed to save your margins while milk stays at $14-15, rerun those numbers.

Product	Sunday Pulse PA098	Previous GDT	Y/Y (Jan 2025)	TE396 Watch
WMP (C2)	$3,395 (+1.0%)	$3,360	$3,155 (+7.6% y/y)	Needs to hold $3,350+
SMP (MH)	$2,660 (+2.1%)	$2,605	$2,495 (+6.6% y/y)	Needs to hold $2,600+
Butter	$5,395 (est.)	$5,150	$5,820 (–7.3% y/y)	Watch for $5,200 support
Cheddar	$3,270 (est.)	$3,310	$3,760 (–13.0% y/y)	Critical: Hold above $3,200

The Week Ahead: What to Watch

Tuesday, January 20: GDT Event TE396 results. This is the auction that matters. If WMP and SMP can hold or extend Sunday’s gains with larger volumes on offer, we might actually be seeing a floor form. If they give it all back, buckle up for more pain.

The GDT Floor Test — What to Look For on Tuesday, Jan 21

🔴 FLOOR FAILURE SCENARIO:
• WMP falls below $3,350 (gives back Sun gain + more)
• SMP drops below $2,600 (momentum breaks)
• Volume is weak (less than 2,000 MT total)
→ Result: Expect further selling; $14 milk locks in

🟢 FLOOR HOLDING SCENARIO:
• WMP holds $3,350–$3,400 (sustains Pulse momentum)
• SMP holds $2,600–$2,650 (shows buying interest)
• Volume is healthy (2,500+ MT; strong participation)
→ Result: Floor forming; recovery narrative begins

🟡 CRITICAL THRESHOLD:
If Butter holds $5,200–$5,300 on larger volumes (TE396
has 1,920 MT offered), that signals structural demand
at lower price levels—a genuine floor signal.

Key data releases this week:

New Zealand December milk collections — Will signal if Fonterra’s production growth is moderating heading into the back half of their season
U.S. December milk collections — Confirms whether the herd expansion continued through year-end
Chinese December dairy imports — Tests whether inventory drawdowns are translating to actual purchases

The Bullvine Bottom Line

Tomorrow’s GDT auction is the market’s next referendum. If WMP and SMP hold Sunday’s gains, we might have found a floor. If they give it back, prepare for $14 Class III to stick around through spring.

Here’s the uncomfortable reality that this week’s data makes clear: cheap feed is keeping this market oversupplied longer than it otherwise would be. Every producer making the individually rational decision to keep marginal cows in milk is collectively extending everyone’s price recovery timeline. It’s nobody’s fault exactly, but it’s everybody’s problem.

The strategic question for your operation isn’t whether to keep milking—it’s whether you’re keeping the right cows milking. Run those IOFC calculations. That seven-year-old giving 45 pounds might be cash-flow positive at $4.25 corn, but she’s dragging down your herd average and, in a small way, dragging down everyone’s milk price too.

Watch the GDT numbers on Tuesday. And if you haven’t maxed out your DMC coverage at $9.50 for 2026, the enrollment deadline is February 26. Based on where futures are trading, those payments are looking increasingly likely through at least mid-year.

Key Takeaways

Pandemic-level prices are back: Class III testing $14. Cheddar blocks at $1.29. EU butter down 43% y/y. This is what three continents overproducing at once looks like.
Cheap corn is the problem, not the solution: At $4.25/bu, even marginal cows stay cash-flow positive. Every cow that should’ve been culled months ago is still milking—and that’s delaying the correction we all need.
The herd won’t shrink on its own: U.S. dairy cows near a 30-year high. Cull rates are at historic lows. Springer heifers are too expensive to replace aggressively. Until that changes, oversupply persists.
GDT finally has a pulse: WMP +1.0%, SMP +2.1% on Sunday’s Pulse auction. Tomorrow’s TE396 is the real test—if it holds, we might have found a floor.
Your move: Budget $15 Class III through Q2. Max out DMC at $9.50 before the Feb 26 deadline. And calculate IOFC on every cow in your barn—because $4 corn doesn’t make a 45-lb cow worth her stall.

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 – Gain immediate margin enhancement by mastering the “math over sentiment” approach. This breakdown reveals how weekly NIR forage analysis and rigid IOFC-based culling thresholds recover hidden losses before cheap feed masks your true operational inefficiency.
USDA Says $18, Futures Say $16: The $150K Gap That’s Rewriting 2026 Dairy Budgets – Avoid a six-figure budgeting disaster by understanding why USDA projections and futures markets are currently $2 apart. This analysis arms you with the “stress-test” methodology required to protect your equity against the volatile price realities of 2026.
211,000 More Dairy Cows. Bleeding Margins. The 2026 Math That Won’t Wait. – Disrupt the cycle of overproduction by exposing how beef-on-dairy premiums have hijacked traditional culling logic. It delivers a new genetic playbook focused on protein-first selection (CM$) to restore your herd’s profitability in a volume-saturated market.

Join the Revolution!

Categories : Dairy Markets

Tags : Class III milk, dairy markets, dairy profitability, dairy risk management, Global Dairy Trends, market volatility, Milk Production

USDA Says $18, Futures Say $16: The $150K Gap That’s Rewriting 2026 Dairy Budgets

Saturday, January 17th, 2026

Is a $2 milk misread hiding a $150,000 hole in your 2026 budget? This is why USDA and futures don’t agree.

Executive Summary: USDA’s latest outlook has 2026 all‑milk in the high‑$18s, while Class III futures sit closer to the mid‑$16s—a $2–$3/cwt gap that can wreck a budget if you pick the wrong anchor. For a 300‑cow herd shipping about 75,000 cwt, that difference is a $150,000–$225,000 swing in annual revenue. At the same time, U.S. cheese and butterfat exports are hitting records only because we’re pricing below Europe and New Zealand, so strong export volume doesn’t automatically mean strong farm‑gate prices. Long‑term shifts in butterfat performance, protein levels, and roughly $10 billion in new processing capacity are changing what kind of milk plants want and how they reward components. Layer on 7–8% interest rates and tougher lender stress tests, and 2026 becomes a year where you can’t afford optimistic milk guesses or loose capital math. This feature gives you a five‑step playbook to budget off the right signals, lock in sensible feed margins, demand $17‑milk payback from new projects, tune components to your plant, and use risk tools that actually fit your herd size and region.

There’s a point every winter when you sit down with the books, look at that cash‑flow sheet, and think, “Alright… what does this year really look like?” Heading into 2026, that question carries a little more weight than usual.

What’s interesting here is that, for a 300‑cow herd shipping roughly 7.5 million pounds a year—about 25,000 pounds per cow—that question isn’t theoretical at all. Turn that into hundredweights, and you’re sitting near 75,000 cwt. If one version of your plan leans on a mid‑$16 Class III milk check and another counts on something closer to a high‑$18 all‑milk average, you’re staring at roughly a $150,000 to $225,000 swing in annual revenue just from a $2–$3 per cwt difference in price.

For a family dairy—whether that’s in Grey‑Bruce, the St. Lawrence Valley, or central Wisconsin—that’s the difference between “we can finally fix some stuff” and “we’re just keeping the lights on.” So let’s walk through why the signals are so far apart, and more importantly, how to plan in a way that doesn’t bet the farm on any one forecast.

Looking at This Trend: USDA vs. the Futures Screen

On one side of the ledger, you’ve got USDA’s official outlooks. In the January 2026 World Agricultural Supply and Demand Estimates (WASDE), USDA pegs the 2025 all‑milk price at about $21.15 per cwt and the 2026 all‑milk price closer to $18.25 per cwt, tying that downgrade to softer cheese prices and slightly higher per‑cow production and overall output. Most analysts sum that picture up as higher milk supplies and somewhat softer prices by 2026.

At the same time, USDA’s Livestock, Dairy, and Poultry Outlook projects U.S. milk production around 230.0 billion pounds in 2025 and 231.3 billion pounds in 2026, with modest gains in milk per cow pushing total output higher. That production path is part of why USDA trimmed its Class III and IV expectations later in 2025.

On the other side of your phone, you’ve got what buyers and sellers are actually trading.

Month	USDA All-Milk	Class III Futures	Spread (USDA – Futures)
January	$18.25	$15.85	+$2.40
February	$18.25	$15.92	+$2.33
March	$18.25	$16.10	+$2.15
April	$18.25	$16.25	+$2.00
May	$18.25	$16.15	+$2.10
June	$18.25	$16.00	+$2.25
July	$18.25	$15.95	+$2.30
August	$18.25	$16.05	+$2.20
September	$18.25	$16.20	+$2.05
October	$18.25	$16.30	+$1.95
November	$18.25	$16.15	+$2.10
December	$18.25	$16.05	+$2.20

If you pull up USDA Dairy Market News’ weekly report from early January 2026, you see Class III futures for many 2026 months hovering in the mid‑$16s, with some contracts slipping toward the mid‑$15s and others flirting with the upper‑$16s. In the same report, spot cheddar blocks are described in the low‑$1.30s per pound, a long way from the $2‑plus levels that showed up briefly in 2022.

So you’ve got two honest but different stories:

USDA’s forecast world says: “Given our assumptions, all‑milk should average in the high‑$18 to low‑$20range in 2026.”
The futures world says: “Given what participants are willing to lock in today, Class III looks more like the mid‑$16s, with plenty of caution baked in.”

Once you plug in your local basis and your butterfat performance and protein, that’s where the $2–$3 per cwt planning gap really shows up.

In barn after barn I walk through—from east coast tie‑stalls to Wisconsin freestalls and dry lot systems out west—I’m seeing a quiet but important shift. More conservative farms are starting to let the Class III strip anchor their budgetsand treat USDA’s all‑milk numbers as possible upside, not the default assumption. The bank account, after all, settles off cheques tied to real markets and pooling, not the top end of a forecast chart.

Exports on Fire: The Cheese and Butterfat Paradox

Now let’s slide over to exports, because they’re doing a lot of heavy lifting right now.

The U.S. Dairy Export Council (USDEC) reports that in August 2025, U.S. cheese exports were 28% higher than a year earlier, making it a record August for cheese shipments. Cheddar exports jumped roughly 140% compared to August 2024, helped by new cheese capacity and aggressive pricing. Every major region except Canada bought more U.S. cheese, with South Korea particularly strong.

Butterfat performance in exports has been even more dramatic. USDEC and Brownfield data show that:

Butter exports were up about 190% year‑over‑year in August 2025.
Anhydrous milkfat (AMF) exports climbed roughly 198% over the same period.
Overall butterfat exports nearly tripled, with strong growth across Asia and the Middle East.

Total U.S. dairy export volume in August 2025 was up around 3%, while export value climbed about 17% to roughly $831.5 million.

In that Brownfield piece, William Loux, vice president of global trade analysis at USDEC, said, “We are in for probably almost certainly a record cheese year again here in 2025. We had a record year in 2024, we had a record year in 2022, so basically three out of the last four years we’ve set new records.” Hoard’s Dairyman and USDEC export reviews reinforce that U.S. cheese exports have surpassed 1 billion pounds in multiple recent years, underscoring our role as a long‑term global cheese supplier.

From one angle, that all looks fantastic. The catch is the price tag attached to those wins.

Farm Credit East’s 2025–26 dairy outlook notes that U.S. butter prices have often been discounted compared to EU and New Zealand butter, which draws buyers but keeps domestic butter prices on a shorter leash. CoBank’s dairy export commentary adds that U.S. cheese has likewise tended to trade below comparable EU and Oceania cheeses to capture and hold certain markets.

Corey Geiger, lead dairy economist for CoBank, explained that when European cheddar prices eased toward the equivalent of about $1.50 per pound in 2025, U.S. exporters often needed cheddar closer to $1.30 per pound to stay competitive in some export tenders. It’s not a fixed rule for every sale, but it captures the general spread.

So the export paradox looks like this: U.S. cheese and butterfat are setting volume records and keeping plants busy, but much of that demand is being bought at discount pricing, not at rich premiums. Great for clearing product and avoiding butter or powder mountains. Less great if you’re counting on exports alone to pull Class III into the high teens.

Product	YoY Volume Increase	Price vs. EU Baseline	Price vs. NZ Baseline
Cheese	+28%	87% (€1.30 vs €1.50)	90% (€1.30 vs €1.44)
Butter	+190%	85% ($1.42 vs $1.67)	88% ($1.42 vs $1.61)
AMF	+198%	83% ($1.38 vs $1.66)	86% ($1.38 vs $1.61)
Powder	+12%	91% ($0.88 vs $0.97)	92% ($0.88 vs $0.96)

Butterfat Performance, Protein, and What’s Really Changing in the Tank

Now let’s step out of the export office and back into the milkhouse.

Looking at this trend over time, the component story on U.S. farms has been remarkable. Analysts’ pooled data show that from 2010 to 2024, total U.S. milk production in pounds grew by about 15.9%, while total butterfat pounds climbed by about 30.6%. Average butterfat tests moved from roughly 3.80% into the low‑4% range during that period.

By early 2025, butterfat production was running 3–4% higher year‑over‑year, even though total milk volume was up less than 1%. That’s a huge butterfat performance story.

CoBank’s report “While U.S. Leads Milk Component Growth, Butterfat May Be Growing Too Fast” adds a global lens. It notes that over about a decade, U.S. butterfat levels increased roughly 13%, while comparable gains in the EU and New Zealand were closer to 2–3%. Over the same period, U.S. protein rose from just over 3.1% to about 3.29%, roughly a 6% bump.

The U.S. is growing components faster than many of our global competitors, and those components are increasingly what matter in dairy markets. That’s a genuine advantage for cheese, butter, and protein ingredients.

Here’s where it gets more complicated. CoBank points out that butterfat has led the milk check in eight of the last 10 years, creating what they call a “tremendous butterfat boom.” Genetics, nutrition, and even fresh cow managementhave been tuned to push fat as far as possible because, most years, it paid.

Now, CoBank and others are asking whether we might have overshot in some systems. Their report warns that if butterfat and protein keep growing at current rates, processors will face rising costs to either back extra fat out or add protein to meet cheese and ingredient specs, which “ultimately reduces competitiveness on the export front.” Geiger noted that in some markets “we’ve just got a little bit too much extra supply of butterfat,” which has helped pull butter prices down, even though consumption is still solid.

If you’re still breeding and feeding like butterfat is the only game in town, your plant’s pay grid and the export reality might be telling you a different story.

Our own genetics features and CoBank’s component work both highlight herds that are now selecting more for pounds of fat and protein, total solids, and better protein‑to‑fat ratios, especially where plants pay on cheese yield and casein‑related traits. In those systems, the winning milk isn’t just high‑fat; it’s balanced for yield and specs.

Academic work backs that up. An economic study from Brazil on milk pricing found that under component‑based payment systems, protein often carries greater marginal economic weight than fat because of its role in cheese yield and solids content. A 2024 review in Foods (MDPI) on “Emerging Parameters Justifying a Revised Quality Concept for Cow Milk” argues that modern milk quality needs to account much more for functional properties—especially protein fractions—than in the past.

On the ground, what many herds are finding is that in cheese markets, shifting from something like 4.1% fat and just over 3.0% protein toward a more balanced 3.8–3.9% fat and 3.2%+ protein can produce better checks when plants truly pay on solids and yield. In those systems, you often see meaningful gains in revenue per hundredweight, because protein is better rewarded and excess fat isn’t discounted as heavily.

Getting there usually means:

Working with your nutritionist on amino acid balance, not just crude protein.
Investing in forage quality and consistency, so cows can express both butterfat and protein potential.
Tightening fresh cow management and the transition period, so cows hit high intakes fast without metabolic wrecks.

On the genetics side, more herds are using genomic tools to line up sire selection with processor needs—whether that’s cheese yield, powder specs, or value‑added fluid. In Upper Midwest and Northeast cheese sheds, some producers are building custom indexes that place greater weight on protein pounds and cheese yield traits, rather than on total milk or butterfat percent.

If you’re in a quota system like Canada, the pricing grid and quota rules are a bit different, but the core idea still holds: aligning your component profile—both fat and protein—with what your board and processors value is one of the cleanest ways to grow revenue without adding cows.

Herd Profile	Butterfat %	Protein %	Milk Check $/cwt	Annual Revenue (75,000 cwt)	Competitive Edge
Current: Butterfat-Maximized	4.10%	3.00%	$16.50	$1,237,500	Commodity baseline; excess fat discounted by plants
Optimized: Balanced for Cheese Yield	3.85%	3.25%	$17.20	$1,290,000	✅ +$52,500/year

How to Get There (No Capital, No Extra Cows):

Action	Owner	Timeline	Impact
Optimize fresh cow transition (energy, amino acids)	Nutritionist + Herd Manager	Ongoing, 60 days	Peak milk intake faster; protein support
Improve forage quality (digestibility, consistency)	Nutritionist	Next forage chop	Supports protein expression, balances fat
Shift sire selection to cheese-yield genomics	Genetics team + Manager	Breedings starting now	Next 18 months; gradual shift in offspring profile
Work with processor on pay grid alignment	Co-op/Buyer	Q1 2026	Confirm premiums for balanced profile; lock terms

Global Supply: No Built‑In Shortage Riding to the Rescue

Now let’s zoom out to the world map.

USDA’s 2025–26 Livestock, Dairy, and Poultry Outlook and coverage on The Dairy Site indicate that U.S. milk output is projected at about 230.0 billion pounds for 2025 and 231.3 billion pounds in 2026, up slightly as milk per cow continues to creep higher. That extra milk is part of why the agency trimmed its Class III and IV expectations heading into late 2025.

Global summaries suggest a similar pattern among major exporters:

EU milk production is generally steady to modestly higher, constrained by environmental policies but supported by improved margins in some regions.
New Zealand and Australia have seen output rebound amid better weather and more favorable cost structures.
South America—especially Argentina and Brazil—has pockets of growth tied to currency and feed dynamics.

There are always local headaches, but nothing that looks like a synchronized global production crash. From a price standpoint, that means there isn’t an obvious global shortage brewing to “save” the market for us. Any stronger price story in 2026 is more likely to come from demand growth and product mix than from the world suddenly running short of milk.

Processing Capacity: New Stainless, New Rules of the Game

Looking at this trend on the processing side, it’s clear that a lot of serious money still believes in the long‑term North American dairy story.

CoBank estimates that roughly $10 billion in new or expanded dairy processing capacity is slated to come online through about 2027, with a heavy emphasis on cheese, butter, whey, and other protein ingredients. In a late‑2024 interview, Geiger said more than $8 billion of that investment is expected to be operating by 2026, with over half targeted at cheese and whey.

You can see that on the ground:

In Wisconsin and Minnesota, new and expanded cheddar and mozzarella plants are chasing domestic pizza demand and export markets.
In the Texas Panhandle and High Plains, big complexes built around freestalls and dry lot systems in Texas, Kansas, and eastern New Mexico are designed to run high‑component milk into large cheese and ingredient plants.
In the Northeast, investments like the Fairlife ultra‑filtered milk plant in Webster, New York, and expansions in yogurt and value‑added fluid plants that need consistent, high‑component milk.
In Idaho and California, continued investments in cheese and powder position those states as key suppliers to both domestic and export buyers.

CoBank notes that we don’t yet have enough cows to max out all this new stainless, and that’s intentional—plants are being built for where the industry is going, not where it was five years ago. Their analysis also emphasizes that the next efficiency gains won’t just be about scale, but about getting the protein‑to‑fat ratio right for the products being made.

Locally, that creates split realities:

If you ship into a newer or aggressively expanding plant that pays on components or cheese yield, you may see stronger over‑order premiums, solids incentives, and long‑term supply agreements. Farm Credit East reports that in parts of the Northeast, over‑order premiums of $0.75 to $1.50 per cwt have been common where plants are pulling hard for high‑component milk.
If you ship to a plant with limited capacity growth or a narrower product mix, you may feel more of the overall supply pressure and less of that premium pull.

From a distance, this wave of investment is a huge vote of confidence in the future of North American milk. At the farm gate, it also means that if demand doesn’t keep pace, processors will push utilization and volume, which can lean on commodity prices even while local premiums improve for the “right” kind of milk.

Looking ahead a bit beyond 2026, it’s also worth keeping an eye on FMMO modernization debates and evolving component pay structures, because those policy and pricing shifts will sit atop the same stainless and component dynamics we’re discussing today.

Credit Tightening: Planning in an 8% Money World

Now bring the lender back into the kitchen conversation.

Ag credit reports from the Chicago Federal Reserve show that by late 2023 and into 2024, average farm operating loan rates in that district had climbed to about 8.5% at their peak and then eased slightly to just over 8%, while farm real estate loan rates sat roughly in the mid‑7% range. Purdue ag finance updates and related summaries note that these are the highest farm borrowing costs since the mid‑2000s.

CoBank’s financial statements shows higher provisions for credit losses in 2025 compared to the very low levels of 2021–2022, which is another way of saying lenders are paying much closer attention to risk again. Nobody is slamming the door on dairy, but the days of cheap money and easy approvals are over for now.

On many dairies—from 60‑cow parlors in New England to 2,000‑cow freestalls in Idaho—the lender conversation now revolves around three questions:

What if milk averages mid‑$16s instead of high‑$18s for the next 12–18 months?
Does this capital project still pencil at 7–8% interest and realistic feed and labor costs?
What’s the plan if 2026 turns out “just okay” instead of strong?

For a 300‑cow operation carrying $4–5 million in total debt, moving from roughly 4% to 7–8% interest can add tens of thousands of dollars in interest expense each year, depending on amortization and structure. That’s money that used to be available for principal, repairs, or family living.

I’ve heard more than one banker say their informal stress test now is: “Would you still be comfortable at $16 milk for 18 months?” It’s not a forecast; it’s a guardrail. In a year where USDA and the futures board don’t agree, and exports are strong but price‑sensitive, that kind of discipline matters.

If milk spends half the year at your budget price, do you have anything in place to prevent it from crushing cash flow?

Planning in a $17‑ish World: Five Strategies That Are Working

So with all those moving pieces—USDA vs. futures, record exports at discount prices, big component shifts, new stainless, and 8% money—the practical question is: what do you actually do when you sit down with your 2026 plan?

Here are five strategies that are working on real farms right now.

1. Let the Class III curve anchor your budget

One approach that’s gaining traction is straightforward: build your base budget off the Class III futures strip, and treat USDA’s all‑milk forecast as upside.

If the average of the next 6–12 Class III contracts is sitting in the mid‑$16s, you can:

Use that futures‑based number as your core milk price in the plan, then apply your historical mailbox basis and component performance.
Build a second scenario using something closer to USDA’s high‑$18 to low‑$20 all‑milk range and ask, “If we actually see that, what would we change about capital and risk decisions?”

In a 150‑cow family tie‑stall in Ontario or Vermont, that upside scenario might be where a parlor retrofit or bunk upgrade moves ahead. In a 1,200‑cow freestall in Wisconsin or New York, it might be where the next phase of stall renovation or manure handling upgrades makes sense.

Either way, the survival plan—the one your lender sees first—is built around the futures‑anchored price, not the rosiest forecast on the page.

2. Take advantage of a friendlier feed market—without getting greedy

The good news is that feed isn’t the villain it was a couple of years ago.

Corn has generally traded in the high‑$3 to low‑$4 per bushel range, and soybean meal in the high‑$200s to low‑$300s per ton, a long way from the spikes of 2022. USDA’s Dairy Margin Coverage calculations show that by late 2025, the feed‑cost portion of the DMC margin had improved to its best levels since about 2020 as grain and protein prices eased.

That gives you a window to lock in some feed at workable prices.

A middle‑ground approach many herds are using looks like this:

Lock in 60–75% of core purchased feed—corn, soybean meal, key by‑products—for the next 6–9 months.
Keep 25–40% open to allow for ration tweaks, herd-size adjustments, or price improvements.
Avoid locking 100% for a full year unless your operation is very stable, and you’re comfortable with that risk.

For smaller and mid‑size herds, DMC remains a valuable safety net. USDA and extension analyses show that higher coverage levels on the first 5 million pounds have paid out in multiple low‑margin years since the 2019 redesign. For larger herds, Livestock Gross Margin for Dairy (LGM‑Dairy) offers a subsidized way to insure a futures‑based milk‑over‑feed margin.

Research from universities like Wisconsin and Kansas State shows that herds using a rules‑based margin strategy—consistent use of DMC, LGM‑Dairy, futures, and options around target margins—tend to see less income volatility than herds that act only when markets get scary. You’re not trying to pick the exact bottom; you’re trying to avoid being naked when both milk and feed move against you.

3. Make every capital project pass a $17 milk test

In an 8% money world, every barn, parlor, and piece of iron has to earn its keep.

A simple rule that works well is: if a project can’t pay for itself at about $17 milk and today’s interest rates within 5–7 years, it probably belongs on the “later” list.

Project Type	Capital Cost	Cash Flow @ $16/cwt	Cash Flow @ $18/cwt	Payback @ $17 (yrs)	Recommendation
Parlor upgrade (60 cows/hr to 90)	$280,000	$22,400	$38,500	5.2	PROCEED—labor payoff in peak season; health spillover
New VMS (50-cow system)	$450,000	-$8,200	$12,600	>10	DEFER—milking labor gains don’t offset cost at $16 milk
Freestall renovation + new bedding	$165,000	$18,900	$28,400	4.6	PROCEED—cow comfort drives milk/reproduction ROI
Manure handling (solid separator + storage)	$220,000	$14,200	$22,100	5.8	PROCEED—compliance + nutrient value; essential
New feed mill automation	$95,000	$11,500	$16,800	3.1	PROCEED NOW—fastest payback; ration consistency ROI
Robotic feed pusher (2 units)	$180,000	$3,400	$8,200	8.1	DEFER—marginal labor benefit; wait for $18+ milk

For 100–250‑cow family herds, that tends to move projects that protect daily performance and cow health to the front:

Milking system reliability and throughput
Manure handling that keeps you compliant and efficient
Ventilation, bedding, and stall comfort
Functional fresh cow and transition facilities

“Nice‑to‑have” projects that don’t clearly move milk, health, or labor safety can wait.

For 500–1,500‑cow freestall or dry lot systems, the numbers are bigger, but the logic is the same:

Use mid‑$16–$17 milk in your cash‑flow, not $19 or $20.
Plug in realistic feed, labor, and 7–8% interest from your lender.
Sit with your lender and run a $16 milk stress test for 12–18 months before you sign.

Lenders are more eager to support capital when they see conservative assumptions and honest downside modeling, not just best‑case spreadsheets.

Letting Components – and Fresh Cows – Carry More of the Load

Components are a lever you can pull without adding cows or concrete.

Butterfat pounds have grown about 30.6% since 2010, compared with 15.9% growth in total milk, and that butterfat output was running 3–4% higher year‑over‑year in early 2025 while milk barely budged. We also know from CoBank that butterfat has accounted for most milk checks over the last decade, driving a butterfat boom, and that protein has risen about 6% in the same period.

At the same time, CoBank, Geiger, and academic work on milk quality argue that processors—especially cheese plants—need a more balanced protein‑to‑fat ratio to optimize yields and manage standardization cost. So the farms that do best are often those that produce strong but not extreme butterfat with rising protein, not just the highest fat test in the county.

On the cow side, that typically means:

Investing in fresh cow management and the transition period so cows hit peak intake without a wreck.
Tuning amino acid balance instead of endlessly raising crude protein.
Focusing on forage quality and consistency so you’re not fighting the ration every week.

On the genetics side, CoBank’s report and Bullvine’s own component‑ratio work highlight herds using genomic tools and custom indexes that weight butterfat, protein, total solids, and cheese-yield traits, especially where plants pay on solids and yield.

If you’re under Canadian supply management, the pricing grid and quota rules are a bit different, but the same principle applies: match your component profile to what your board and processors value most.

Using Risk Tools That Fit Your Scale

Month	2023 High	2023 Low	2023 Close	2024 High	2024 Low	2024 Close	2025 YTD High	2025 YTD Low	2025 YTD Close
Jan	$18.20	$16.80	$17.10	$17.50	$15.80	$16.40	$16.80	$15.20	$15.65
Feb	$18.60	$17.20	$17.50	$17.80	$16.10	$16.70	—	—	—
Mar	$18.90	$17.60	$18.20	$18.10	$16.40	$17.10	—	—	—

Most producers don’t want to live on a futures screen, and they don’t need to. But in a year when USDA and the board are a couple of bucks apart, and interest is high, having no risk plan is a risk in itself.

A practical, scale‑friendly approach looks like this:

Once a month, glance at Class III and IV futures and ask whether things are better, worse, or about the same as when you built your plan.
Talk with your co‑op or buyer about forward‑pricing pools or risk programs where they handle the hedging, and you commit a portion of your milk.
If you’re in the 1,000‑cow‑plus range, consider working with a risk adviser who uses rules and target margins, not just hunches.

University extension work on dairy risk management consistently shows that herds using structured, rules‑based programs with DMC, LGM‑Dairy, futures, and options have smoother income over time than herds reacting sporadically when markets look scary.

The key is to pick tools that fit your scale, comfort level, and co‑op structure, not to copy whichever strategy your neighbor talks about the loudest.

Different Farms, Different Realities

As you know, the same Class III price can feel very different two roads over.

For 100–250‑cow family herds in regions like New England, Maine, Wisconsin, New York, and Pennsylvania, the biggest pain points are usually cash flow, debt service, and family labor. Conservative price assumptions, sensible feed coverage, and smart use of DMC (or quota‑aligned tools in Canada) often do more good than chasing every 20‑cent move. On‑farm processing or direct marketing can be powerful for some, but only where there’s real local demand and labor capacity.

For 250–800‑cow operations across the Upper Midwest, Northeast, and parts of the West, working capital, component income, and labor efficiency tend to move the needle fastest. Lenders in these regions often say they’re most comfortable when they see:

Budgets run at $16–$17 milk
At least some margin protection in place
A capital program paced for 7–8% money, not cheap‑money days

For 1,000‑cow‑plus herds—multi‑site freestalls, big dry lot systems in the West and Southwest—processors care a lot about consistency, quality, and risk profile. Multi‑year supply deals, basis arrangements, and structured hedge programs can smooth income if they’re built around realistic margins and checked regularly.

Across all sizes, the farms that tend to come out of tight cycles with options left are usually the ones that:

Know their true cost of production
Are honest with themselves and their lenders about leverage
Make small, early adjustments when margins pinch instead of waiting for a crisis

The Short Version

If we were at a winter meeting in Listowel or Tulare and you slid your coffee across the table and said, “Alright, just give me the quick list,” here’s how I’d boil it down:

Plan off the futures strip, not the prettiest forecast. Use the 6–12‑month Class III average—roughly the mid‑$16s right now—as your base and treat USDA’s higher all‑milk projections as upside, not your starting point.
Lock in some feed while it’s reasonable. With corn and soybean meal back in more manageable ranges and DMC margins much better than in 2022, it makes sense to protect part of your feed so a spike doesn’t wreck your year.
Make capital prove it works at $17 milk and 8% interest. Any barn, parlor, or equipment upgrade that doesn’t pencil at about $17 milk and current rates within 5–7 years needs a tough second look before you sign.
Let components and fresh cow management do more of the lifting. Butterfat performance is strong, and protein’s value is rising in many pay systems. Align your ration, fresh cow management, and genetics with the component blend your plant or board actually pays for.
Have the hard conversations early. Sit down now—with your lender, co‑op, nutritionist, and family—while there’s still time to tweak the plan instead of scrambling later.

The Bottom Line

The encouraging part of all this is that the long‑term demand story for North American dairy remains strong. USDEC numbers and Bullvine coverage show record or near‑record cheese and butterfat exports, and through three quarters of 2025, U.S. butterfat exports were up triple digits in volume, with butter export value surpassing prior full‑year records. CoBank’s $10‑billion stainless estimate—and the plants you can actually drive past—show processors still betting big on future milk.

You don’t have to operate like milk will stay at $16 forever—but you can’t afford to build a 2026 plan that only works at $20, either.

Before March, sit down with: (1) your lender, with a $16–17 milk stress‑tested budget; (2) your nutritionist, with explicit butterfat and protein targets; and (3) your co‑op or buyer, with a specific risk‑tool and contract conversation. If the last couple of decades have taught anything, it’s that the better stretch does come back around. The herds still standing when it does are the ones that took years like 2026 seriously, planned conservatively, and kept just enough powder dry to move when the wind finally shifted in their favor.

Key Takeaways

Mind the $150K gap: USDA forecasts 2026 all‑milk near $18.25/cwt; Class III futures sit in the mid‑$16s. For a 300‑cow herd, budgeting off the wrong number is a $150,000+ mistake.
Record exports, discount prices: U.S. cheese exports jumped 28% and butterfat nearly tripled in August 2025—but we’re winning volume by pricing below the EU and New Zealand, not by earning premiums.
Protein is catching up to fat: Butterfat led the check 8 of 10 years, but cheese plants now want balanced protein‑to‑fat ratios. Herds shifting to 3.8–3.9% fat with 3.2%+ protein are seeing better component checks.
$17 milk is the new capital test: At 7–8% interest and lenders stress‑testing at $16 milk, any project that doesn’t pay back at ~$17 milk within 5–7 years belongs on the “later” list.
Act before March: Budget off futures (not USDA), lock 60–75% of feed for 6–9 months, stress‑test every capital decision, align components with your plant’s pay grid, and put risk tools in place that match your scale.

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

Learn More

The $15,800 DMC Decision Every Dairy Needs to Make Before February 26 – Stop leaving cash on the table. This breakdown reveals the exact math behind the $15,800 DMC advantage and delivers a step-by-step method to protect your 2026 margins before the February 26 enrollment deadline.
The Bullvine Dairy Curve: 15,000 U.S. Farms by 2035 and Under 10,000 by 2050 – Who’s Still Milking? – We expose the structural reality of the “Dairy Curve.” This analysis arms you with the long-term strategy needed to position your operation among the 15,000 survivors, ensuring you’re not just milking, but thriving through 2050.
The 2026 Breeding Playbook: Using Calf‑Health Genomics and Beef‑on‑Dairy to Unlock $50,000 in Your Herd– Genomics isn’t just about production anymore. This playbook breaks down how integrating calf-health traits with beef-on-dairy can unlock a $50,000 competitive advantage, allowing you to stop feeding the bottom 20% of your herd.

Join the Revolution!

Categories : Dairy Markets

Tags : Class III futures, dairy export trends, dairy markets, dairy risk management, farm financial planning, milk component pricing, milk price forecast

The $15,800 DMC Decision Every Dairy Needs to Make Before February 26

Thursday, January 15th, 2026

DMC averaged $74K per farm in 2023. In 2026, it got $15,800 better for 300-cow herds. Claim it by February 26—or miss it.

Executive Summary: DMC’s Tier 1 cap just jumped from 5 million to 6 million pounds. For a 300-cow dairy, that single change is worth roughly $15,800 in annual premium savings—money most producers will leave on the table because they’ll renew the way they always have. Before the February 26 deadline, you need to answer one question: Is Tier 2 coverage (about $70/cow, or $20,000/year) still survival insurance, or has your balance sheet improved enough since 2023 that it’s become expensive peace of mind? A quick runway test—available cash divided by monthly fixed costs—tells you where you stand. If you’ve rebuilt working capital and your operation is stronger than it was three years ago, your DMC strategy should reflect that. The $15,800 is there. The only question is whether you’ll claim it.

You know how it goes. You swing by the FSA office, renew your Dairy Margin Coverage more or less on autopilot, and get back to what actually matters—watching fresh cow performance, keeping an eye on butterfat levels, and making sure the transition period isn’t causing problems. In most years, that routine hasn’t hurt too badly.

This year’s different, though.

For the 2026 coverage year, FSA has bumped the Tier 1 coverage limit from 5 million pounds up to 6 million pounds. That’s straight from USDA’s official DMC program page, and they announced it at the Farm Bureau convention earlier this month. The expansion came through in the 2025 farm bill—the “One Big Beautiful Bill,” as it’s been called in the trade press—which also extended DMC through 2031.

Here’s what’s interesting about that change. The folks at Adams Brown, who spend their days running dairy financials, put out an article back in November showing what happens when you shift an extra million pounds from Tier 2 into Tier 1. For a lot of 250- to 350-cow herds, we’re talking premium savings solidly in the five-figure range.

So this year, doing “what we’ve always done” really is a decision. Not just a formality.

What Actually Changed in DMC for 2026?

Let me walk through this piece by piece, because the structure matters.

Starting in 2026, that first 6 million pounds of your production history qualifies for Tier 1 coverage. You can pick coverage levels from $4.00 up to $9.50 per hundredweight, in half-dollar increments. And here’s the part that makes Tier 1 so attractive—at the $9.50 level, you’re paying just $0.15 per cwt. That’s from UW-Madison’s DMC policy updates, and the 2026 DMC premium rates haven’t changed on the Tier 1 side from previous years.

Everything above 6 million falls into Tier 2. The coverage there tops out at $8.00 per cwt, and the premium at that level runs about $1.81 per cwt according to the same UW tables.

So any hundredweight you can move from Tier 2 down into Tier 1? You’re trading a $1.81 premium for a $0.15 premium. That’s roughly $1.66 per cwt difference.

Over a million pounds—10,000 cwt—that works out to around $16,600 in potential premium savings. Real money.

One more thing worth noting: FSA is also requiring all operations enrolling for 2026 to establish a new production history using the highest annual production from 2021, 2022, or 2023. That’s on FSA’s program page and confirmed in Adams Brown’s farm bill summary. If your herd has grown since you last updated, this could work in your favor.

Putting This in Cow Terms

It helps to anchor this in actual herds rather than abstract numbers.

The average U.S. milk production in 2023 came in at 24,117 pounds per cow, up about 30 pounds from 2022. Using that benchmark, 300 cows at average production gives you roughly 7.2 million pounds annually. That’s a pretty common profile in freestall operations across the Midwest and Northeast.

Year	Tier 1 (Lbs)	Tier 1 Premium/cwt	Tier 2 (Lbs)	Tier 2 Premium/cwt
2025	5.0M	$0.15	2.2M	$1.81
2026	6.0M	$0.15	1.2M	$1.81

Under the old DMC structure, that 300-cow herd had 5 million pounds in Tier 1 and 2.2 million in Tier 2. Under the 2026 rules, it’s 6 million in Tier 1 and only 1.2 million in Tier 2.

Run those volumes through current FSA premium rates at 95% coverage, and here’s what you get:

The old structure cost that herd roughly $45,000 a year in premiums—about $7,100 for Tier 1, nearly $38,000 for Tier 2. The new structure? Roughly $29,000—around $8,500 for Tier 1, about $20,700 for Tier 2.

Metric	Old DMC (2025)	New DMC (2026)
Tier 1 Cap	5.0 Million Lbs	6.0 Million Lbs
Tier 1 Premium ($9.50)	$0.15 / cwt	$0.15 / cwt
Tier 2 Premium ($8.00)	$1.81 / cwt	$1.81 / cwt
Annual Premium (300 Cows)	~$45,000	~$29,000
Net Savings	–	$15,800

That’s approximately $15,800 in annual premium savings. Just because more milk now qualifies for the cheaper coverage tier.

Adams Brown’s worked examples hit the same ballpark when they model what happens as production shifts from Tier 2 to Tier 1. This isn’t a cosmetic tweak—it genuinely moves the needle.

Herd Size (Cows)	Annual Production (Lbs)	2025 Premiums	2026 Premiums	Savings
200	4.8M	~$32,500	~$20,800	~$11,700
300	7.2M	~$45,000	~$29,000	~$16,000
400	9.6M	~$57,500	~$37,000	~$20,500
500	12.0M	~$70,000	~$45,000	~$25,000
600	14.4M	~$82,500	~$53,000	~$29,500

What 2023 Taught Us About DMC

You probably remember 2023 without needing much prompting. But it’s worth looking at what DMC actually did that year, because it shapes how a lot of us think about coverage now.

UW-Madison’s 2024 program review showed that DMC margins fell below the $9.50 coverage threshold in 11 out of 12 months during 2023. Several months landed in the mid-$4 to low-$5 per cwt range—some of the weakest margins we’d seen since the program started.

Month	All Milk Margin ($/cwt)	Tier 1 Payment @ $9.50 Coverage ($/cwt)
Jan	$4.80	$4.70
Feb	$5.20	$4.30
Mar	$4.50	$5.00
Apr	$5.80	$3.70
May	$6.20	$3.30
Jun	$6.50	$3.00
Jul	$6.10	$3.40
Aug	$5.90	$3.60
Sep	$5.40	$4.10
Oct	$4.70	$4.80
Nov	$4.30	$5.20
Dec	$4.60	$4.90

On the payment side, UW-Madison reported that total indemnity payments for 2023 topped $1.27 billion across about 17,059 enrolled operations. That worked out to an average of roughly $74,453 per farm, with about 74.5% of eligible dairies participating.

For producers at the $9.50 coverage level, monthly payments often exceeded $2 per cwt during the worst stretches. Dairy Herd Management described 2023 as a year when DMC was “in the money” almost continuously for herds with higher Tier 1 coverage.

When USDA first rolled out the DMC decision tool in 2019, it partnered with UW-Madison on its development. At the time, Mark Stephenson—then Director of Dairy Policy Analysis at UW—said DMC “offers very appealing options for all dairy farmers to reduce their net income risk due to volatility in milk or feed prices.”

That sounded promising then. 2023 showed what it looks like in real dollars.

So when producers say they’re not going through another margin crash without full coverage, that’s not paranoia. It’s memory. Those DMC payments kept operating loans current, and feed mills paid on a lot of farms.

What’s easy to miss, though—and this is where the 2026 DMC calculation gets interesting—is that many herds used the stronger margins of late 2023 and 2024 to rebuild. Working capital came back. Debt got paid down. Break-even costs dropped.

The Farm You Were vs. The Farm You Are Now

Here’s what I’ve noticed working through this with producers over the past few months.

Going into 2023, a lot of mid-size herds—the 250- to 350-cow operations—were carrying tight balance sheets. Farm-management reports and lender dashboards commonly showed working cash in the $50,000 to $100,000 range, debt service coverage ratios hovering around 1.1 to 1.25, debt-to-asset ratios in the mid-40% to low-50% band, and break-even milk prices pushing toward $19 or $20 per cwt in higher-cost regions.

University finance specialists had been flagging that profile as vulnerable for a while. Any combination of lower milk prices, poor forage quality, or spiking feed costs could push those farms into serious stress.

Fast forward to now, and the picture often looks different. The herds that stayed in business—especially those that collected DMC payments and caught the firmer milk prices of 2024—often rebuilt working capital into the $200,000 to $300,000 range or higher. Debt service coverage ratios improved into the 1.4 to 1.6 band. Debt-to-asset ratios drifted back toward the high 30s or low 40s. Break-even prices fell into the $17 to $18 range, with better forage and tighter overhead.

When you put the last few years of financials side by side, the “farm we were in 2022” and the “farm we are in 2025” can look quite different—even if your gut still feels like it’s living in 2023.

So, before you check those boxes at FSA, are you setting up DMC for the farm you were, or the farm you are now?

What Job Is Tier 2 Actually Doing?

This is where conversations tend to get interesting.

In my experience, Tier 2 ends up playing one of two roles. It’s either survival coverage or peace-of-mind coverage. Both are legitimate. The key is knowing which job it’s doing for you this year.

Indicator	Tier 2 = Survival Coverage	Tier 2 = Peace-of-Mind Coverage
Working Capital (Days of Expenses)	<60 days	>120 days
Debt Service Coverage Ratio	<1.25	>1.40
Debt-to-Asset Ratio	>50%	<40%
Break-Even Milk Price	>$19/cwt	<$18/cwt
Tier 2 Annual Cost (300-cow herd)	~$20,000–$21,000 (Critical)	~$20,000–$21,000 (Discretionary)
Decision	Must Keep Tier 2	Can Scale Back or Self-Insure

When Tier 2 is survival coverage

Tier 2 belongs in the “must-have” column when a farm is financially fragile. Extension finance programs and lenders typically flag farms with working capital covering less than 60 days of expenses, debt service coverage consistently below 1.25, debt-to-asset ratios above 50%, or break-even milk prices creeping toward $19 or higher.

As many of us have seen in Wisconsin freestalls and Western dry lot systems alike, it doesn’t take much to chew through limited cash when you’re that tight. A weather-damaged corn silage crop. Protein prices jumping. A dip in the milk check. On those farms, Tier 2 payments can literally be the difference between riding out a rough stretch and falling behind on bills you can’t afford to miss.

When Tier 2 becomes peace-of-mind coverage

On stronger farms, Tier 2 plays a different role.

When working capital covers 120 days or more of fixed costs, when debt service coverage holds comfortably above 1.4, when leverage sits under 40%, and when break-even prices have moved down into the $17 to $18 range—a farm can shoulder more of its own margin risk without immediately threatening survival.

In that situation, Tier 2 becomes more about smoothing income and reducing stress than about keeping the doors open. The protection is real, but the farm isn’t dependent on those checks to stay solvent.

What Tier 2 actually costs

Back to our 300-cow example. That extra 1.2 million pounds above the Tier 1 cap falls into Tier 2.

Using FSA’s premium table at $8.00 coverage and 95% coverage percentage, premiums on that Tier 2 slice run about $20,000 to $21,000 per year. Spread across the herd’s total production, you’re looking at roughly 28 to 29 cents per cwt, or about $70 per cow per year.

Some operations look at that $70 and say, “That’s a cheap price for peace of mind.” Others—particularly those with longer runway and stronger cash flow—start asking whether that money might work harder paying down principal, upgrading cow comfort, or buying targeted Dairy Revenue Protection for specific high-risk quarters.

A Kitchen-Table Runway Test

So how do you figure out where you actually stand without building a massive spreadsheet?

A lot of university educators and lenders have gravitated toward a simple runway test. It’s not perfect, but it’s surprisingly useful for getting your bearings.

Step one: Grab your most recent bank statement showing your operating account and any short-term savings. Pull your latest term-debt statement with the monthly principal and interest. Have a recent milk check handy.
Step two: Estimate your monthly fixed “burn.” Start with your total monthly term-debt payments, then add the costs that don’t disappear when margins drop—insurance, utilities, property taxes averaged over the year, core payroll for people you realistically can’t cut. Farm-business programs in Wisconsin, Minnesota, and New York commonly see 250- to 350-cow dairies with monthly burns in the $18,000 to $22,000 range, though it varies by region and setup.
Step three: Divide your available cash by that monthly burn.

That gives you your runway—the number of months you can keep essential bills paid if margins drop and stay ugly.

Extension risk-management materials generally talk about 3 to 6 months of working capital as a minimum target, with more than 6 months representing a strong buffer.

In practice:

Less than 3 months: Tier 2 is probably still survival coverage for your operation.
3 to 6 months: Gray area—time for a careful conversation with your lender.
More than 6 months: There’s room to discuss self-insuring part of that Tier 2 risk.

What’s encouraging is that many Midwest operations running this exercise over the past year have been surprised to find their runway longer than they expected. Not everyone, but enough that it’s changed the tone of the Tier 2 conversation.

Months of Runway	Financial Status	Tier 2 Coverage Decision
<3 months	Tight. Vulnerable to margin shocks.	KEEP TIER 2 — Survival coverage; margin failures = serious stress
3–6 months	Gray area. Stronger than tightest farms, not yet confident.	CONSULT YOUR LENDER — Decision depends on debt structure & farm trajectory
>6 months	Strong. Solid buffer.	YOU HAVE OPTIONS — Can max Tier 1, skip/scale Tier 2, test self-insurance

How Bigger Herds Layer Their Risk Tools

For larger operations—500 cows, 1,000 cows, and up—the DMC discussion usually sits inside a broader risk-management framework.

UW-Madison’s 2025 DMC update explicitly notes that “DMC may be combined with DRP or LGM-Dairy to form a more comprehensive risk management framework.” And that’s exactly what we’re seeing in practice.

The pattern in a lot of Wisconsin freestalls and Western systems looks something like this: Use Tier 1 DMC at $9.50 for the first 5 to 6 million pounds as a base safety net. Add Dairy Revenue Protection on a portion of remaining production to lock in revenue floors for specific quarters, especially when futures markets and local basis look shaky. Use Livestock Gross Margin-Dairy selectively when feed cost risk is particularly high.

Risk Management Agency materials show that DRP adoption has been ramping up among larger herds since its 2018 launch. DMC serves as the first layer; DRP and LGM target more specific risks for volumes above Tier 1.

For bigger operations, Tier 2 is one option among several for covering extra production—and the decision about how much to buy sits alongside questions about DRP quarters and feed hedging.

The Six-Year Lock-In: Discount or Commitment?

Now let’s talk about the multi-year option, because it deserves a careful look.

The discount

Under the 2025 farm bill changes, producers can enroll in DMC for a six-year period—2026 through 2031—and receive a 25% discount on premiums throughout. That’s confirmed on FSA’s official program page and in Adams Brown’s farm-bill breakdown.

For our 300-cow example, where annual premiums under the new structure run about $29,000, a 25% discount brings that down to roughly $22,000 per year. That’s around $7,000 in annual savings, or more than $40,000 across six years.

The commitment

The catch—and it’s worth thinking through—is that multi-year enrollment isn’t designed as a “sign now, adjust freely later” arrangement.

USDA describes it as providing stability for both producers and the program. The detailed rules around mid-stream changes are best confirmed with your local FSA office, but the general idea is clear: you’re trading some future flexibility for a lower bill today.

Questions worth asking before you sign

If you’re considering the multi-year option, here are the conversations to have at FSA:

“If we expect to grow from 300 cows to 450 cows over the next six years, how does our coverage and premium obligation evolve?”
“If we sell, retire, or transfer the operation before 2031, what happens to the remaining years?”
“If our risk tolerance changes and we want to adjust Tier 2 coverage after a couple of years, what are our options?”

For stable herds with clear long-term plans, the multi-year discount can be a very good fit. For farms facing major transitions—expansion, succession, shifts in business model—staying year-to-year and letting coverage evolve with the operation might make more sense.

The main thing is asking these questions before you sign.

Why February 26 Should Be the Finish Line, Not the Starting Gun

According to FSA, the 2026 DMC enrollment deadline is February 26. Enrollment opened January 12.

What I’ve noticed is that the farms getting the most from DMC treat that deadline as the last day to finalize paperwork on a decision they’ve already worked through—not the day they first start asking what changed.

By mid-January, most dairies are already deep into year-end review. You’re looking at your 2025 income statement and balance sheet. You know how forage turned out. You’ve got a feel for where feed and milk markets might be headed. That’s exactly when DMC strategy belongs in the conversation.

FSA staff consistently say the strongest sign-up meetings happen early in the window, when producers arrive with their questions already answered. It’s the last-week crunch—when everyone’s buried and just trying to avoid missing the deadline—that leads to “just do what we did last year” decisions, even when the farm’s financial picture has shifted significantly.

What If You Cut Tier 2 and 2026 Turns Ugly?

This is the question that sits in the back of everyone’s mind. And honestly, it should.

If you look at your 2025 results, decide you’re strong enough to drop or scale back Tier 2, and then 2026 turns into another rough year, will there be mornings when you wish those Tier 2 checks were coming?

Of course. That’s the nature of insurance. Regret always shows up loudest after the fact.

So instead of asking whether you’ll regret it if the worst happens—because that answer is almost always yes—it’s more useful to ask:

Given our current runway, debt service coverage, leverage, and break-even, could we realistically survive another difficult margin year using Tier 1 DMC, our cash reserves, and existing credit without Tier 2?
How much margin risk are we truly comfortable carrying ourselves now, compared to what we could carry going into 2023?

For some farms, after putting the real numbers on the table with their lender, the answer is still: “We’re not quite there yet. Tier 2 is survival coverage for us.”

For others—especially those sitting on more than six months of runway and strong debt service coverage—the answer moves closer to: “We can shoulder more of this ourselves now, and those Tier 2 dollars might work harder somewhere else.”

A test-year approach for stronger herds

What’s emerging in some extension workshops is a “test-year” strategy. It goes like this:

Max out the expanded Tier 1: 6 million pounds at $9.50.
Skip Tier 2 for one coverage year.
Move the money you would have spent on Tier 2 premiums—around $20,000 in the 300-cow example—into a dedicated reserve account earmarked for margin shocks.

If 2026 turns rough, that reserve plus Tier 1 payments gives you a self-funded cushion. If 2026 is decent, you’ve effectively paid that premium to yourself and strengthened your working capital.

It won’t fit everyone, and it absolutely should be run past your lender first. But it shows how stronger balance sheets and a more generous Tier 1 structure are giving some farms more options, not fewer.

Your Action Plan Between Now and February 26

Let me bring this back to the kitchen table.

Tonight or this week:

Run your runway test. Grab your bank and loan statements and figure out how many months of fixed costs your current cash covers.
Pull your key ratios. Look at where your debt service coverage, leverage, and break-even landed for 2025.
Run scenarios with USDA’s DMC Decision Tool. It’s available on FSA’s website and was developed with UW-Madison specifically to help producers compare coverage options using their own production history.

Over the next week or two:

Decide what job Tier 2 is doing. Is it still survival coverage for your operation, or has it shifted into peace-of-mind territory you might resize?
Talk with your lender. Bring your runway number and ratios. Ask whether your current position can support self-insuring some risk.
Ask about multi-year enrollment at FSA. Get clear on what a six-year commitment would mean for your situation.

Before February 26:

Choose your 2026 structure intentionally. Decide your Tier 1 and Tier 2 levels, whether you’re going year-by-year or locking in for six years, and how that fits with any DRP strategy.
Walk into FSA with a plan. Use your appointment to execute a decision you’ve already made, based on good information.

The Bottom Line

DMC remains one of the most cost-effective safety nets under the U.S. milk check. But the opportunity in 2026 isn’t just to get enrolled.

It’s to enroll like the farm you’ve become—not the farm you were before 2023—and to line up your coverage with the cows you’re milking, the numbers on your books, and the level of risk you can genuinely live with now.

The 2026 DMC deadline is February 26. If you don’t run this math before then, the odds are high you’ll either overpay for coverage you don’t need, or underinsure a risk your balance sheet still can’t carry.

Neither is where any of us want to be.

Key Takeaways:

$15,800 is hiding in your 2026 DMC renewal. The Tier 1 cap jumped from 5 million to 6 million pounds—shifting a million pounds from $1.81/cwt premiums down to $0.15 for 300-cow dairies.
Most producers will miss it. They’ll renew on autopilot without realizing the program changed. Don’t be most.
Tier 2 runs $70/cow. Is that survival coverage—or an expensive habit? If your balance sheet is stronger than it was in 2023, the answer has likely changed.
Run the runway test. Cash on hand ÷ monthly fixed costs. Under 3 months = Tier 2 is still essential. Over 6 months = you have real options.
February 26 deadline. The $15,800 is there. Claim it—or leave it on the table.

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

Learn More

April 2025 Dairy Risk Management Calendar – Reveals the precise steps to layer DMC with Dairy-RP and Chicago puts, arming you with a tactical risk calendar that prevents devastating coverage gaps when market floors shift during the high-stakes Q3 and Q4 windows.
The Triple Cushion Trap: Why 2025’s Strong Margins Won’t Save You in 2026 – Exposes the temporary nature of 2025’s profit cushions, delivering a strategic roadmap to rebuild working capital and restructure debt before the broader industry consolidation and margin-compression cycle hits full force in late 2026.
AI and Precision Tech: What’s Actually Changing the Game for Dairy Farms in 2025? – Breaks down how AI health monitoring and precision feeding systems are slashing feed costs by 25% per cow. It delivers an immediate efficiency advantage, transforming operational data into a self-funded safety net during volatile periods.

Join the Revolution!

Categories : Dairy Markets

Tags : cost control, Dairy Margin Coverage, dairy risk management, dmc 2026, risk management, tier 1 coverage

Same Milk, Different Payday: How Your Processor’s Product Mix Shapes Your Future

Wednesday, January 14th, 2026

Two good herds. Same calving nights. Same butterfat goals. Five years later, one family had $400K more equity. The gap wasn’t created in the barn—their processor’s product mix created it.

Executive Summary: U.S. cheese and butter consumption hit all-time highs in 2023, and total dairy demand reached levels not seen since 1959—a real tailwind for the industry. But USDA projects more milk coming through 2026 with all-milk prices in the low-$20s: solid for some herds, uncomfortably close to breakeven for others. What’s increasingly separating those outcomes isn’t just fresh cow management or component focus; it’s where milk actually lands after it leaves the lane—pizza cheese and specialty yogurt versus commodity powder and private-label fluid. For a 400-cow herd, a steady $1/cwt pay-price difference adds up to roughly $400,000 in equity over four years. Inside, you’ll find six questions to ask your processor, three conversations to prioritize this year, and a framework for matching your channel position with your true cost of production. In this market, knowing where your milk goes may matter as much as anything happening inside your barn.

Let me start with a scene you probably know all too well.

Two 400-cow herds. Both kinds of barns are the kinds most of us would call “good.” Cows right around that 80-pound mark. Butterfat levels the field rep is happy with. Fresh cow management through the transition period is under control. No major train wrecks in the dry cow pen. Parlors are humming along well enough that nobody’s cursing the schedule over coffee.

Fast-forward four or five years. One of those farms has quietly added $300,000 to $400,000 in equity. The other is wondering why, after all the nights in the maternity pen and all the feed tweaks, the balance sheet isn’t where they hoped it’d be.

The difference often isn’t robots versus parlors, or sand versus mattresses, or who’s running what ration software. What I keep seeing, in conversations with producers and in the numbers themselves, is that it comes down to a question we didn’t really ask much fifteen years ago:

Where does your milk actually go when it leaves the lane—and what is that processor doing with it?

Looking at the latest data and at where processors are spending their capital, that “where” might matter just as much as anything you’re doing inside your fences.

Strong Demand, Tight Prices: The Current Picture

Let’s start with demand, because honestly, that part of the story is more encouraging than you’d think, listening to some outside commentators.

USDA’s Economic Research Service tracks how much dairy Americans eat each year on a milk-equivalent, milkfat basis. For 2023, they put per-capita dairy consumption at 661 pounds—7 pounds higher than 2022. Analysis of that dataset noted that 661 pounds ties the highest mark in the modern series and is the best level since 1959, when Americans consumed about 672 pounds on the same milkfat basis. The International Dairy Foods Association picked up on that too, using it to remind people that total U.S. dairy demand is anything but dead.

You know all the talk about cheese? The data backs it up. Using those same ERS tables, analysis shows 2023 per-capita cheese consumption at about 40.2 pounds, up from 39.9 pounds the year before and a new record. Grouping some cheeses more broadly, lands around 42.3 pounds per person. The precise number depends on how you slice the categories, but the trend line doesn’t change: Americans have never eaten more cheese than they do right now.

Butter’s right there with it. ERS data summarized by IDFA shows per-capita butter consumption at 6.5 pounds in 2023, the highest since the mid-1960s. Given where butter sat in the low-fat decades, that’s a meaningful swing back in our direction.

And if you zoom in further, some “old-made-new” products really jump out. Working off Circana retail data for the 52 weeks ending December 1, 2024, notes that paneer sales were up roughly a third, burrata climbed just over 30 percent, and queso quesadilla gained more than 20 percent. On top of that, ERS numbers show cottage cheese climbing from 1.9 to 2.1 pounds per person in 2023—an 11-plus percent increase. If you’ve walked a grocery dairy aisle recently, you’ve probably seen the explosion in cottage cheese brands, flavors, and single-serve packs yourself.

Fluid milk is the outlier. ERS figures show fluid milk consumption dropping to about 128 pounds per person in 2023, down from 130 the year before and well below the mid-1970s peak of around 247 pounds per person. Many Midwest and Northeast producers don’t need a chart to see that decline; they’ve watched the fluid case shrink for decades.

So, stepping back, the demand picture looks like this:

Overall dairy consumption is at or near record levels.
Cheese and butter are at all-time highs.
High-protein products like cottage cheese are clearly gaining ground.
Fluid beverage milk continues a very long, slow slide.

Now, if that were the whole story, we’d all be breathing easier. But you know it’s not.

USDA’s Livestock, Dairy, and Poultry outlooks for 2025 and 2026, summarized by Brownfield and Farm Progress, have had a consistent theme: more cows and more milk per cow. In mid-2025, Brownfield reported that USDA had bumped its 2026 milk production forecast up to about 231.3 billion pounds, nearly a billion pounds higher than the previous month’s estimate, based on herd expansion and productivity.

On price, USDA’s all-milk projections have shifted around as those production and demand expectations change. One widely cited outlook cut the 2026 all-milk price projection down to about $20.40 per hundredweight, roughly $1.50 lower than the prior version. Later in 2025, Brownfield covered another update where USDA raised that same 2026 all-milk projection to around $21.65 on improved demand assumptions. When you line up those various WASDE and LDP reports, you get a 2026 range that generally sits in the high teens to low twenties per hundredweight.

Putting it together:

Demand is strong, especially for cheese, butter, and some high-protein products.
USDA expects more milk on the market in 2025 and 2026.
Price projections are workable for some herds but will feel uncomfortably tight for others, especially after debt service and family living.

That combination is exactly why it’s worth asking not just “How well are we farming?” but “Where does our milk actually land in the chain?”

Same Pound, Different Payback

You know this in your gut already: not every pound pays the same.

Let’s walk through two different paths for a pound of cheese.

In the first path, your milk goes into mozzarella and blends for pizza chains and other foodservice accounts. The flow looks something like this: milk leaves your bulk tank and heads to the cheese plant, the plant turns it into blocks or shreds that move to a foodservice distributor or straight into a chain’s distribution network, and those shreds end up on pizzas where “extra cheese” is part of the selling point. Margins still get taken along the way, but the chain is relatively short, and the cheese is directly tied to perceived menu value.

In the second path, that same pound of cheese ends up as a private-label shredded bag or as part of a budget frozen entrée. Milk goes to the processor, cheese is shipped to another facility that turns it into frozen meals or snack items, and those products move through a retailer’s warehouse network and onto the shelf as house brands or value-tier items. More hands in the pot. More processing steps. More packaging. More trucks and cold storage.

Industry discussions in Dairy Global and processor profiles in Dairy Foods make a few things pretty clear:

When people cook at home, they generally don’t use as much cheese per serving as restaurants do. A pizza chain wants the cheese to be obvious in every bite; a family looking at a $6 bag of shredded cheese is often trying to make it stretch across several meals.
Every extra step after cheese leaves the vat—shredding, blending, bagging, freezing, plus added warehousing and retailer handling—adds cost. Those costs eat into the share of the final dollar that can flow back toward the raw milk.
Private-label fluid, commodity cheese, and butter have grown their share in many retail categories. Large retailers use their bargaining power to hold prices down, squeezing processor margins and limiting how much they can raise prices to farms without hurting themselves.

So that “pound of cheese” in USDA’s per-capita numbers might be part of a high-value pizza program, a premium specialty cheese, or a low-priced frozen meal. The consumption statistic looks the same. The payback back to your lane doesn’t.

When you put some numbers on it, the scale of that difference is hard to ignore. Take a 400-cow Holstein herd averaging around 80 pounds. That’s roughly 32,000 pounds a day—about 320 hundredweight. Over a year, you’re in the ballpark of 110,000 to 120,000 hundredweight. Data suggest that’s a realistic production level for many herds of that size. If your farm is shipping that much over four years, a consistent $1-per-hundredweight difference in pay price adds up to around $400,000 to $480,000 in gross milk revenue.

That’s the sort of gap that doesn’t just make the milk check look nicer—it shows up plain as day when you sit down with your banker and look at your equity.

Metric	Pizza Cheese & Specialty (Growth Channel)	Powder & Commodity (Flat/Decline Channel)
Typical Product Focus	Mozzarella, specialty cheese, pizza chains, yogurt, high-protein beverages	Skim milk powder, bulk butter, private-label fluid, commodity cheddar
Annual Milk Volume (400-cow herd)	~120,000 cwt	~120,000 cwt
Base All-Milk Price (2026 USDA proj.)	$21.50/cwt	$20.50/cwt
Average Pay Price Premium	+$1.00/cwt	–$0 (baseline)
Annual Revenue Difference per Farm	+$120,000	—
Processor Capital Investments (5-yr outlook)	Adding vats, new packaging lines, export infrastructure	Maintenance mode, modest efficiency upgrades
Product Demand Trend	↑ Growing (cheese +record, yogurt +specialty)	↓ Declining (powder commodity-driven, fluid secular decline)
Component Reward (Butterfat/Protein)	Strong premium for high solids	Minimal differentiation on components
Margin for Production Error	Moderate to comfortable	Thin to uncomfortable
4-Year Cumulative Equity Impact	+$520,000	+$415,000

Why Processors Want “Predictable” Milk

Now, let’s do something we don’t always like doing and think like a plant manager for a minute.

Retailers and restaurant chains have spent years sharpening their forecasting. There’s a lot of software and analytics behind using multi-year sales history, seasons, promotions, and so on to predict how much they’ll sell each week. That “no surprises” mindset is pretty standard now.

In conversations with co-op folks and plant managers, and in reading between the lines in trade interviews, that thinking has crept upstream into how processors view farms.

Nobody at USDA hands them a template that says, “score your suppliers like this.” But if you listen to supply-chain managers quoted in places like Dairy Foods and Feedstuffs, you hear similar patterns:

They look at several years of volume history for each farm, not just last month’s ticket.
They watch butterfat and protein trends across seasons, so they know who’s steady and who’s up-and-down.
They track somatic cell and bacteria counts over time, looking at how often and how badly they spike.
They pay attention to how wildly loads swing when the weather is ugly or when feed quality changes.

In Wisconsin operations, in New York and Ontario freestalls, and out in California and Idaho dry lot systems tied into big plants, managers will quietly say they’d rather rely heavily on a smaller group of steady suppliers than juggle a large pool that’s always throwing them surprises.

From your side of the lane, that quietly raises the value of a few things:

Somatic cell counts that live in a narrow, low band instead of bouncing around.
Butterfat and protein that hold reasonably steady across seasons thanks to balanced rations and good fresh cow management.
Shipments that don’t yo-yo week to week, even when heat, mud, cold, or smoke are testing your team.

In component-based pay systems—which cover most of the U.S. and Canada—those traits can be worth even more. Plants making cheese and butter are fundamentally buying butterfat and protein. Those component pounds are exactly what generate premiums when markets are strong. Strong butterfat performance and solid protein don’t just help your check; they matter even more when your milk is going into cheese and butter plants that can turn those solids into high-value products, as opposed to fluid or powder plants where there’s less reward for components.

If you’re already strong on quality, components, and steady volume, that’s encouraging. You look like the kind of supplier plants are trying to keep and grow with.

Health Trends and High-Protein Dairy

Now let’s step briefly into something that sounds more like a doctor’s office than a dairy meeting, but it’s already shaping the dairy case: health trends, weight-loss medications, and “better-for-you” products.

There’s been a lot of buzz about GLP-1 drugs and weight management. Most of the detailed projections of how many people will use them come from medical journals and financial analysts, not from dairy economists. But there’s a clear theme in the nutrition advice around them: people taking these meds often eat fewer calories overall, and dietitians encourage them to keep their protein intake up and focus more on nutrient-dense foods.

You know where that points are.

Industry sources have noted that high-protein dairy is one of the hottest growth areas: Greek and skyr-style yogurts, high-protein spoonable and drinkable yogurts, performance-oriented dairy beverages, cottage cheese, and protein-enriched milks. When they look at scanner data, those products generally show stronger growth than a lot of traditional low-protein dairy desserts.

Cottage cheese is the poster child right now. ERS data show per-capita cottage cheese rising from 1.9 to 2.1 pounds in 2023, and analysis calls out cottage as one of the fastest-growing segments. The nutrition messaging and the dairy case are actually pulling in the same direction for once.

So nobody can honestly say, “GLP-1 will add exactly X pounds of extra dairy demand.” But the broader trend—less empty calories, more protein—is pulling in the same direction as high-protein dairy. If your milk is going into plants that specialize in those kinds of products, you’re plugged into one of the segments where nutrition advice and consumer behavior are aligning with what dairy offers.

What Farmers Are Finding Out

Most producers can rattle off their rolling herd average, butterfat levels, pregnancy rate, and cull percentage without even thinking. But if you ask, “What portion of your milk ends up as pizza cheese, specialty cheese, butter, powder, or fluid gallons?”, the answers often get a lot less precise.

In eastern Wisconsin, for example, a producer shared at a meeting that he’d long assumed most of his milk went into mozzarella and cheddar for foodservice. That was the story in his head. When he sat down with his co-op field rep and walked through their actual product and channel mix, he realized a bigger share than he’d thought was showing up as private-label fluid and commodity butter. His cows hadn’t changed. His ration hadn’t changed. But his understanding of where his milk really sat in the value chain changed overnight.

In the Northeast, a New York producer told a story almost the opposite of that. He moved from a co-op that leaned heavily on fluid and commodity American-style cheese into a plant specializing in mozzarella and Hispanic cheeses with strong export ties. Over several years, as that plant added cheese capacity and grew export business—and as he pushed harder on components and quality—he saw his average pay price improve in a meaningful way. That’s consistent with data showing Mexico alone buying roughly 392 million pounds of U.S. cheese in a recent year, accounting for about 38 percent of total U.S. cheese exports, with other Latin American and some Asian markets also growing. When your plant is tied to that kind of demand, the conversation changes.

Out West, many dry lot systems in California and Idaho, shipping primarily to powder plants, tell a different story. Their processors are heavily tied to skim milk powder and bulk butter. USDA outlooks and export analyses keep reminding us that these are critical products but are heavily commodity-driven and more volatile, with generally thinner margins than many cheese and value-added categories. For those herds, the biggest constraint often isn’t how well they manage the transition period or reproduction—it’s that their milk is structurally tied to products whose prices are set on a very competitive global market.

In Canada, supply management and quota changes alter some dynamics, but the channel question still bites. If your milk is locked into a processor focused on fluid or basic butter, and your hauling radius or quota setup limits your ability to move, your channel options can be even narrower than what some U.S. neighbors face.

Six Questions That Make the Picture Clearer

The nice thing is, you don’t need a consultant’s binder to start. A notebook and a bit of courage to ask direct questions go a long way.

Here are six questions that, in many cases, have really shifted how producers see their situation:

“Broadly speaking, where does our milk go by channel?” Ask for rough percentages. How much of their total volume goes into foodservice, how much into retail, how much into ingredient sales, and how much into export? They already track this when they talk to the USDA and big customers. You’re just asking them to translate it into farmer terms.
“What are the main products our milk becomes?” Try to get past “cheese and butter.” Is your milk mainly feeding fluid gallons, private-label cheddar and slices, process cheese, butter and powder, pizza cheese, yogurt, specialty cheeses? Your processor knows which buckets your milk is filling.
“Over the last three to five years, have those product lines grown, stayed flat, or shrunk for you?” You’re listening for things like: “We’ve added vats for pizza cheese,” “specialty cheese and yogurt are where our growth is,” or “our branded fluid has been under real pressure.” That tells you whether your milk is riding an up-escalator, standing on level ground, or being pulled down.
“Where are you investing for the next five to ten years?” The trade press has covered billions of dollars in investments in new cheese plants, dryers for higher-end powders, yogurt lines, and export packaging. Ask where your buyer is putting its own capital. Are they adding vats, building new lines, upgrading for exports, or mostly just patching roofs?
“How is your customer base changing?” Are they picking up quick-service restaurant accounts, export cheese contracts, and health-focused retail customers—segments industry analysts call growth areas—or are they mostly trying to hold onto private-label fluid and butter slots in the face of aggressive pricing?
“Based on quality and consistency, where would you place our farm in your supplier group?” Are you in their top third, the middle of the pack, or on the bottom rung? Many co-ops and plants maintain internal rankings based on multi-year quality, component, and volume data, even if they don’t share them with you. It’s nearly impossible to improve your position if you don’t know where you’re starting from.

What to Bring to Those Meetings

Before you sit down with your processor, your accountant, or your lender, it helps to have your own homework done. A few things to pull together:

Last 3 years of monthly pay prices and component tests. This shows your trends and lets you compare against co-op or regional averages.
Last 12 months of SCC and quality records. Plants are looking at your consistency, not just your best month.
A simple cost-of-production summary with your breakeven per cwt. If you don’t know this number, your accountant or extension office can help you get there.
Any recent processor or co-op letters outlining product/market changes. These often signal where they’re headed before they announce it publicly.

Having this in hand turns a vague conversation into a focused one.

Matching the Map With Your Own Numbers

Most dairy business consultants and land-grant economists will tell you that you really should know, at a minimum:

Your operating margin per hundredweight—milk income minus cash operating costs, divided by hundredweight shipped.
Your debt-to-asset ratio—total liabilities compared to the fair-market value of your assets.
Your interest coverage—operating margin divided by annual interest expense.
Your breakeven milk price, including family living—total costs (feed, labor, repairs, interest, depreciation) plus a realistic family draw, divided by hundredweight.

Recent dairy budgets and case-farm studies from universities like Wisconsin, Penn State, and Michigan State often show full-cost breakevens for 300- to 800-cow herds in the upper teens to low $20s per hundredweight under 2023–2025 feed, labor, and interest conditions. National statistics put many real herds in that same neighborhood once family living gets factored in.

On the revenue side, USDA’s 2025 and 2026 all-milk forecasts, as summarized LDP reports, suggest national all-milk prices in the low-$20s in 2025 and somewhere in the high-teens to low-$20s in 2026, depending on how production, exports, and domestic use unfold.

So here’s a practical rule of thumb a lot of advisors use—not as gospel, but as a conversation starter:

If your true breakeven, including family living, is at least about $2 per hundredweight below where USDA expects all-milk prices to land, and your processor is tying your milk into growing, value-added channels like cheese, butter, yogurt, and high-protein products, then you’ve got room to talk about modest expansion or targeted upgrades.
If your breakeven is within roughly $1 per hundredweight of those projected prices, and a big chunk of your milk is tied to low-margin, commodity-driven channels like powder and basic fluid, then your margin for error is thin, and your structural risk is high.

To put some flesh on that: a herd with a full-cost breakeven of $18/cwt, shipping into a plant that’s investing in mozzarella vats and pizza cheese programs and operating in a $21 all-milk environment, has cushion and options. A herd with a $20/cwt breakeven in a region where most of its milk goes to a powder plant and the all-milk price is expected to hover around $21, with global skim and butter driving things, is in a very different spot.

For herds in that second situation, tools like Dairy Revenue Protection or simple forward contracts can help keep that cushion intact—something worth discussing with your risk management advisor alongside your channel strategy.

Different Farms, Different Realities

One thing that comes through pretty clearly, both in the numbers and in conversations at the diner, is that not every dairy has the same realistic menu of options.

Farms Already Hooked to Growth Channels

Some of you are in a structurally favorable position.

In Wisconsin operations and across parts of the Upper Midwest, that often means shipping to a plant where the core business is mozzarella and other cheeses for domestic chains and export markets. Industry data shows that Mexico alone often buys close to 40 percent of U.S. cheese exports in a given year, with other Latin American and some Asian markets also growing. That kind of cheese demand helps underwrite those plants’ investments and their appetite for milk.

In the Northeast, it might be a specialty cheese plant or a yogurt plant with strong branded products and foodservice clients. On the West Coast, maybe it’s a facility focused on high-protein dairy beverages or value-added performance nutrition powders.

If your processor is talking about adding vats, installing new lines for drinkable yogurt, signing export cheese contracts, or launching functional dairy products—and they’re telling you they want more of your milk—that’s a good sign you’re tied to channels with built-in growth.

For farms in this situation, the questions usually sound like: How do we make sure we stay in their “must-keep” supplier group by being rock-solid on quality, components, and volume? Given our breakeven and USDA’s price outlook, does a careful move from 400 to 550 cows actually improve our resilience, or does it just stretch our labor and capital too thin? Are there specific investments—cooling, feed storage, data systems—that would make our milk more valuable to this particular plant?

Farms in the Middle

Then there’s a big group of herds—across the Northeast, Michigan, and many central U.S. regions—where the answer is more like, “It depends.”

They might ship mainly to a co-op that leans hard on private-label fluid and commodity butter, have a second potential buyer that focuses on cheddar and whey for domestic retail and ingredient markets, or sit within hauling distance of a specialty cheese, organic, or yogurt plant that’s open to new suppliers under certain conditions.

For these farms, you tend to see a mix of strategies. Some do change processors when the math and channel mix make sense—hauling costs, contract terms, and the new plant’s focus all have to stack up. Others seriously consider organic, grass-fed, or other identity-preserved paths, but only where there’s a credible buyer and where the land base and finances can support the costs and risks those systems bring. Quite a few stick with their main co-op but work hard to climb into the top tier of their quality and component grids and tap into any higher-value pools or programs they can.

There isn’t a one-size-fits-all answer here. The right move depends heavily on where you are, what your numbers look like, and what your family wants the operation to be ten years from now.

Farms That Are Structurally Boxed In

And then there are herds—often in more remote High Plains areas, some western dry lot regions, or parts of Canada where quota and hauling really limit options—where the structure of the local processing base makes the decision tree much narrower.

That usually looks like one realistic plant within economical hauling distance, focused on commodities like powder, bulk butter, or low-margin fluid, with no serious plans for new dairy processing capacity in the area.

Even very well-run herds can find their futures heavily constrained by the economics of that one plant. USDA outlooks and export analysis don’t mince words: skim milk powder and bulk butter are crucial to balancing the market, but global commodity prices heavily influence them and tend to be more volatile and lower-margin than many cheeses and value-added channels.

Families in those spots end up asking some hard questions: Do we spend the next several years focusing on harvesting as much income as we can, paying down debt, and maintaining our facilities, rather than betting big on expansion? Is it time to start talking seriously about succession, sale, leasing, or other exit options while we still have enough equity and time to choose our path? Would relocating to a stronger dairy region or diversifying into other enterprises make more sense than relying solely on a constrained local dairy market?

They’re not easy conversations, but they’re a lot easier while the farm is still in a strong enough position to make choices rather than having choices made for it.

Three Conversations Worth Having This Year

So if we boil it all down to “What do we do with this?”, there are three conversations worth putting on the calendar.

A Real Sit-Down With Your Processor or Co-op

Take those six questions and ask for some uninterrupted time. You’re trying to understand where your milk actually fits in their product and channel mix, and whether they see your farm as part of their long-term growth story or as volume they can dial up or down.

If they can’t—or won’t—give you a rough breakdown of where your milk goes and what it becomes, that alone tells you something about the relationship.

A Numbers-Focused Session With Your Accountant or Business Advisor

Ask them to help you put your true breakeven milk price, including family living, down in black and white. Look at how your equity has moved over the last three to five years. Line your numbers up next to the USDA’s price forecasts and regional cost-of-production benchmarks.

Most advisors and lenders have experience with the major land-grant tools and statistics and can translate them into what they mean for your particular herd, debt load, and capital plan. If you don’t know your breakeven, this is the year to fix that.

A Candid Conversation With Your Lender

Whether that’s Farm Credit, a regional ag bank, or your local lender, they see patterns across lots of dairies and processors. It’s worth asking how they view your processor’s financial strength and long-term outlook, what they’d need to see from you—on cash flow, equity, and channel position—to be comfortable supporting a modest expansion or a significant capital project, and what a planned, orderly scale-down or exit might look like for your operation if that ever seems like the right path.

Doing nothing is a decision too. The risk is leaving it so long that the market, the plant, or the bank ends up making the decision for you.

The Bottom Line

The data tells us Americans are eating more dairy than they have in decades—especially cheese and butter—and that high-protein products like Greek yogurt and cottage cheese are gaining real traction. USDA is signaling more milk in 2025 and 2026, and all-milk prices in a range where some operations will be comfortable, while others will be uncomfortably close to breakeven.

Where your milk goes really does matter. A pound going into pizza cheese, specialty cheese, or high-protein yogurt in a growing plant is not the same as a pound going into low-margin fluid or powder in a plant that’s heavily exposed to commodity swings.

Consistency is getting more valuable. As plants lean on data and forecasting, they favor farms that deliver steady milk quality, components, and volume. Strong butterfat and protein have much more earning power in cheese and butter plants than they do when your milk ends up in products that don’t reward solids as much.

Different farms need different strategies. The best move for a 600-cow freestall twenty minutes from a mozzarella plant in Wisconsin isn’t going to be the best move for a 600-cow dry lot tied to a powder plant in a remote region.

You still control what happens inside your fences: cow comfort, fresh cow care, feed efficiency, repro, and people. That’s the foundation.

What this moment adds is one more layer we can’t afford to ignore: Do you really know where your milk goes, whether those channels are growing or shrinking, and whether you’re tied to the right processor for the next decade?

If you know your channels and you know your breakeven, you’re in a much better spot to choose your path—expansion, steady state, pivot, or exit—before the market chooses it for you.

Key Takeaways:

Cheese and butter demand hit record highs in 2023, but USDA projects more milk through 2026 with all-milk prices in the low-$20s—the margin for error is shrinking
What your processor does with your milk—pizza cheese or powder, specialty yogurt or private-label fluid—shapes your pay price as much as your butterfat or SCC
A steady $1/cwt pay-price difference adds up to roughly $400,000 in equity over four years for a 400-cow herd—real money captured or left on the table
Ask your processor directly: What products does my milk become? Are those channels growing or shrinking? Where does my farm rank among your suppliers?
Know your breakeven, understand your channel exposure, and have candid conversations with your co-op, advisor, and lender—before the market makes decisions for you

Learn More

The 90-Day Reckoning: What Your Milk Check Is Really Saying About 2026 – Arms you with the brutal math of 2026, delivering a 90-day action plan to stress-test your liquidity and expose the hidden margin leaks that quietly erode your equity before the lender calls.
From 52¢ to 25¢: Where Your Milk Dollar Goes Now – And 3 Ways to Reclaim Your Share – Breaks down the structural collapse of the farmer’s share of the retail dollar and reveals three distinct strategic paths to stop being a price-taker and start capturing a larger piece of the pie.
Lab-Grown Milk Has Arrived: The Dairy Innovation Farmers Can’t Ignore – Exposes the accelerating timeline of bioreactor-produced dairy, arming you with a survival blueprint for a market where “milk” no longer requires a cow and conventional processors face their first true existential threat.

Categories : Dairy Markets

Tags : cost control, Dairy Farming, dairy milk markets, dairy profitability, Milk Production, risk management

Record Corn Won’t Save You: The $100K Margin Hit Coming for Mid-Size Dairies in 2026

Wednesday, January 14th, 2026

Cheap feed won’t save you. At $19 milk, a 300-cow dairy loses $100K in 2026—even with record corn.

Executive Summary: Cheap feed won’t save you in 2026—and the math proves it. USDA’s January reports confirmed record corn production at 17.021 billion bushels, dropping DMC feed costs to $9–$10/cwt, the lowest since October 2020. But here’s the problem: all-milk prices are forecast to fall from $21.05 to $19.25/cwt, a decline that outpaces feed savings by more than a dollar per hundredweight. For a typical 300-cow dairy, that translates to roughly $90,000–$100,000 less operating margin in 2026 than in 2025. ERS cost data shows the squeeze hits hardest in the middle—herds under 50 cows face $42.70/cwt in total costs, while 2,000+ cow operations run $16–$19/cwt, leaving mid-size dairies caught in between. This is a sorting year: invest in proven efficiency improvements, adjust your business model, or plan an exit while cows and equity are still in good shape.

You’ve probably heard the good news by now: corn is cheap, soybeans are plentiful, and your feed bill should finally give you some breathing room in 2026. And honestly? That part’s true.

But here’s what’s been nagging at me—and what I think deserves a real kitchen-table conversation. When you actually run the numbers, cheaper feed doesn’t automatically mean a better year. For a lot of herds, 2026 could mean tighter margins than 2025, not wider ones. The math surprised me when I first worked through it, and I think it’s worth walking through together.

Let me show you what I mean.

The January Numbers That Changed the Conversation

USDA’s January 2026 reports confirmed what the trade had been whispering about: 2025 U.S. corn production hit a record 17.021 billion bushels on a national yield of 186.5 bushels per acre. Brownfield Ag News and Farm Progress both noted these figures came in above nearly all pre-report estimates, which explains why March corn futures dropped more than 20 cents on release day, sliding into the low $4.20s.

Ending stocks jumped to 2.227 billion bushels, up from 2.029 billion just a month earlier. That’s the most comfortable corn supply we’ve had in years. Soybeans tell a similar story: 4.262 billion bushels at a record 53 bushels per acre, with ending stocks around 350 million bushels.

What this means for your feed bunk is straightforward. Dairy Herd reported that DMC feed costs dropped to $9.38 per hundredweight in August 2025—the lowest since October 2020—and DairyReporter’s November analysis showed feed costs expected to stay in that 9–10 dollar band into 2026.

So yes, the feed side genuinely is better. If you’re in a grain-deficit region, this is a different world than the $5-plus corn of recent years.

But here’s where it gets complicated.

The Milk Price Reality

USDA’s current outlook, as reported by DairyReporter and confirmed by Southeast Ag Net, has the U.S. all-milk price averaging about $21.05 per hundredweight in 2025—then dropping to around $19.25 in 2026.

That’s roughly a $1.80 decline in your milk check. And when feed costs only drop by maybe 35–50 cents per hundredweight, the math doesn’t work in your favor.

Analysis published in October 2025 put it bluntly: “Milk Margins Likely to Fall Along with Feed Prices.” CoBank’s dairy analysts commented in early January that dairy markets turned downward in late 2025, and the Class IV futures don’t look encouraging. DairyReporter drew on CoBank’s outlook to note that profit margins for U.S. dairy farmers are expected to tighten in 2026 as rising milk production continues to pressure prices.

This is where herd size and cost structure really start to matter.

The Cost Curve You Need to See

Here’s where the conversation gets real. USDA’s Economic Research Service has been tracking production costs by herd size, and the pattern is stark. Let me lay it out in a way that makes the 2026 implications clear:

Herd Size	Total Economic Cost ($/cwt)	2026 Margin at $19.25 Milk	Risk Level
<50 cows	$42.70	–$23.45 (severe deficit)	🔴 Critical
50–99 cows	$33.54	–$14.29 (large deficit)	🔴 Critical
100–499 cows	$19–$21	$0 to –$1.75 (breakeven/tight)	🔴 High
500–999 cows	$17–$19	$0.25–$2.25 (slim)	🟡 Moderate
2,000+ cows	$16–$19	$0.25–$3.25 (variable)	🟡 Moderate

Sources: ERS 2021 ARMS data; ERS 2016 “Consolidation in U.S. Dairy Farming”; Dairy Global February 2025. Note: Costs vary significantly by management quality within each size class—Hoard’s Dairyman has documented low-cost producers in smaller categories matching high-cost producers in larger categories.

The numbers are sobering. ERS economist Jeffrey Gillespie reported that in 2021, the average total production cost was $42.70 per hundredweight for herds with fewer than 50 cows, versus $19.14 for herds with 2,000 or more. Dairy Herd’s summary of ERS consolidation data showed herds under 50 cows at $33.54 per hundredweight compared to $17.54 for 2,500-cow operations in 2016. Dairy Global’s February 2025 feature showed operating costs of $18.44 for small herds compared to $16.16 for the largest operations.

What’s worth noting here is that there’s huge variation within each size class. Low-cost producers running 100–199 cow herds can have total production costs around $19.76 per hundredweight, which puts them right alongside high-cost producers running 2,000-plus cows at $19.63. Management matters as much as scale.

But that table tells you something important: at $19.25 all-milk, a lot of herds in that 100–499 cow range are looking at breakeven or worse, even with cheap feed. And smaller herds? The math is brutal unless you’re among the best managers in your size class.

A 300-Cow Reality Check

Let’s make this concrete with a scenario that probably feels familiar.

Picture a 300-cow Holstein dairy in Wisconsin, Michigan, or Pennsylvania. Freestall housing, parlor milking, solid fresh cow management, respectable butterfat levels. Annual production around 23,000 pounds per cow—that’s 6.9 million pounds of milk per year, or 69,000 hundredweights.

Based on ERS benchmarks and university cost-of-production data, a well-managed herd in this size range typically runs total economic costs in the upper teens to low twenties per hundredweight—call it $19 to $21 when you include all labor, capital, and overhead.

Now do the math:

2025: At $21.05 all-milk, that’s roughly $1–$2/cwt operating margin for well-managed herds
2026: At $19.25 all-milk with maybe 40 cents in feed savings, you’re looking at about $1.30–$1.50/cwt lessmargin than 2025

On 69,000 hundredweights, that translates to $90,000 to $100,000 less operating margin in 2026 than in 2025—even with cheaper feed.

You might still be in the black. But you’re definitely a lot closer to the line.

Why USDA’s Big Corn Number Felt Off on the Ground

It’s worth noting that this record corn number felt like a gut punch to many people actually raising the crop.

Interviews with farmers right after the January WASDE. North-central Kansas producer Shale Porter described the report as “kind of a gut punch,” saying the larger-than-expected production and increased ending stocks created a fresh blow to an already fragile marketing environment.

What I’ve noticed over the years is that this disconnect often traces back to structure and technology. The largest crop farms are much more likely to use GPS guidance, yield monitors, and variable-rate fertilization. When USDA aggregates data to calculate a national average yield, that average gets pulled up by highly managed, highly instrumented acres—even in years when smaller or less-equipped farms are just “average” or worse.

On the dairy side, you see a similar pattern in production costs. The national averages don’t always reflect what’s happening on your specific operation.

Regional Realities: Same Numbers, Different Stories

The same USDA and ERS numbers play out very differently depending on where your milk truck pulls in. Here’s the quick read on each region:

Upper Midwest (Wisconsin, Michigan, Minnesota)

Sweet spot: 200–400 cow herds with strong forage programs
The X-factor: Home-grown forage quality can make or break competitiveness
Many operations blend grazing with TMR for cost control without sacrificing precision
University of Wisconsin data shows well-managed mid-size herds can compete with larger neighbors on cost

Northeast (Pennsylvania, New York, New England)

Higher land costs and labor, but proximity to dense consumer markets
Growing success with direct-to-consumer: farmstead cheese, on-farm bottling, farm stores
Class III/IV prices matter less when retail margins drive revenue
Penn State and Cornell have documented resilient small/mid-size models

West and Southwest (California, Idaho, Texas, New Mexico)

Dominated by 1,000–5,000 cow dry lot and large freestall operations
Lowest per-unit costs, highest milk per cow
Key vulnerability: Heavy exposure to export markets and Class IV volatility
Water and environmental scrutiny are intensifying
CoBank noted butterfat oversupply hitting some processors hard

Southeast

Heat and humidity are the defining challenge
Cow cooling isn’t optional—it’s survival infrastructure
Extension research consistently shows robust cooling improves intake, production, reproduction, and butterfat
Herds without adequate fans, soakers, and shade see summer production crash
Heat stress losses can quickly eat up lower feed costs

Canada

Quota changes pricing structure, but not cost fundamentals
Larger freestall dairies with automation have lower unit costs than smaller tie-stall herds
Canadian Cattlemen coverage shows technology adoption driving cost differences similar to U.S. patterns

The takeaway: national averages set the stage, but your 2026 story depends on your region, your barn, your debt, and your marketing options.

Where Farms Are Actually Moving the Needle

Looking at this trend, farmers are gravitating toward four broad response paths—often combining a couple of them.

1. Tightening the Fundamentals That Still Pay Back Fast

A lot of herds are going back to basics: Where’s the relatively easy money still on the table?

Feed efficiency: Extension nutritionists discuss feed efficiency benchmarks that vary by lactation stage and measurement method, with top-performing herds consistently outperforming average operations. At 9–10 dollars per feed cost, even modest improvements can be worth meaningful dollars per cow annually. The tools are management, not marble: consistent TMR mixing, solid feed-push habits, minimizing sort.
Reproduction and transition: University economic modeling regularly puts a significant per-cow annual value on better pregnancy rates and fewer transition disorders—once you count extra milk, fewer days open, fewer culls, and lower treatment costs. Getting days open into the 120s instead of the 150s shows up quickly in milk shipped per stall.
Mastitis economics: Research consistently shows significant avoidable cost. A 2024 Wageningen University study put typical clinical mastitis costs at $224–$275 per case, while Michigan State work by Dr. Pam Ruegg found costs ranging from about $120 to $330 per cow per case, depending on severity and farm. Hoard’s Dairyman reported similar findings, noting costs of $120 to $350, with an average of around $192. Dropping SCC into the 150–200,000 range protects premiums and usually correlates with steadier production and better butterfat.

What I’ve noticed: lower grain prices give you breathing room to work on these fundamentals without panicking about every extra half-pound of dry matter.

2. Picking a Different Lane: Grazing, Organic, and Specialty

Another group—especially 60–250 cow herds—is asking whether they really want to keep running a pure commodity race.

Intensive rotational grazing: Cost-of-production work on grass-based dairies shows that well-managed systems can cut total cost per hundredweight by several dollars compared with comparable confinement herds. Milk per cow runs lower (18,000–22,000 pounds), but when debt is manageable and the grain bill is small, net returns can stack up well.
Organic and premium programs: ERS research shows organic operations have substantially higher production costs—sometimes 50 percent more—but receive much higher farm-gate prices when markets are balanced. Some farms layer on grass-fed, A2A2, or animal-welfare certifications for specific branded programs.
On-farm processing: University case studies document how small- and mid-size dairies are building resilient businesses on retail margins and consumer loyalty rather than Federal Order checks.

These paths trade commodity risk for marketing and logistics challenges. But for some families, they’re more realistic than trying to quadruple herd size.

3. Teaming Up Instead of Going It Alone

In areas with clusters of mid-size dairies, there’s more serious talk about partnerships.

Dairy Herd’s coverage has highlighted examples of two or three neighboring families forming joint ventures, combining herds, and investing together in more efficient facilities. Think: two 250-cow herds consolidating into one 500-cow freestall with a modern parlor and specialized labor roles.

Common benefits lenders and advisers see:

Lower labor hours per cow through specialization
Better delivered feed costs buying in semi loads
Lower fixed costs per hundredweight across shared infrastructure

Partnerships require trust and clear agreements, but for the “too big to be small, too small to be big” crowd, they’re worth considering.

Response Strategy	Best For	Key Actions	2026 Margin Outlook	Risk
INVEST	Well-capitalized, solid-footed herds in viable size range (150–500 cows)	Fresh cow facilities, cooling, precision feed systems, robotic parlor prep	Margin improves 2027+ as efficiency gains compound; 2026 tight but survivable	Debt service if markets weaken further
ADJUST	Herds with land, family labor, and willingness to change model (80–250 cows)	Shift to grazing, organic, direct-to-consumer, on-farm processing, dairy partnerships	Higher per-cwt return on lower volume; less commodity-market exposure	Marketing complexity; buyer education required
EXIT	Producers within 5–10 years of retirement; tired operators; no clear succession	Plan dispersal while cows/equipment in good condition; family succession or sale-to-neighbor negotiation	Preserve equity; exit on your terms while margins still exist	Emotional; requires discipline not to wait for “better year”

4. Treating 2026 as a Planning Year

For producers within five to ten years of retirement without a clear successor, this discussion hits differently.

Reports suggest many dairy exits in the next decade will be driven by cost position, age, and family goals more than any single bad year. Advisers stress that planned transitions—family succession, sale to a neighbor, well-timed dispersals—preserve more equity than waiting until tough years force rushed decisions.

Auction data indicate that well-organized dispersal sales, held while cows are in good condition and equipment is maintained, regularly outperform “end-of-the-rope” liquidations.

2026 might be the right year to ask blunt questions: What does cash flow look like at $19 milk and $10 feed for another full cycle? And if you’d rather be out in two to five years, what does exiting on your terms look like while you still have margin?

Don’t Lose Sight of Components

With all the feed talk, it’s easy to forget that butterfat and protein still drive a big chunk of your milk check.

Component pricing work shows that butterfat increases can add meaningful revenue—often comparable to or greater than what you’d gain from modest corn price movements on the same volume of milk.

Here’s what’s interesting, though. CoBank’s 2026 outlook noted that butterfat has actually moved to an oversupply situation. Their Knowledge Exchange report from December put it plainly: dairy processors are awash with butterfat, and some have even capped butterfat payment levels on farmgate milk in response. In October, Corey Geiger with CoBank said spot butter markets had dropped almost seventy cents since August 1st due to excess supply.

That underscores why protein may be where the action shifts—and why watching your components still matters even as the market dynamics change.

Fresh cow management sits at the center of component performance. Extension materials consistently show that smooth transitions lead to higher peaks, fewer health problems, better fertility, and stronger components.

The question worth asking: Is there a change in fresh cow management, cow comfort, or milking routine that will pay more in milk and components than you’d ever save squeezing a few more cents from corn?

For a lot of herds, that’s where the biggest upside is hiding.

Your 2026 Checklist

1. Run a realistic 2026 budget.
Use $19.25 all-milk and 9–10 dollar feed costs. Know your actual cost per hundredweight with full labor and overhead. If you’re well north of the upper teens, something has to change.

2. Benchmark where you really stand.
Compare your cost, feed efficiency, reproduction, mastitis rates, and butterfat against ERS benchmarks and regional top-quartile data. Remember what Hoard’s documented: low-cost producers in smaller herds can match the costs of high-cost, large operations. Identify the two or three levers that would move your margin most.

3. Decide: Invest, Adjust, or Exit.

Invest in proven improvements—fresh cow facilities, cooling, feed systems
Adjust your model—grazing, organic, processing, partnership
Plan an exit that protects equity while cows and equipment are still solid

The Bottom Line

2026 doesn’t look like a disaster year, and it doesn’t look like a home-run year. It looks like a sorting year—where clarity and decisions matter most.

Feed is finally in your favor. But milk prices are expected to be below 2025 levels, and most serious margin analyses suggest spreads will tighten for many herds.

The herds that make it through stretches like this aren’t always the biggest. They’re the ones who know their numbers, think beyond the next milk check, and make intentional choices before the market does.

The math this year is universal. What you decide to do with it is personal—written at your own kitchen table, with your own records, and the people you trust sitting there with you.

Key Takeaways

Cheap feed won’t save you: Record corn pushed DMC feed costs to $9–$10/cwt, but milk prices are dropping faster—net margin tightens, not loosens
$100K on the line: A typical 300-cow dairy loses roughly $90,000–$100,000 in operating margin in 2026 compared to 2025
The scale gap is brutal: Small herds face $42.70/cwt total costs vs. $16–$19/cwt for large operations—mid-size dairies are caught in between
This is a sorting year: Invest in efficiency, adjust your model, or plan your exit—there’s no standing still in 2026

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 – Reveals the precise ROI calculations for robotic transitions and heifer procurement that define survival for mid-size operations. This guide arms you with a month-by-month tactical roadmap to protect equity while navigating the current 30-month replacement deficit.
Why Dairy Markets Can’t Self-Correct Anymore: The Hidden Forces Reshaping the Dairy Industry’s Future – Exposes the seismic shift toward multi-revenue “mega-dairies” where milk is no longer the primary profit driver. This analysis reveals how energy and beef-on-dairy contracts are permanently resetting the industry’s break-even floor through 2027.
Where Will Tomorrow’s Dairy Herds Come From? U.S. Farmers Navigate Historic Heifer Crisis – Delivers a high-stakes strategy for the “Genomic Guillotine”—using early-life testing to ruthlessly slash heifer rearing costs. It reveals how maverick producers are turning a biological supply crisis into a definitive long-term genetic advantage.

Join the Revolution!

Categories : Dairy Markets

Tags : 2026 dairy forecast, corn feed prices, Dairy Farm Management, dairy market outlook, dairy profit margins, milk production costs

The $900/Cow Hit You Can’t Outbreed by April: Western Canada’s 70/25/5 Reckoning

Monday, January 12th, 2026

You can’t outbreed 70/25/5 by April. The only question is whether you fix your ration and cash flow before it costs $900/cow.

EXECUTIVE SUMMARY: Western Canada’s April 1, 2026, shift to a 70/25/5 payment ratio is the clearest signal yet that protein and solids‑non‑fat now drive far more of your milk cheque than they used to. Retail and utilization data show yogurt and cheese still growing, butter stocks at five‑year highs, and CDC Class 3(d) and 4(a) prices that put real money on protein, not just butterfat. For high‑fat, lower‑protein herds—think 4.5–4.7% butterfat and 3.0–3.1% protein—modeled scenarios with 2025 prices point to a possible $80,000–$100,000 annual hit on a 100‑cow herd under the new ratio, or roughly $900 per cow and 8.5–9.0 cents per litre. The problem is you can’t breed your way out of that by April, because even with genomics, shifting herd‑level components usually takes four to six years of consistent sire selection and culling. So the real play over the next 12–24 months is tightening up nutrition to add 0.10–0.20 points of protein, re‑aiming sire choices and genomic sorting toward balanced fat and protein kilos, and reworking cash‑flow with your lender before the lower cheques arrive. The article also walks straight into the succession conversation, since a 15‑point change in component weighting—and talk of more to come in 2027—forces families to rethink risk, investment, and what it really means to pass a quota‑based dairy to the next generation. And when you zoom out to U.S. Federal Order reforms, and EU forecasts that favour cheese over butter and powders, it’s clear this isn’t a one‑off Western policy quirk but part of a global shift toward paying harder for solids and yield.

If you sit down at a winter producer meeting in Western Canada right now, you don’t get too far into the coffee before the same topic comes up: that new component ratio change landing on April 1, 2026.

You probably know the basics already. The Western Milk Pool boards—BC Milk, Alberta Milk, SaskMilk, and Dairy Farmers of Manitoba—are moving from the long‑standing 85% butterfat / 10% protein / 5% other solids weighting to a new structure of 70% butterfat, 25% protein, and 5% other solids for allocating pool dollars to producers. That’s laid out clearly in BC Milk’s October 9, 2025, Notice to Producers, so it’s not rumour; it’s policy.

Component	Old Ratio (Until March 31, 2026)	New Ratio (From April 1, 2026)	Change
Butterfat	85%	70%	-15 points
Protein	10%	25%	+15 points
Other Solids	5%	5%	No change

What’s interesting here—and what I’ve noticed is really bothering people—is the timing. For years, most Western herds have been bred and fed for strong butterfat performance because that’s what the cheque rewarded. Now the rules shift with only a few months’ lead time, while herd genetics need several years to change direction.

So you’ve got policy moving on a six‑month clock and cows moving on a four‑to‑six‑year clock. That gap is where the uneasiness lives.

Looking at this trend, the aim here is pretty simple: make sense of why the ratio changed, what the data suggests about markets and pricing, and what practical levers you still have—nutrition, genetics, and finances—during this transition period.

Why the Ratio Changed: Following the Value Chain

If you read BC Milk’s explanation, they’re quite clear about the intent. The new 70/25/5 ratio is being introduced to support increased milk volume in the Western Milk Pool to meet industrial processing commitments—whole milk powder and other manufacturing uses—and to encourage butterfat tests to stabilize rather than keep climbing.

And when you look at the numbers across Canada, that story holds up.

In its September 2025 Markets Report, Dairy Farmers of Ontario summarized national retail sales for the 52 weeks ending August 2, 2025. Yogurt was the standout, up 6.5 percent year‑over‑year; butter was up 4.9 percent, cheese 3.1 percent, ice cream 4.0 percent, cream 1.2 percent, and fluid milk barely budged at 0.2 percent.

Product Category	YoY Growth (%)
Yogurt	+6.5%
Butter	+4.9%
Ice Cream	+4.0%
Cheese	+3.1%
Cream	+1.2%
Fluid Milk	+0.2%

The data suggests demand is still solid, but the real growth is coming from products that lean heavily on protein—like yogurt and many cheese types—rather than from plain fluid milk.

At the same time, stock levels tell another part of the story. That same DFO report showed butter stocks at 41,063 tonnes in July 2025—the highest level in five years—and cheese stocks at 108,038 tonnes, also historically high for that month.

Farmtario’s November 2025 analysis added that butterfat‑equivalent production in September 2025 was up 4.48 percent compared to a year earlier, while butterfat imports over the prior 12 months were up 10.18 percent. Put simply, the system isn’t short of fat.

Now layer in component pricing. The Canadian Dairy Commission’s 2025–26 component schedules show that in Class 3(d)—cheese and related products—butterfat is priced at $11.3565 per kilogram, protein at $9.7035, and other solids at $0.8921.

Component	CDC Class 3(d) Price ($/kg)	CDC Class 4(a) SNF Price ($/kg)	Payment Weighting (Old vs New)
Butterfat	$11.36	N/A (Class 4a is SNF)	85% → 70%
Protein	$9.70	~$2.82 (protein + OS)	10% → 25%
Other Solids	$0.89	Included in $2.82 SNF	5% → 5%

In Class 4(a) solids‑non‑fat, the protein and other solids price for fall 2025 sits around $2.82 per kilogram. And in the special Class 5 ingredient/export categories, both protein and butterfat carry strong values, enabling processors to compete internationally with powders and other products.

If we glance south, the pattern lines up. As part of Federal Milk Marketing Order modernization, USDA has been working with updated standard composition factors—roughly 3.3 percent true protein, 6.0 percent other solids, and 9.3 percent nonfat solids—to better match actual milk composition.

Recent USDA class and component price bulletins, summarized in outlets like Cowsmo and Hoard’s Dairyman, have shown months when Class III protein has been close to $3 per pound while butterfat has sat noticeably lower, often in the mid‑one‑dollar range per pound. Values move month to month, but the relationship has frequently favoured protein in cheese milk.

So this development suggests that the boards are trying to align the producer pay structure with where value is truly being created in the chain. Butterfat still matters—no one’s taking that off the table—but under 85/10/5, protein’s contribution was under‑recognized relative to what markets were paying for it.

It’s worth noting one more line in the BC Milk notice. They mention that, if required, a further change may be applied in 2027 to decrease component “densities” to accommodate growth in volume. That tells you this is not viewed as a one‑time tweak, but part of a longer journey in how milk is valued in the Western Milk Pool.

How 70/25/5 Shows Up on Your Milk Cheque

You know as well as anyone that ratios don’t feel real until you run them through a herd. So let’s walk through a simple, realistic example. This is a modeled scenario using typical Western Canadian component levels and current CDC values—not someone’s actual settlement, but it shows the direction.

Herd A: High Butterfat, Lower Protein

100 cows
About 10,500 litres per cow per year (10,500 hL shipped)
Components: 4.6% butterfat, 3.1% protein, ~5.8% other solids

Herd B: Balanced Components, Slightly Higher Volume

100 cows
About 11,000 litres per cow per year (11,000 hL shipped)
Components: 4.1% butterfat, 3.5% protein, ~6.0% other solids

Under 85/10/5, Herd A has been the star. As many of us have seen in Western DHI summaries, herds with butterfat levels of 4.5–4.7% have consistently ranked near the top of payout lists for years.

Under 70/25/5, when you apply those weights with current Class 3(d) values, Herd A still benefits from strong butterfat performance, but Herd B’s extra protein and slightly higher volume dramatically close the gap. In quite a few realistic price combinations, a balanced herd like B can edge ahead on net dollars per cow.

To put some rough numbers on it, advisors modeling real farms with similar profiles using recent CDC prices have seen cases where a high‑fat, lower‑protein 100‑cow herd’s annual milk revenue under the new ratio pencils out $80,000–$100,000 lower than under 85/10/5, while a more balanced herd might see only minor changes.

Herd Profile	Under 85/10/5 (Baseline)	Under 70/25/5	Revenue Change
Herd A (High fat: 4.6% BF / 3.1% Protein, 10,500 L/cow)	$0 (baseline)	-$90,000	-$90,000
Herd B (Balanced: 4.1% BF / 3.5% Protein, 11,000 L/cow)	$0 (baseline)	-$5,000	-$5,000

If you spread a $90,000 hit over 100 cows, that’s about $900 per cow per year. On a per‑hectolitre basis for Herd A (10,500 hL), that’s roughly 8.5–9.0 cents per litre in modeled scenarios. Your exact numbers will differ, but the direction is clear: the further out on the “fat‑heavy/protein‑light” end your herd sits, the more exposed your cheque is.

What’s interesting here is that many of the herds most at risk are also some of the best‑run operations on butterfat. They did exactly what the previous payment structure encouraged. That’s the sting.

The Real Tension: Policy Moves in Months, Genetics in Years

Here’s where the frustration really surfaces when you talk with producers and geneticists.

Genomic selection has absolutely changed the game. Industry reports and peer‑reviewed work show that AI programs have shortened sire generation intervals from roughly 5–7 years to around 2–3 years, enabling much faster genetic gain in traits like fat and protein. Hoard’s Dairyman, for instance, has highlighted how these “unprecedented genetic gains” are driving record component levels even in periods when total milk volume flattens.

But on a commercial dairy, you live with herd structure and replacement rates. In practical terms, it looks more like this:

You breed a heifer to a more protein‑balanced bull this year.
She calves in roughly two years.
She reaches peak performance in the second lactation, another year out.
Her daughters start meaningfully influencing the bulk tank a couple of years after that.

University extension specialists and genetic advisors generally agree that it takes around four to six years of consistent sire selection and culling for a new breeding emphasis to show up clearly in bulk tank butterfat and protein levels. That lines up with what producers in Western Canada, the Upper Midwest, and the Northeast have seen when they’ve tried to shift components on their own herds.

Now set that against the policy timeline:

October 9, 2025: BC Milk and the other Western boards issue the notice announcing the shift to 70/25/5.
April 1, 2026: the new ratio takes effect.

So policy moved on a roughly six‑month timeline, while biology—through genetics—needs four to six years to respond fully. That’s the core tension farmers are feeling.

Timeline Type	Start	End	Duration
Policy Change (85/10/5 to 70/25/5)	October 2025	April 2026	6 months
Herd Genetic Shift (meaningful bulk tank change)	Breeding decision today	Bulk tank impact	48–72 months (4–6 years)

What farmers are finding is that the herds that look “fortunate” right now are often the ones that started nudging toward higher protein and more balanced components around 2021–2023. Some were watching Ontario’s solids‑non‑fat and SNF:BF policy adjustments in the P5 pool and realizing excessive butterfat relative to SNF could be penalized.

Others were paying attention to how often U.S. Class III prices were placing a premium on protein in cheese milk compared to butterfat. Their early decisions are walking into the parlour now, while many other herds are just beginning that pivot.

So the question becomes: if genetics is a four‑to‑six‑year lever, where can you still move the needle in the next 12–24 months?

Where You Still Have Levers to Pull in 2026

The good news is that genetics aren’t the only lever you have. Producers across Western Canada—and, honestly, across regions like Wisconsin and New York as well—are leaning hard on three major fronts: nutrition, breeding strategy, and financial planning.

Looking at Nutrition: Adding Protein Without Losing Butterfat or Fresh Cows

On the nutrition side, the question that keeps coming up is, “Can we pick up some protein without hurting butterfat performance or making fresh cow management riskier?”

Recent peer‑reviewed milk quality and nutrition reviews, along with university feeding trials, show that balancing key amino acids—especially methionine and lysine—can lift milk protein yield and often nudge protein percentage up by about 0.10–0.20 points when the base ration (forage quality, effective fibre, starch) is solid. That effect is strongest in early and mid‑lactation cows when energy balance is good.

In many Western rations this season, that’s translating into:

Adding rumen‑protected methionine and lysine and aiming for a metabolizable protein profile with a lysine: methionine ratio around 2.8–3.0:1, which is consistent with extension recommendations and controlled studies.
Budgeting typical costs in the range of 15–25 cents per cow per day for these protected amino acid products, which pencils out to roughly $5,500–9,000 per year for a 100‑cow herd based on common product pricing in North American ration budgets.
Seeing protein percentage gains in the 0.10–0.15 point range in many well‑managed herds, with some trials and field reports showing improvements up toward 0.20 points when all other ration basics are well aligned.

On top of that, nutritionists are re‑examining the balance between energy and fibre in high‑fat herds.

Where cows are sorting TMR or where there are signs of subacute rumen acidosis, it’s common to see underperformance in milk protein and, sometimes, unstable butterfat. Adjustments like moderating starch levels, improving forage chop consistency, and increasing the share of high‑quality legume or grass‑legume forage can improve rumen function and help cows convert dietary protein into milk protein more efficiently.

Western diets have long relied on canola meal as a rumen-degradable protein source, and research from Canadian and U.S. universities supports its positive effect on milk protein yield when used correctly in TMRs. Some producers are now fine‑tuning canola or expeller soybean meal levels in high‑producing groups to shore up protein without driving starch or unsaturated fat too high.

What’s encouraging is that none of these changes require blowing up the ration. The goal isn’t to tank fat just to chase protein. It’s to:

Keep butterfat performance stable and respectable.
Protect cow health and fresh cow management through this transition period.
Capture that 0.10–0.20% protein improvement that’s now worth more under 70/25/5.

To make it even more concrete: if a 100‑cow herd can sustainably move protein from 3.1% to 3.25% without sacrificing butterfat or health, that extra protein can easily be worth several thousand dollars a year under the new weighting, depending on exact prices and volumes. It’s not a silver bullet, but it’s real money.

Intervention	Cost per Cow per Day	Realistic Protein Gain (percentage points)	Annual Cost (100-Cow Herd)	Est. Annual Revenue Gain Under 70/25/5 (100-Cow Herd)
Rumen-Protected Methionine & Lysine	$0.15–$0.25	+0.10 to +0.20	$5,500–$9,000	$8,000–$15,000
Improved Forage Quality & TMR Balance	Variable (forage cost)	+0.05 to +0.10	Varies by operation	$3,000–$8,000
Canola/Soy Meal Optimization	$0.05–$0.10	+0.05 to +0.10	$1,800–$3,600	$3,000–$8,000
Combined Nutrition Strategy	$0.20–$0.35	+0.15 to +0.30	$7,300–$12,800	$12,000–$25,000

Looking at Genetics: Re‑aiming Without Erasing Past Gains

On the genetics side, most producers are rightly treating this as a course correction, not a full reset.

What farmers are finding is that a few clear rules of thumb help re‑aim the program:

Put more emphasis on protein kilos alongside fat kilos. Many Western and Upper Midwest herds are now setting minimums of +35–40 kg protein and +35–45 kg fat for bulls, then checking that daughters are projected to land around 3.4–3.5% protein and 4.0–4.2% butterfat at realistic production levels—profiles that align with both Canadian and U.S. component pricing trends.
Use indexes that reflect your market. In Canada, that often means putting more weight on LPI or custom indexes that emphasize protein and functional traits, rather than relying solely on Net Merit, which is calibrated to U.S. conditions. In Wisconsin and the Northeast, similar shifts toward protein‑friendly indexes have been observed as processors reward higher protein.
Use genomic testing as a sorting tool, not a luxury. At roughly $30–40 per head, genomic tests give a much clearer picture of which heifers and young cows carry the best combination of components, fertility, and health traits. Field data from AI organizations and extension programs show that herds using genomics this way can accelerate progress by:
- Breeding the top 20–30 percent to sexed dairy semen to build the next generation.
- Using conventional dairy or beef‑on‑dairy in the middle tier according to replacement needs.
- Using beef semen on the lowest tier and planning to cull those lines more quickly.

I recently sat down with a producer in central Alberta—190 Holsteins, a mix of free‑stall and dry lot systems, managing about 2.3 kg of quota per day—who’s been working through this with his herd advisor, a licensed independent genetics and nutrition consultant.

He said, “We didn’t do anything wrong, breeding for fat when that’s what was being paid for. Now we just need to pivot, and we know that’s going to take a few years. The goal for us is not to panic, but to make sure every heifer we keep from here on out is pointed in the right direction.”

That mindset mirrors what geneticists with major AI organizations and extension specialists have been urging in recent conferences and webinars.

What’s interesting here is that similar thinking is already well established in high‑protein U.S. cheese regions. In Wisconsin operations, for example, herds supplying specialty cheese plants have deliberately moved toward sires with stronger protein and balanced fat, and those choices now show up in their bulk tank tests and pay statements. Western Canada is essentially being nudged toward that same “balanced components” zone by the 70/25/5 shift.

Looking at Finances: Turning a Shock into a Managed Transition

The third major lever—and it’s easy to overlook when we’re focused on cows—is how you manage the money through this transition period.

What lenders and farm financial advisors are recommending, in both Canadian and U.S. dairy regions, is remarkably consistent:

Build a realistic 12–24 month cash‑flow projection that reflects your current components under the new ratio. That means taking your actual DHI butterfat and protein tests, applying the 70/25/5 allocation, and using realistic price assumptions based on CDC component tables and board guidance to sketch how your milk cheque might look from April onward.
Sit down with your lender before the first reduced cheque shows up. Past experience with policy and price shocks—including recent farm‑gate price adjustments in Canada and supply‑driven squeezes in the U.S.—shows that producers who come in early, with numbers and a plan, have more options: interest‑only periods on term loans, temporary increases to operating lines, or adjusted covenant targets.
Be selective with big capital projects. In many operations, this may not be the year to stretch for a new loader or major barn expansion unless the balance sheet is very strong. At the same time, investments that clearly support cow performance—improved ventilation, transition cow facilities, repro tools—can still make sense if you can quantify the payback in milk and components, as multiple cost‑of‑production studies have shown.
Protect the investments that actually drive revenue. Economic work on dairy cost structures consistently shows that cutting corners on nutrition consulting, hoof care, repro programs, or fresh cow management often costs more in lost production and health problems than it saves in fees.

If you put some numbers to it, that modeled $80,000–$100,000 revenue impact on a 100‑cow high‑fat herd is roughly $6,500–$8,500 per month. Knowing that ahead of time lets you and your lender decide whether to make ration changes, temporary credit adjustments, capital deferrals, or some combination of all three to cover that gap.

In Ontario, Midwest, and Northeast operations, we’ve seen this pattern over and over: farms that do the cash‑flow homework and engage their lenders early tend to navigate policy and price changes with less long‑term damage. Western herds can draw on that same playbook here.

The Succession Question That’s Hard to Ignore

There’s another layer to this story that doesn’t appear in any price table: how the change intersects with succession.

In recent years, many Western farms had fairly clear succession timelines. A son or daughter was coming back from an ag diploma program, or a long‑time employee was gradually buying in. The underlying assumption was that while class prices might swing, the basic structure of producer payments wouldn’t change dramatically over a six‑month period.

Now, after a 15‑point swing in component weighting announced in October 2025 and effective in April 2026—and with the possibility of further adjustments mentioned for 2027—some families are re‑examining what they’re asking the next generation to commit to.

Farm transition specialists and lender‑side advisors have been increasingly explicit that policy risk needs to sit alongside debt and asset values in these conversations.

What farmers are finding in succession meetings this winter is that the most constructive approach is full transparency:

Share projected revenue scenarios under 70/25/5 using real component data and realistic price bands.
Explain the steps being taken in nutrition, genetics, and finance to adapt.
Be clear about debt levels, risk tolerance, and time horizon for the current generation.

Then let the next generation respond. Some will say, “I see the challenge, but I still want in.” Others may decide to build their careers in allied sectors—such as nutrition companies, genetics firms, lenders, or equipment dealers—while maintaining a more gradual or partial involvement in the farm.

Similar patterns have been observed in California (around water and environmental regulation) and in Wisconsin (during periods of extreme Class III price volatility), where policy and market risks shaped when and how the next generation entered ownership.

What’s encouraging, based on both research and experience, is that families who have these discussions early and honestly tend to land on more durable long‑term arrangements, whether that means full succession, shared ownership, or a different path altogether.

How This Fits Into the Bigger Dairy Picture

If you zoom out beyond Western Canada, the 15‑point shift is part of a broader pattern in how milk is being valued.

In the U.S., modernization of Federal Orders and ongoing debates over pricing formulas are aimed at aligning producer pay more closely with what plants actually make and what customers buy—cheese, powders, butter, and fluid products.

Recent analyses in Hoard’s Dairyman and Dairy Herd Management have highlighted that even when national milk volume softens, component levels—especially butterfat and protein—have continued to climb thanks to genetics and focused nutrition.

Globally, market reports from sources such as Dairy Global and DairyReporter show strong, steady demand for whole milk powder, skim milk powder, whey products, and cheese, with butter prices moving alongside a broader, solids‑driven landscape. The longer‑term trend has favoured higher solids and more flexible ingredient production, and Canada’s special class pricing is structured to help processors compete in that environment.

Here at home, the Western boards’ move to 70/25/5 is one regional expression of this bigger shift. It’s an effort to ensure that the signals producers see in their milk cheques are more closely aligned with retail demand, processing economics, and international market conditions.

Pulling It Together: What Producers Can Do Next

If we were standing in a barn alley or catching up at a conference, and you asked, “So what do I actually do with all of this?” here’s how it boils down:

The 70/25/5 shift is anchored in real market signals. Retail data points to strong growth in protein‑dense products like yogurt, stock levels show no shortage of fat, and component prices—both here and in the U.S.—have been rewarding protein in several key classes.
Breeding for butterfat under 85/10/5 wasn’t a mistake. Western herds that pushed butterfat performance were responding exactly to what the pay structure incentivized. The issue isn’t what those herds did; it’s that policy has now moved faster than herd genetics can keep up.
Genetics are a slower but powerful lever. Even with genomics, you’re looking at roughly 4 to 6 years of consistent sire selection and culling to shift herd‑level butterfat and protein levels materially. The bull decisions you make over the next couple of years are really about where you want your components to be around 2030.
Nutrition can help in the near term. Thoughtful use of rumen‑protected amino acids, good forages, balanced starch and fibre, and solid fresh cow management can often add 0.10–0.20 percentage points of protein in many herds. Under 70/25/5, that’s worth more than it used to be.
Balanced cows are your safest long‑term bet. Herds targeting both solid butterfat and solid protein, rather than extremes on either side, tend to be the most resilient when pricing formulas or markets change.
Financial planning matters as much as ration planning. Honest cash‑flow projections, early lender conversations, and disciplined choices about where to invest (and where to wait) can turn a sudden policy shock into a managed transition rather than a crisis.
Succession plans deserve a fresh, honest look. This isn’t about pushing the next generation away from dairy. It’s about making sure they understand both the opportunities and this newer layer of policy risk, where pricing structures can change faster than biology.

Your 90‑Day Playbook

If you’re wondering what to do between now and April, here’s a simple action list:

Pull your last 12 months of DHI component records and model your milk cheque under 70/25/5 using current prices.
Sit down with your nutritionist to set a realistic protein target and a stepwise plan to get there without hurting butterfat or fresh cows.
Re‑screen your sire list and adjust your selection criteria to favour balanced fat and protein kilos, plus health traits.
Book a meeting with your lender to walk through your modeled cash‑flow and discuss options for the transition period.

The Bottom Line

What’s encouraging, after looking at the data and talking with producers, advisors, and researchers, is that the tools needed to navigate this change are the same ones that have always mattered: good cows, good forages, thoughtful fresh cow management, disciplined breeding, realistic numbers, and open conversations at home and with your advisory team.

As many of us have seen—whether on Western Canadian freestall herds, Wisconsin tie‑stall dairies, or Northeast dry lot systems—dairy farmers are remarkably good at adapting when they understand the rules of the game.

This component shift is a big adjustment, no doubt. But with clear information, measured changes in how you feed and breed, and proactive financial planning, there’s every reason to believe Western herds can come through this transition and still be milking strongly when the next generation is the one hosting the coffee in the kitchen.

KEY TAKEAWAYS:

Protein just got 2.5× louder on your cheque: Western Canada’s 70/25/5 ratio takes effect April 1, 2026—what you ship in protein now matters almost as much as butterfat.
Top butterfat herds face the biggest hit: Modeled scenarios show a 100-cow herd at 4.6% fat / 3.1% protein could lose $80,000–$100,000/year under the new ratio—roughly $900/cow.
You can’t outbreed this by April: Genetics need 4–6 years to shift bulk-tank components materially; policy gave you six months.
Three levers to pull now: Dial in amino-acid nutrition for 0.10–0.20 pt protein gain, re-screen sires for balanced fat + protein kilos, and sit down with your lender before the smaller cheques arrive.
Succession plans need a policy-risk conversation: A 15-point swing—with 2027 changes floated—means the next generation deserves full transparency on what they’re really buying into.

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

Learn More

Seizing the Moment: Maximizing Milk Solids Output Through Strategic Nutrition and Genetics – Stop guessing on your TMR and start capturing every cent of component premiums. This guide arms you with specific nutrition targets and supplement ROI math to lift protein yields and secure your cheque before the April deadline.
Bred for $3 Butterfat, Selling at $2.50: Inside the 5-Year Gap That’s Reshaping Genetic Strategy – Exposes the dangerous timing gap between your breeding pen and the bulk tank. You’ll gain the strategy needed to hedge against market volatility, ensuring your future cows fit the 2030 payout structure, not just yesterday’s prices.
Genetic Revolution: How Record-Breaking Milk Components Are Reshaping Dairy’s Future – Reveals how massive processing expansions and genomic “decoupling” are permanently moving the goalposts on milk value. It delivers the foresight to position your operation as a high-component leader while others are still chasing empty volume.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy component pricing, Dairy Farm Profitability, genomic selection, milk cheque analysis, milk protein yield, Western Milk Pool

The Bullvine Dairy Curve: 15,000 U.S. Farms by 2035 and Under 10,000 by 2050 – Who’s Still Milking?

Monday, January 12th, 2026

15,000 dairies by 2035. Under 10,000 by 2050. The Bullvine Dairy Curve shows exactly who survives that curve—and who gets priced out.

<a href="https://rss.com/podcasts/the-bullvine/2457131/">E462 The Bullvine Dairy Curve: 15,000 U.S. Farms b | RSS.com</a>

By 2035, roughly 15,000–16,000 U.S. dairies will be doing the work that nearly 30,000 did a generation ago—and the line between 5,000 and 15,000 herds by 2050 is being drawn right now in cost structure, technology, and succession decisions. What’s interesting is that you don’t have to buy into worst‑case doom to see it; you just have to follow the numbers we already have.

Almost 40% of U.S. dairies disappeared between the 2017 and 2022 Census of Agriculture, even as total milk output increased, and Canadian Agriculture and Agri‑Food Canada (AAFC) data show a similar “fewer farms, more milk” trend under supply management. Using those official data as the foundation, the Bullvine Dairy Curve points to three structural paths:

A business‑as‑usual path where U.S. herd numbers decline around 4% per year and land in the 15,000–16,000 range by 2035 and well under 10,000—typically 8,000–9,000—by 2050; Canada tracks toward 6,500–7,000 by 2035 and 4,000–5,000 by 2050 under quota.
A faster consolidation path where tighter labour, higher compliance costs, and alternative products push U.S. farms closer to 5,000 herds and Canadian herds into the 3,500–4,000 range by 2050.
A managed transition path where better use of margin tools, disciplined capital decisions, and deliberate succession planning slow effective exit rates, keeping the U.S. closer to 15,000 herds and Canada around 6,500 by mid‑century.

Path	U.S. Herds 2035	U.S. Herds 2050	Canada Herds 2035	Canada Herds 2050	Key Drivers
Business-as-usual	15,000–16,000	8,000–9,000	6,500–7,000	4,000–5,000	~4% U.S. decline, 2–3% Canada under quota
Faster consolidation	~12,000	~5,000	~5,500	3,500–4,000	Labour, compliance, alt products, weak margins
Managed transition	~15,000	~15,000	~6,500	~6,500	Margin tools, disciplined capex, succession

In all three paths, the litres don’t disappear—they concentrate. The largest freestall and dry‑lot systems steadily capture a larger share of the milk pool as economies of scale and processor preferences reward low‑cost, high‑volume suppliers. In that world, 150–500 cow herds that sit “average” on cost and are fully exposed to commodity pricing are often bleeding $75,000–$100,000 per year in structural losses once full labour and capital costs are factored in. That forces a three‑way choice: scale toward 1,000+ cows, pivot into premium/value‑add markets, or cash out while equity is still intact.

The rest of this article lays out the Bullvine Curve in plain language: what the official numbers say, how Bullvine’s forecasts connect the dots out to 2035 and 2050, and a barn‑level playbook to decide whether your operation is building to survive that structure—or quietly betting against it.

Where we’re actually standing today

You don’t need a chart to know things have changed; you see it in auction bills and quiet parlours. The 2017 Census of Agriculture recorded 39,303 U.S. farms that sold milk from cows; by 2022, that number had dropped to 24,094, a decline of almost 40% in just five years, even as total U.S. milk production nudged about 5% higher on roughly the same total number of cows. USDA’s Economic Research Service found the longer‑run trend is the same: between 2002 and 2019, licensed U.S. dairy herds fell by more than half while national output increased, with the rate of decline accelerating in 2018–2019 and production shifting toward larger herds with higher yields per cow.

In Canada, AAFC’s Dairy Sector Profile shows farm numbers falling from 12,007 in 2014 to 9,256 in 2024—an average decline of about 2.6% per year—while milk production rose from roughly 78.3 to 96.6 million hectolitresand average farm milk prices increased from just over $82 per hectolitre to more than $97. So on both sides of the border, the story is the same: fewer herds, more milk, with the U.S. consolidating faster and Canada sliding more slowly under quota.

That’s the data the Bullvine Dairy Curve starts from: official census and ERS/AAFC work, but extended into structural scenarios that ask a more practical question—which herds are still milking in 2035 and 2050, and what do they look like?

The Bullvine Dairy Curve: 15,000 by 2035, <10,000 by 2050

ERS’s Consolidation in U.S. Dairy Farming gives the cleanest long‑term U.S. baseline: herd numbers down about 55% from 2002–2019, roughly a 4% annual decline, while national production increased and midpoint herd size kept rising. When you extend that 4% curve from today’s roughly 25,000 U.S. herds and overlay it with the 2017–2022 cliff—where the only U.S. size class that actually grew was herds with 2,500+ cows—you land in the same band Bullvine’s early consolidation work described.

U.S. baseline band: about 15,000–16,000 licensed herds by 2035, with 8,000–9,000 by 2050 if that structural rate holds.
Canadian baseline band: a slower but steady slide toward 6,500–7,000 farms by 2035 and 4,000–5,000 by 2050, consistent with 2–3% annual attrition under supply management.

Since those first Bullvine forecasts, the signals have only sharpened. Follow‑up Bullvine work has documented that U.S. closures have effectively been running closer to 4–8 farms per day, and that about half of U.S. farms vanished between 2013 and 2025, with another 50% reduction projected by 2035 if current pressures persist—implying the industry could land in the lower half of that 15,000–16,000 band. In Canada, commentary that the country is “on track to lose nearly half of its remaining dairy farms by 2030,” with production concentrating in Quebec and Ontario, aligns with the 6,500/4,000–5,000 Bullvine bands.

Path	U.S. Herds 2035	U.S. Herds 2050	Canada Herds 2035	Canada Herds 2050	Key Drivers
Business-as-usual	15,000-16,000	8,000-9,000	6,500-7,000	4,000-5,000	~4% U.S. decline, 2-3% Canada under quota
Accelerated consolidation	~12,000	~5,000	~5,500	3,500-4,000	Labor, compliance, alt products, weak margins
Managed transition	~15,000	~15,000	~6,500	~6,500	Margin tools, disciplined capex, succession

The exact number isn’t the point. The curve is. The Bullvine Dairy Curve says: plan for an industry with far fewer farms, more concentrated milk, and a structure where being “average” in the middle is the riskiest place to stand.

How the curve hits different herd sizes and regions

Under ~150 cows: small, but only if it’s specialized

Cost‑of‑production work and intensification studies consistently show that small conventional herds carry higher costs per cwt unless they combine very low debt, strong home‑grown forage, and heavy reliance on family labour. The small herds that are thriving as the curve plays out almost all made a deliberate move away from being “average” commodity suppliers—into organic, grass‑based, A2, on‑farm processing, or other premium systems where margin comes from price, not just volume.

This development suggests that “staying small” only works when you’re deliberately un‑average—either in cost or in the milk cheque you’re targeting. A 60‑cow tie‑stall under quota with direct‑marketed fluid milk or value‑added cheese lives on a different part of the curve than a 60‑cow conventional herd shipping into a generic pool.

150–500 cows: the middle that the math squeezes first

Bullvine’s early projections already highlighted structural pressure on 250–400 cow freestalls: too big to be niche without a clear premium plan, too small to spread fixed costs like a 1,500‑cow system. Updated census and case work show that:

Over 15,200 U.S. dairy farms vanished between 2017 and 2022, with a big share in the 100–499 and 500–999brackets.
Many 250–400 cow herds running “average” cost structures and fully exposed to commodity pricing are carrying $75,000–$100,000 in structural losses per year once full labour and capital costs are accounted for.

Herd Size	Cows	Annual Milk (cwt)	Structural Gap ($/cwt)	Annual Loss (approx.)
Small mid	200	96,000	$0.80	$76,800
Core mid	300	144,000	$0.70	$100,800
Large mid	400	192,000	$0.60	$115,200

One Upper Midwest producer told us their 320-cow herd looked profitable on their milk cheque—until they ran a full-cost analysis with realistic family labour and depreciation. The gap? About $0.72 per cwt, which worked out to roughly $95,000 a year, they’d been quietly losing without realizing it. That’s not a bad year; that’s structure.

That’s why the Bullvine Curve is so blunt about this band: in a 15,000‑farm, <10,000‑farm future, the conventional middle either deliberately scales, specializes, or exits; drifting is the expensive option.

Honestly, what jumps out is how many 300‑cow herds are still trying to play yesterday’s game—commodity milk, average cost, no clearly defined premium hook—in a structure that’s already priced that strategy out for a lot of regions.

1,000+ cows: where the early assumptions became reality

From the beginning, the structural projections assumed economies of scale and lower total cost per cwt would keep pulling volume into larger herds, with a significant share of U.S. milk concentrated in herds of 2,000–2,500 cows by 2050. ERS follow‑up work and Bullvine’s Great Consolidation analysis confirm that:

Net returns for 1,000+ cow herds have outpaced smaller herds in most years studied.
Only the 2,500+ cow herd class actually grew in number between 2017 and 2022, and those herds now account for a very large share of U.S. milk sold.

Farm Size	Annual Exit Rate	10-Year Survival	Risk Level
10-49 cows	12%	28%	CRITICAL
50-99 cows	8%	43%	HIGH
100-199 cows	7%	48%	HIGH
200-499 cows	5%	60%	MODERATE
500-999 cows	3%	74%	LOW
1,000+ cows	2%	82%	STABLE

In Canada, the curve is flatter, but the logic is similar: fewer farms, more quota concentrated in larger herds, and a national structure where roughly 90% of farms are now clustered in a few provinces, especially Quebec and Ontario.

What’s interesting here is that the “big herds win on cost” assumption from 10–15 years ago has largely become a day‑to‑day reality—but with it comes a different risk profile tied to environmental regulation, export dependence, water, and labour, especially in dry‑lot systems.

Regional reality: the curve isn’t smooth everywhere

The Bullvine Curve was never “every region looks the same.” The shape is similar; the slopes and pain points aren’t.

In the Upper Midwest and Northeast, exits are concentrated among smaller and mid‑size tie‑stalls and older freestalls, with modest growth in 1,000–2,000 cow herds and strong but concentrated production in states like Wisconsin and New York.
In the Southwest and High Plains, a relatively small number of very large freestall and dry‑lot systems supply big cheese and powder plants, with water, heat, and environmental rules acting as both risk and gatekeeper.
In Canada, AAFC data and quota policy mean the curve is slower and more managed, but the direction is the same: fewer farms, more litres per herd, and more of that production anchored in Quebec and Ontario, with smaller operations in the Atlantic and Prairies under more pressure.

I’ve noticed that when producers really “get” the curve, it’s often after they plot themselves against regional realities: haul distance, processor options, land prices, and labour pool, not just cow numbers.

From forecast to milk‑house: the Bullvine playbook

Forecasts only matter if they change decisions. The Bullvine Dairy Curve is built to drive a handful of blunt, barn‑level questions rather than just scare charts.

1. Which lane are you actually in?

In a 15,000‑farm, <10,000‑farm world, most herds that stay in the game long‑term are choosing one of three lanes:

Scale: Build toward 1,000+ cows with a cost structure that genuinely competes per cwt, understanding the capital, labour, and concentration risk.
Specialize: Stay smaller or mid‑size but sell into markets that pay on margin—organic, grass‑based, A2, on‑farm processing, or tightly integrated supply contracts.
Strategic exit: Use the forecast window to sell or transition on your terms while equity is intact, especially where succession isn’t clear.

Not choosing is still a choice; it just lets the curve choose for you. What farmers are finding is that being vague—“we’ll see how it goes”—is often the costliest option.

2. What is your true cost per cwt and “danger zone”?

ERS cost‑of‑production data and extension tools show that, on average, larger herds have lower total economic costs per hundredweight, but there’s a wide spread inside every size class. The farms that navigate the curve best usually:

Know their full cost per cwt with realistic values for family labour and capital.
Have a clear milk‑feed ratio “danger zone” where they tighten capital, sharpen feed, and check in with lenders more often.

In a 200‑cow herd shipping 8,000 cwt a month, a 50‑cent swing in margin is roughly $4,000 a month or $48,000 a year—almost exactly the gap between treading water and investing in the next needed project. That’s the kind of math that quietly decides whether you can upgrade a parlour or add stalls to lift butterfat performance and fresh cow comfort.

3. Is your next dollar going into scale, comfort, or robots—and why?

The curve doesn’t say “robots good, parlours bad,” it says “robots amplify whatever is already in your numbers.” While Automated Milking Systems (AMS) solve the immediate headache of labor availability, they fundamentally shift your balance sheet. You are trading variable labor costs for high fixed capital costs. In a “commodity milk” lane, this move pushes you further into the “efficiency required” lane: because your fixed costs per hundredweight are now higher, your margin for error on milk production and components disappears.

On smaller herds under ~100–120 cows, AMS often struggles to pencil out unless there’s a premium market, off‑farm income, or a clear growth plan.
In the 150–250 cow band, robots can work where labour is genuinely tight, and management is strong, but they typically need $400–500 per cow per year in a mix of labour savings and extra milk to carry their weight over a typical financing term.
Larger freestall/dry‑lot systems treat robots, high‑throughput parlours, sort gates, and sensors as part of broader cow‑flow and labour strategy, not silver bullets.

The Robot Reality Check: If your herd isn’t already hitting top-tier production and health metrics, a robot won’t fix the margin—it will just automate the loss at a higher interest rate.

The Bullvine playbook is simple: if you can’t show on paper where the extra dollars per cow per year come from, ask whether stalls, feed storage, or transition pens would move your position on the curve more. In other words, don’t let fatigue drive a million‑dollar robot decision if fresh cow management and housing are still your biggest bottlenecks.

4. Who actually wants to be milking here in 2035?

Succession is the quiet driver you don’t see on the milk cheque, but it shows up in the forecast. National surveys by lenders and advisory firms consistently find that only a minority of producers have formal written succession plans, even when an adult child is active. Research on exits also shows that age and the presence of an identified successor are strong predictors of whether a farm continues to operate 10–15 years later, even after controlling for herd size and profitability.

In practice, that means a financially solid 65‑year‑old with no successor is more likely to be on the “exiting half” of the Bullvine Curve than a somewhat smaller or slightly less efficient herd where a 35‑year‑old is already leading breeding, facilities, and lender meetings. Putting a basic timeline and ownership plan on paper is one of the simplest ways to move your operation onto the “still milking by choice” side of the 2035/2050 lines.

I’ve seen more than one herd where the real turning point wasn’t a bad milk price year—it was the moment the family admitted no one under 40 actually wanted night checks and bank meetings for the next 20 years.

The “Strategic Exit”: Harvesting Equity, Not Admitting Defeat

One of the hardest parts of the Bullvine Dairy Curve is the “Exit” conversation. We need to change the vocabulary around leaving the industry. In every other sector of the global economy, “exiting” at the top of a market or when equity is strongest is called a successful business cycle.

If the curve shows that your regional processor access is shrinking or your cost structure is hitting a structural ceiling, executing a Strategic Exit is an act of leadership. It allows you to:

Protect Generational Wealth: Cash out while land and quota values are high, rather than “burning the house for warmth” by eroding equity during years of structural losses.
Define Your Legacy: Transitioning the land to its next best use—whether that’s cash crops, beef, or development—on your timeline, not the bank’s.

A strategic exit isn’t a failure; it’s a calculated decision to stop milking cows so you can start protecting the family’s future.

5. Does your regional strategy match the curve you’re actually in?

Processor access, hauling distance, water rules, land markets, and labour conditions shape how the curve feels locally. A 200‑cow freestall near several plants in southern Ontario lives in a different structural world than a 200‑cow herd in northern Vermont or a 3,000‑cow dry lot in west Texas.

The Bullvine Curve is a map, not a script; the job is to locate your farm on that map honestly—by size, cost, region, and succession—and then build a plan that fits the structure you’re heading into, not the one you remember.

The Bullvine Bottom Line: forecasts as a tool, not a headline

The consolidation trend itself isn’t up for debate anymore; the 2022 Census of Agriculture, USDA ERS work, and AAFC’s Dairy Sector Profile all tell the same story of fewer herds, more milk, and more of that milk coming from larger operations. What the Bullvine Dairy Curve adds is a clear, named set of paths—15,000–16,000 vs <10,000 U.S. herds, 6,500–7,000 vs 4,000–5,000 Canadian herds—and a practical way to turn those numbers into decisions about cost structure, technology, and succession while there’s still time to move.

The data strongly suggest there will be fewer dairy farms in 2050 than there are today; they do not say which farms those will be. That part is still being written—day by day, barn by barn—and the whole point of the Bullvine forecast is to help you write your own line on the curve instead of letting the averages write it for you.

KEY TAKEAWAYS

15,000 U.S. farms by 2035. Under 10,000 by 2050. Where do you land? The Bullvine Dairy Curve extends the 4% annual decline documented by the USDA from 2002 to 2019. Canada tracks toward 6,500–7,000 farms by 2035 and 4,000–5,000 by 2050. These aren’t worst-case guesses—they’re the middle of the road.
Milk isn’t disappearing—it’s moving into bigger barns. The 2,500+ cow herd class is the only one that grew between 2017 and 2022. Processors are building $11B in new capacity around these mega-suppliers, not 300-cow herds.
The $100k squeeze hits mid-size hardest. Many 150–500 cow commodity herds running “average” costs incur $75,000–$100,000 in structural losses per year. Stay average, and you’re betting against the curve.
Three paths remain—pick one. Scale toward 1,000+ cows with genuinely competitive cost per cwt, specialize into premium markets that pay on margin, or execute a strategic exit while equity is intact. Not choosing lets the curve choose for you.
Succession decides who’s still milking in 2035. A 65-year-old with no successor is more likely to exit than a smaller herd where a 35-year-old already leads. Put the timeline on paper now—”someday” isn’t a plan.

Executive Summary:

By 2035, the Bullvine Dairy Curve has U.S. dairy farms shrinking from roughly 25,000 herds today to 15,000–16,000, and to well under 10,000 by 2050. That’s what happens if the long‑run 4% annual decline identified by USDA’s Economic Research Service continues. In Canada, AAFC’s Dairy Sector Profile and Bullvine’s modelling show a slower but similar slide from 12,007 farms in 2014 to 9,256 in 2024, heading toward roughly 6,500–7,000 farms by 2035 and 4,000–5,000 by 2050—even as national milk output climbed about 23%, from 78.3 to 96.6 million hectolitres. Across all three paths—business‑as‑usual, a faster shakeout, or a more managed transition—the litres don’t disappear; they concentrate into larger freestall and dry‑lot systems as processors, and lenders channel more volume to 1,000‑plus‑cow herds with lower cost per cwt. That structural shift leaves many 150–500 cow commodity herds that sit “average” on cost and fully exposed to commodity pricing, facing $75,000–$100,000 a year in structural losses, unless they either scale, specialize into premium/value‑add markets, or plan a strategic exit while equity is still strong. This article turns the Bullvine Dairy Curve into a five‑question barn‑level playbook—covering lane choice, true cost per cwt, tech and barn investments, succession, and regional realities—so you can decide whether your operation will be one of the 15,000 still milking by choice in 2035 and beyond, or one of the herds the curve quietly averages out.

About the Bullvine Dairy Curve Model

The Bullvine Dairy Curve is an analytical framework—not an official government forecast—built by extending documented historical trends into scenario-based projections. The U.S. baseline draws on USDA’s 2017 and 2022 Census of Agriculture (39,303 farms → 24,094 farms) and USDA Economic Research Service report ERR-274, Consolidation in U.S. Dairy Farming, which documented a roughly 4% annual decline in licensed herds from 2002–2019 alongside rising national production and increasing concentration in larger operations. The Canadian baseline uses Agriculture and Agri-Food Canada’s Dairy Sector Profile, which tracks farm numbers from 12,007 in 2014 to 9,256 in 2024 (approximately 2.6% annual decline) under supply management. Rather than a single-point prediction, the Bullvine Dairy Curve presents three scenario paths: a business-as-usual path that extends historical decline rates, a faster consolidation path that accounts for accelerating pressures (labor constraints, compliance costs, alternative proteins, and margin compression), and a managed transition path where disciplined use of margin tools, capital decisions, and succession planning slow effective exit rates. All projections assume continued structural concentration—consistent with Census data showing the 2,500+ cow herd class as the only size category that grew between 2017 and 2022—and are intended as planning tools for producers, lenders, and advisors rather than definitive forecasts.

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

Learn More

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Categories : Dairy Markets

Tags : Bullvine Dairy Curve, dairy farm consolidation, dairy farm numbers, dairy profitability, structural dairy shifts, U.S. dairy industry 2035

Global Dairy Markets Kick Off 2026 With A Surprise Rally – But Don’t Get Too Comfortable Yet

Monday, January 12th, 2026

The first 2026 GDT rally is real—but the farms that win from it will be the ones already managing margin, not chasing price.

Executive Summary: Global dairy got a welcome jolt to start 2026 when the first GDT auction pushed the index up 6.3%, led by stronger whole and skim milk powder prices, after a long stretch of weaker events. Behind that headline, the shift is being driven less by a demand boom and more by tighter powder supply: New Zealand offered less product, and US plants have cut powder output by roughly 10% year‑on‑year as milk moves into cheese and high‑protein ingredients instead. At the same time, EU butter prices around €4,400 per tonne, sizeable EU butter stocks, US butter stuck in the mid‑$1.30s, and heavy cheese and whey production all remind us that the world is still working through a “wall of milk,” even if it looks different in Europe, North America, Oceania, and China. Futures markets in Europe and Singapore are quietly confirming this firmer tone, but most official outlooks still point to only modest milk price gains against relatively high input and finance costs. For farmers, this combination means the rally is useful but not a rescue: the biggest wins will come from tightening margin‑management plans, rechecking butterfat versus protein strategy against current pay programs, and using tools like dairy‑beef where local buyers can genuinely support it. In short, this is a moment to use better prices to strengthen your position, not a signal that the hard part of this cycle is behind us.

You know those weeks when the market finally gives you something other than bad news? The first Global Dairy Trade auction of 2026 was one of those weeks. The January 6 event pushed the GDT Index up 6.3 percent, according to official GDT results and confirmed by NZX Dairy Insights. That broke a five-month slide that had been wearing on everyone’s nerves.

***GDT Index Snaps Five-Month Slide—But Don’t Mistake a Rally for a Recovery***

Before we dig into what’s driving all this, here are the numbers that matter most right now:

GDT Price Index: Up 6.3% at Event 395, the first increase since August 2025
Whole Milk Powder: Up 7.2% to roughly $3,407 per tonne
Skim Milk Powder: Up 5.4% to about $2,564 per tonne
Anhydrous Milkfat: Up 7.4% to around $6,011 per tonne
US Spot NDM: Reached $1.265 per pound for the week ending January 9
EU Butter Reference: Around €4,408 per tonne, down roughly 40% year-on-year
CME Spot Butter: Trading in the mid-$1.30s per pound, near multi-year lows
CME Dry Whey: Slipped into the low-70-cent range per pound

New Zealand and global dairy reports told the same story: less product on offer from Oceania and stronger demand from Asia and the Middle East combined to move the needle. Average winning prices at GDT moved into the mid-$3,500-per-tonne range, which was a welcome change from the drift we’d been seeing.

What’s encouraging is that this is the first time in a while we’ve seen both fat and powder move up together in a meaningful way. It doesn’t mean the year is saved. But it does tell us the market still responds when supply tightens, and buyers step forward.

Powder’s Quiet Turn: Less Balancing, More Bite

Looking at the powder side of this rally, you start to see some interesting structural changes at work. In early January, US spot nonfat dry milk climbed into the mid-$1.20s per pound. The T.C. Jacoby Weekly Market Report, which draws heavily on CME and USDA data, pegged the weekly average at $1.265 per pound for the week ending January 9. That’s a real improvement from where we sat late last year.

At the same time, USDA’s Livestock, Dairy, and Poultry Outlook still points to modest US milk growth for 2026. The October projections have national production rising from around 231 billion pounds in 2025 to 234 billion pounds in 2026, driven by a slightly larger herd averaging just under 9.5 million cows and higher yield per cow. On the surface, you’d expect “more milk” to mean softer powder prices, not firmer.

So what changed? On the production side, you see, we’re simply not making as much powder as we used to. That same Jacoby report highlighted October US nonfat/skim production at just under 150 million pounds, about 10 percent below the same month a year earlier. The analysts described it as one of the lighter October figures they’ve seen in recent years based on USDA’s monthly time series.

Metric	October 2025	October 2024	Change	YoY %
Total US Milk Production	19.25B lbs	18.98B lbs	+270M	+1.4%
Nonfat Dry Milk (NDM) Output	148.5M lbs	165.0M lbs	-16.5M	-10.0%
US Cheese Production	286M lbs	271M lbs	+15M	+5.5%
Whey Protein Streams	42M lbs	38M lbs	+4M	+10.5%

On the ground, plants are using their dryers less as a balancing tool. With all the new cheese vats and high-protein lines that have come online across the Midwest and West over the past few years, extra milk that would have gone to powder a decade ago is now more often going into cheese or specialty proteins. A plant manager in the Central Plains told me recently, “If I can put a load into cheese or a protein stream, I’ll do it before I even think about the dryer.” That attitude is becoming pretty common.

Now put that together with the GDT story. Ahead of the first 2026 auction, New Zealand sellers cut back their offered volumes of whole and skim milk powder compared with earlier events, according to NZX Dairy Insights. Milk collections there aren’t running away, and co-ops are managing volume more tightly. Buyers still came to the table, and between that and tighter US production, the whole powder market suddenly looked a lot less heavy than it did in the fall.

So the data suggests this powder rally isn’t just a random bounce. It’s built on less supply meeting stable-to-better demand. The open question is how long that balance holds.

What The Futures Are Whispering

If you sit down with anyone who lives in the risk-management world, they’ll tell you the futures curves matter. And right now, they’re quietly backing up what we’re seeing in spot markets.

On the European Energy Exchange, skim milk powder futures for the early-to-mid-2026 months moved into the low € 2,200-per-tonne range right after the GDT lift. That’s a few percent higher than where they sat in late December. Whey futures edged higher, too, though not by as much.

Over in Singapore, which has become a key hub for hedging Oceania-linked product, whole milk powder futures for the January–August window climbed into the upper-$3,300s per tonne, with skim in the high-$2,600s to low-$2,700s. Anhydrous milkfat and butter futures there saw even stronger percentage gains after the auction.

Why does any of this matter at the farm level? Because these are the curves your co-op or processor looks at when they’re deciding whether to lock in export deals. On Wisconsin farms that ship into export-focused co-ops, and in California plants that rely heavily on overseas powder sales, marketers are much more willing to write business when EEX and SGX curves are firm and active. Those deals, in turn, show up in premiums, base prices, and risk-sharing programs.

You might never place a futures order yourself, but it’s worth knowing that the people pricing your milk are watching those screens every day.

Butterfat: Valuable In Theory, Awkward In Practice

Now, let’s talk butterfat, because this is where many of us feel a disconnect between the “fat is back” headlines and the actual pay stub.

In Europe, the composite butter price, based on Dutch, German, and French quotations, has been around €4,408 per tonne in early January. That’s a bit better than December, but still about 40 percent below where it was a year ago. Vesper’s late-2025 analysis estimated EU butter surpluses at roughly 93,700 tonnes across the first three quarters of 2025, with production up more than 86,000 tonnes year-on-year. That’s a lot of butter to work through, and Vesper expects prices to slip below €4,000 per tonne in the first quarter of 2026.

Product / Region	Price (Current)	Price (Year Ago)	YoY Change	Status
EU Butter Composite	€4,408/tonne	€7,347/tonne	-€2,939	⚠️ -40.0%
US Spot Butter (CME)	$1.37/lb	$2.15/lb	-$0.78	⚠️ -36.3%
US Class III (Cheese)	~$18.50/cwt	~$17.80/cwt	+$0.70	↑ +3.9%
NYS Protein Milk Price	~$19.25/cwt	~$18.10/cwt	+$1.15	↑ +6.4%

In the US, it’s a different flavour of the same challenge. Spot butter at the Chicago Mercantile Exchange has started 2026 in the mid-$1.30s per pound. Butter at $1.3750 on January 1, and Ever.Ag’s early-January “Margin Matters” commentary described it as testing multi-year lows. USDA data show butter production in late 2025 still running ahead of year-ago levels, even after accounting for strong cream usage elsewhere in the system.

Exports, interestingly, have improved. Late-2025 export summaries from USDA and dairy trade coverage show US butter shipments several times larger than the year before and strong growth in anhydrous milkfat exports as well. International buyers are clearly taking advantage of the discount on US fat relative to European and New Zealand product.

Domestically, the picture is nuanced. Consumers haven’t gone back to low-fat diets. USDA production reports show yogurt and cottage cheese output growing in recent years, while ice cream and sour cream have been flat to slightly down. So people are still comfortable with fat, but they seem to prefer it when it’s paired with protein or cultures.

What does that mean for butterfat levels on your farm? Over the last decade, many herds have pushed fat up through better fresh cow management, strong transition programs, and careful ration work. On Northeast and Upper Midwest farms, it’s not unusual now to see rolling herd averages north of 4.0 percent fat. But with butter this cheap, the extra dollars you spend chasing an extra few points of fat may not pay back like they did when butter was at $2.50 or more.

That doesn’t mean you stop caring about fat. It does mean it’s worth sitting down with your nutritionist and milk statement to see whether your current component strategy still lines up with how your buyer is paying today. On some Ontario and New York farms, for instance, processors are quietly putting more emphasis on protein because of where their products – yogurt, cheese, high-protein drinks – are headed. That shifts the economics.

Cheese And Whey: Strong Demand, Full Vats

Cheese has been the main growth engine for the US dairy industry in recent years, as many of us have seen. USDA’s 2025 production data shows total cheese output running several percentage points ahead of the previous year, with some months close to 6% growth. New plants in places like Michigan, Texas, and Idaho are very visible examples of that expansion.

On the price side, CME block Cheddar has been trading in the low-$1.30s per pound to start 2026, down from the $1.60–$1.80 range that held for much of last spring and summer. During that higher-price period, US cheese exports set record or near-record volumes in several months, especially into Mexico and parts of Asia, according to USDA export statistics.

Metric	Current Status	Year Ago	Change	Implication
US Total Cheese Production	+6.0% YoY	Baseline	Higher volume	Supply exceeds domestic + export growth
US Cheese Exports	Record+ to Mexico & Asia	Year-ago baseline	Record volumes	Demand is real, but can’t absorb all new production
Domestic Cheese Consumption	Relatively flat	Flat	No growth	More product chasing same home market
Dry Whey (CME Spot)	$0.70–$0.73/lb	$0.88–$0.92/lb	-20% to -22%	Substantial pressure; excess supply; downside drag
Whey Protein Concentrates (WPC)	Firm (specialty)	Strong	Stable to slightly higher	Value-added fractions holding; commodity pressure below

So why are prices back down? It comes back to volume. Even when exports are “record,” they still only take a slice of total output. The rest has to be eaten domestically or stored. When production grows faster than both domestic use and exports, prices simply don’t have much room to move higher.

Whey is part of this story. Protein demand hasn’t gone away. In fact, consumer research and nutrition studies from the last few years show continued growth in demand for high-protein foods and supplements. Dairy proteins remain a central ingredient in many sports and wellness products.

But every pound of cheese brings whey with it. Processors tend to strip out the higher-value fractions – whey protein concentrates, and isolates – and those markets remain fairly tight. The commodity dry whey that’s left, though, has been under pressure. To start 2026, CME dry whey has slipped into the low-70-cent range per pound, lower than it was in early autumn. Industry analyses point to several months where dry whey output has run ahead of the previous year, adding to stocks.

So, as with butterfat, the headline (“protein is hot”) doesn’t always tell you what’s happening at the commodity end. The details of how your milk is used – commodity cheese, specialty cheese, high-value protein ingredients – matter a lot when it comes back to your mailbox.

The Wall Of Milk: It Doesn’t Look The Same Everywhere

Region	Nov Collection (Local Unit)	YoY % Change	YTD Trend	Key Driver
Germany	+5.0%	↑	Slightly behind 2024 YTD	Higher milksolids (4.1% fat, 3.5% protein)
Italy	+3.5%	↑	Positive YTD	Solid seasonal strength
Spain	-2.0%	↓	Positive YTD	Lower volume, but higher solids
Ireland	-2.1%	↓	Strong YTD lead	Spring flush strength carrying year
Australia	-2.2%	↓	Behind 2024 YTD	Beef prices, weather, cow numbers under pressure
New Zealand	~Flat	→	N/A (seasonal producers)	Tight GDT offerings, managed supply
China	+3.2%	↑	Above 2024 (cautious)	Farmgate prices linked to global powder; selective demand

We all hear about the “wall of milk,” but when you look region by region, it doesn’t look uniform at all. Here’s what the latest data show:

Germany: November milk collections came in close to 5 percent higher than a year earlier, with milksolids up even more, thanks to butterfat around 4.1 percent and protein near 3.5 percent. But year-to-date, Germany is still slightly behind 2024 because the early months were weaker.
Italy: November collections were roughly 3.5 percent higher year-on-year, with milksolids up about 4 percent.
Spain: November volumes were down a couple of percent, yet cumulative milk solids ticked higher as fat and protein percentages improved.
Ireland: November milk was down just over 2 percent while still holding a solid lead in year-to-date milk and solids thanks to a strong spring flush.
Australia: November production was around 875,000 tonnes, more than 2 percent lower than a year earlier, and season-to-date volumes are also behind. Dairy Australia and analysts like Bendigo Bank have been open about the drivers: strong beef prices, weather challenges, and structural issues are all making it harder to rebuild cow numbers.
New Zealand: Ahead of the January auction, local analysts talked about lower milk collection forecasts and reduced whole and skim milk powder offerings compared with previous events, per NZX Dairy Insights. When those smaller catalogs arrived at GDT, and buyers still wanted volume, prices responded quickly.
China: Official data put December farmgate milk prices in major producing provinces around 3.03 Yuan per kilogram, slightly higher than in November and a few percent above the year before. Academic studies have shown that Chinese raw milk prices have become more tightly linked to international powder prices as imports have grown. When global powder is weak, Chinese farmers feel it quickly; when international prices firm, Chinese buyers become more active, but step by step.

So the global “wall of milk” is really a patchwork. Some bricks are growing, some are shrinking, some are fairly static.

A Practical Playbook For The Year Ahead

Let’s bring this back to the farm office and the kitchen table. What do we do with all this?

1. Use The Powder And Fat Lift To Recheck Your Risk Plan

With powder and fat both stronger than they were in the fall, this is a reasonable time to revisit your risk-management approach. You don’t need to swing for the fences.

You might:

Talk with your co-op or buyer about locking in a portion of your spring or early-summer milk if Class IV or powder-linked prices offer margins that work for your cost structure.
In the US, review Dairy Revenue Protection and Dairy Margin Coverage again. University of Wisconsin dairy economists have repeatedly noted that these tools can provide a useful safety net when both milk and feed are volatile.

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, has been emphasizing for years that producers shouldn’t wait for the “perfect” price. “If you can lock in a margin that covers your costs and leaves something reasonable, that’s worth serious consideration,” he’s noted in recent extension presentations. That kind of thinking – focusing on acceptable margins instead of a perfect price – often serves farms better over the whole cycle.

2. Make Sure Components Match Today’s Pay Signals

Over the past decade, a lot of energy has gone into improving butterfat levels through fresh cow management, solid transition programs, and refined rations. Many herds have made impressive gains. But with butter pricing where it is right now, it’s worth asking whether every extra pound of butterfat is paying back the way it did a few years ago.

Take a recent milk cheque and ask yourself:

How is each unit of butterfat valued compared to protein?
Has your processor or co-op changed those relative values in light of current market conditions?

On some Wisconsin and Northeast farms, nutritionists are still prioritizing high-fat content but also placing greater emphasis on protein yield and overall cow health, especially as processors lean into higher-protein products like yogurt, cottage cheese, and protein-enriched milks. The point isn’t to back off on fat, but to ensure your component strategy aligns with today’s economics, not yesterday’s.

3. Lean Into Dairy-Beef Only Where The Market Can Absorb It

Beef-on-dairy has grown very quickly. Farm Bureau Market Intel analyses and USDA data show that many herds are using beef semen strategically on lower-genetic dairy cows. That’s generating a lot more crossbred calves than we had ten years ago.

When everything is lined up – sire choice, health programs, and marketing channels – those calves often bring a clear premium over straight Holstein bull calves. Feedlot operators in the US and Canada have said publicly that well-bred dairy-beef crosses can perform better on growth and carcass traits than traditional Holstein steers. University research from institutions like Penn State and Kansas State supports that.

But not every region is set up the same way. On parts of the Northeast and some more remote Western areas, producers still report challenges finding reliable buyers willing to pay a premium for crosses. So it’s important to match your breeding strategies to your local marketing reality.

Before expanding beef-on-dairy, it’s worth a very practical conversation with your calf buyer or local feedlot:

What specific genetics are they looking for?
What health standards and documentation do they require?
What kind of premium can they realistically sustain over time?

Those answers will tell you whether dairy-beef is a valuable outlet or a potential headache in your area.

4. Think In Margins, Not Just In Class Prices

We all look at the headline Class III and IV prices. They’re a quick barometer. But as recent years have reminded us, margin per hundredweight is what keeps the lights on.

Recent USDA projections suggest that while milk prices may stay under pressure, feed costs are off the extreme highs we saw not long ago. Corn and soybean meal are still volatile, but not at the peaks that squeezed margins so brutally in 2022. That changes the math.

Period	Class III Milk Price ($/cwt)	Corn Price ($/bu)	SBM Price ($/ton)	Estimated Margin ($/cwt)
Q3 2024	$17.50	$3.45	$315	+$2.10
Q4 2024	$17.20	$3.65	$325	+$1.85
Jan 2026 (Est. post-GDT)	$18.25	$3.55	$318	+$2.45
2-Year Historical Average	$18.80	$3.20	$290	+$3.10
Peak (2022)	$23.50	$6.85	$480	-$0.50

This season, it’s useful to:

Update your cost of production with your adviser, including interest, labor, and repairs.
Talk with your lender about how much downside you can realistically handle before major changes would be needed.
Decide ahead of time what actions you’ll take if milk or feed prices cross certain thresholds, rather than waiting until stress is high.

Farms that understand their true margin – not just the milk price – tend to make steadier decisions when things get choppy.

5. Keep An Eye On Global Signals, Without Letting Them Drive Every Move

Global benchmarks like GDT, EU wholesale prices, and futures on EEX and SGX have become regular reference points for processors. That doesn’t mean you need to live in the data, but it does help to have a basic feel for where those numbers are.

A practical approach might be:

Glancing at a simple GDT summary after each event to see if WMP, SMP, butter, and AMF are rising or falling.
Following one or two reliable sources for EU butter and SMP price trends.
Asking your co-op rep once or twice a year how closely your local prices track these global indicators.

That way, when you hear “GDT was up six percent this week,” you already have some sense of what that might mean for export-linked values and, eventually, for your own milk cheque.

The Bottom Line

Stepping back, this early-January rally has given the industry something it’s been lacking: a little bit of positive momentum. Powder and fat have come off their lows. Futures markets in Europe and Asia have acknowledged that shift. And we’ve seen that when supply tightens, and buyers stay active, prices can still move.

At the same time, we’re not out of the woods. Milk production across key exporting regions is still ample. Cheese and whey output remains heavy. Butter stocks in Europe are comfortable. Chinese demand looks better than it did, but it’s still cautious rather than aggressive. And on many farms – from smaller family dairies in the Northeast to large dry lot systems in the Southwest – the milk cheque still feels tight for the amount of capital and effort involved.

While the rest of 2026 is far from written, early indications suggest this may be a year where small, smart moves matter: a slightly better hedge, a ration that protects components without overspending, a breeding plan that matches local markets, a stronger relationship with your buyer. None of these alone will transform a balance sheet, but together they can make a meaningful difference.

What’s particularly noteworthy is that we’re starting this year from a place of pressure, but not panic. The supply side will adjust over time. Some regions will scale back faster than others. As that plays out, the operations that keep a clear eye on margins, stay flexible, and base decisions on solid information will be the ones best positioned to benefit when the market finally swings more decisively back in favour of producers.

And that’s why conversations like this – whether at the kitchen table, in the barn office, or over coffee at a conference – still matter. We’re all trying to read the same signals and make the best decisions we can for our herds, our families, and our businesses in a very interconnected dairy world.

Key Takeaways :

The slide is broken—for now. GDT kicked off 2026 with a 6.3% rally, whole milk powder up 7.2%, skim up 5.4%. First increase in five months.
Supply, not demand, is driving it. US powder output fell ~10% year-over-year in October as milk shifts to cheese and protein streams. New Zealand also trimmed GDT offerings.
Fat markets aren’t following. EU butter stocks near 94,000 tonnes, US butter in the mid-$1.30s—don’t expect butterfat to carry your cheque like it did in 2022.
Futures confirm the turn. EEX and SGX dairy curves have firmed, giving processors more confidence to lock in export deals that eventually flow back to farm prices.
Act now, not later. Use this window to tighten margin plans, recheck your component strategy against current pay signals, and push dairy-beef only where local buyers genuinely support it.

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

Learn More

The Four Numbers Every Dairy Producer Needs to Calculate This Week – Deliver immediate financial clarity with a hard-hitting framework to calculate your true breakeven and liquidity runway. This operational audit arms you with the exact numbers needed to decide between aggressive expansion or a strategic pivot.
Squeezed Out? A 12-Month Decision Guide for 300-1,000 Cow Dairies – Exposes the structural shifts crushing the traditional “middle” of the industry and delivers a strategic roadmap for the next 12 months. Master the heifer inventory crisis and align your herd with the coming protein-heavy pay programs.
Dairy Tech ROI: The Questions That Separate $50K Wins from $200K Mistakes – Reveals the unvarnished math behind automation to stop you from making a $200,000 mistake. This breakdown of “robot sweet spots” and connectivity requirements identifies the high-ROI tools that actually drive efficiency in today’s labor-tight environment.

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Categories : Dairy Markets

Tags : butterfat trends, dairy markets, dairy risk management, farm margin management, global dairy trade, milk powder prices

18 Months to Fix Your Dairy Math: Culls, Heifers and Processor Power in the New Dairy Reality

Sunday, January 11th, 2026

39% fewer farms. Record milk. If your strategy is ‘wait for the next good cycle,’ this article is your reality check.

Executive Summary: Dairy isn’t just in a rough patch—it’s in a structural reset where exits don’t automatically tighten supply anymore. USDA’s 2022 Census shows a 39% drop in farms selling milk between 2017 and 2022, yet total production still climbed to about 226 billion pounds from roughly 9.4 million cows, backing Rabobank’s finding that nearly 70% of U.S. milk now comes from herds with 1,000+ cows. At the same time, CoBank reports that replacement heifer inventories are at a 20‑year low and could shrink by another 800,000 head even as processors pour about $10 billion into new plants that will need more reliable, high‑volume milk supplies. High cull values, record heifer prices, and strong beef‑on‑dairy calf markets are reshaping net replacement costs and culling strategy, while regional realities—from Darigold’s $4/cwt Pasco deduction in the Pacific Northwest to stronger Class I returns in the Southeast and thin‑margin “deadly middle” herds in the Upper Midwest—are making geography as important as genetics. This feature gives producers an 18‑month playbook: clean out chronic problem cows while beef is still strong, treat a 0.1 gain in feed efficiency as a $35–55/cow/year opportunity, and sit down with processors and lenders before they end up making the big decisions for the farm. The aim isn’t to preach a single “right” model, but to put the math, regional context, and survival questions on the table so every herd—from 200‑cow grazing outfits to 4,000‑cow dry‑lot systems—can decide whether to grow, pivot, or exit on its own terms.

Most of us have ridden out more than one down cycle. You know the pattern: prices drop, some herds sell out, milk supply tightens, and eventually things come back around.

Back in the 2000s, Cooperatives Working Together (CWT) ran 10 herd retirement rounds between 2003 and 2010 that removed 506,921 cows and an estimated 9.672 billion pounds of milk, according to CWT program reports and University of Missouri economic analysis cited in both Progressive Dairy coverage and academic case studies on U.S. dairy market power. Those removals were designed to pull milk off the market and did help support farmer milk prices during the 2009 crash, based on those evaluations. The playbook then was pretty straightforward: enough cows and herds left the industry, and the market eventually corrected.

What’s interesting now is that we’re seeing plenty of exits again—but the milk isn’t disappearing the way it used to. USDA’s 2022 Census of Agriculture and milk-production summaries show that while farms with sales of milk from cows dropped from 40,336 in 2017 to 24,470 in 2022—a decline of about 39%—national milk output still climbed to around 226 billion pounds in 2022 with about 9.4 million milk cows, essentially steady cow numbers compared to prior years. Industry outlets covering the same census data have underscored that almost 4 in 10 dairy farms disappeared over those 5 years, yet total U.S. milk sales rose about 5%.

***The Great Dairy Paradox: Between 2017 and 2022, U.S. dairy farms dropped 39% while national milk production increased 5% – proving the old “herd retirement tightens supply” playbook is broken***

So the quiet question a lot of folks are asking—over coffee at winter meetings or in the parlor office—is: if this isn’t just another cycle, what exactly are we dealing with?

And honestly, if you’re still betting the next round of sellouts will rescue your milk price, you’re betting against the numbers.

Let’s walk through what the data says, how it’s playing out in different regions, and the kinds of decisions that seem to matter most over the next 18 months.

Looking at This Trend: Old Playbook vs. New Reality

Looking at this trend over time, it’s pretty clear that the industry’s default settings have changed. The tools that worked from roughly 2000 through the mid‑2010s just don’t behave the same way anymore.

The Structural Reset

Metric	Old Playbook (2000–2015)	New Playbook (2026+)
Supply control	Herd retirements and voluntary supply cuts through programs like CWT	On-farm culling targeted at performance, health, and butterfat; exits absorbed by larger herds
Growth strategy	Adding more stalls and more cows	Maximizing energy-corrected milk per cow and per pound of dry matter; feed efficiency as the primary lever
Primary income	Almost entirely from the milk check	Milk check plus stronger beef value from beef-on-dairy calves and high cull prices; some herds adding niche or premium markets
Heifer strategy	Raising nearly every dairy heifer born into the herd	Sexed dairy semen on top cows, beef semen on lower-end cows; raising or buying fewer, higher-value replacements
Risk exposure	Cyclical price swings; debt servicing	Co-op capital risk, processor consolidation, regional policy divergence, replacement heifer shortages

The old mindset assumed that enough CWT rounds or herd sales would tighten supply and lift prices. The data suggest something different: larger herds with lower costs per hundredweight are ready to step in when neighbors exit, blunting the supply‑tightening effect of those departures. University of Illinois economists looking at the 2022 Census noted that herds with 2,500 cows or more actually increased their share of the national milk supply even as total farm numbers dropped, confirming what many of us have seen anecdotally.

That’s a big shift in how risk and opportunity line up.

What the Census Is Really Telling You

The 2022 snapshot gets pretty eye‑opening when you dig into it. USDA’s dairy census highlights show that farms with sales of milk from cows fell from 40,336 in 2017 to 24,470 in 2022, a 39% drop in just five years. Over that same period, NASS milk‑production data show total U.S. milk production at roughly 226 billion pounds in 2022, with an average of 9.4 million cows—almost the same number of cows producing more milk.

Rabobank’s consolidation analysis provides more detail. Senior dairy analyst Lucas Fuess points out that about 67–68% of U.S. milk is now produced on farms with 1,000 or more cows, even though those herds account for only a small single‑digit share of total operations. Summary of the same work notes that farms with more than 1,000 head produced 67% of U.S. milk in 2022, up from 60% in 2017.

So what many of us have seen on the ground—the milk concentrating on fewer, larger farms—is exactly what the national numbers are telling us.

You probably know this pattern already if you’ve watched what happens when a neighbor exits. Many larger operations in Wisconsin, the West, and the Plains report absorbing cows from exiting neighbors—keeping the best animals, tightening up their fresh cow management and transition period, and culling more sharply for poor butterfat performance, health, and reproduction. The net result is that the milk doesn’t really leave the system. As one producer put it at a recent regional meeting, when a herd sells out, “the milk just changes addresses.”

That’s why one of the old assumptions—“enough farms sell out, and prices will snap back”—just isn’t as reliable as it used to be. The supply side has become much more resistant to exits because large herds, often with strong genetics and efficient systems, are ready and able to absorb the volume.

Regional Darwinism: Why Geography Is Now Destiny

What farmers are finding is that national averages hide a lot. Your region—and quite often your processor mix—now matters almost as much as your butterfat and protein levels when it comes to long‑term viability.

Region	Structural Tailwinds	Structural Headwinds	Class I Utilization	2025 Outlook
Pacific Northwest	Export-oriented processing capacity (Pasco plant)	$4/cwt co-op deduction, low Class I (~20%), environmental scrutiny	~20–22%	High risk: Co-op capital costs hitting checks directly
Southeast	High Class I demand, restored “higher-of” pricing, dense population	Limited land for expansion, summer heat stress	~28–32%	Favorable: Policy and demographics working together
Upper Midwest	Strong processing base, established supply chains, agronomic fit	“Deadly middle” herd size squeeze, thin margins, weather volatility	~23–26%	Mixed: Efficiency separates winners from exits
California	Massive scale, sophisticated genetics, year-round production	High land/labor costs, strict environmental regs, water constraints	~21–24%	Stable consolidation: Fewer, larger, more efficient herds

Pacific Northwest: When Headwinds Stack Up

In the Pacific Northwest, especially Washington and Oregon, producers are facing several headwinds at once.

The one everyone’s talking about is Darigold’s new plant at Pasco, Washington. Darigold announced and broke ground on a $600‑million production facility at the Port of Pasco in 2022, designed to handle milk for butter and powder and serve export markets, according to cooperative announcements and Bullvine coverage. By May 2025, Capital Press was reporting that the plant was about $300 million over budget, based on people familiar with the project, pushing total costs toward $900 million. Follow‑up coverage has described the Pasco facility as the largest dairy plant in the Northwest, coming online at a much higher price tag than originally forecast.

To help cover those overruns and broader financial strain, Darigold’s board approved a $4‑per‑hundredweight deduction on member milk checks for at least several months, with $2.50 of that earmarked explicitly for Pasco construction costs, according to a mid‑April member letter. The $4/cwt reduction hit member pay prices in mid‑2025. For a 500‑cow herd shipping 125,000 cwt a year, that’s roughly $500,000 less milk income across 12 months—before you even talk about feed, labor, or interest.

***Darigold’s Pasco plant ballooned from $600M to $900M, triggering a $4/cwt member deduction that costs a typical 500-cow operation roughly $500,000 annually***

Several Washington producers shipping to Darigold have told reporters at Dairy Herd Management and local papers that the $4/cwt reduction, stacked on top of regular cooperative deductions, made it very hard to cash flow their operations. Those are the kinds of numbers that separate “tight” from “unworkable.”

Then there’s the federal order piece. USDA federal order data shows Class I (fluid) utilization in the Pacific Northwest order hovering around 20–22% in recent years, while “All Markets Combined” Class I utilization nationally is typically in the mid‑ to upper‑20% range. That gap matters because it means more milk in that region gets priced into lower‑valued Class III and IV pools rather than the Class I fluid market.

Regulation adds another layer. In Washington’s Yakima Valley, nitrate contamination concerns have led to consent decrees and added oversight of several large dairies, with some operations closing or restructuring under pressure from regulators and environmental groups, as described by Capital Press and Washington State Dairy Federation representatives. So producers there are trying to operate under below‑average Class I utilization, substantial environmental scrutiny, and a major co‑op project that’s gone significantly over budget.

The Pasco Lesson: When Co‑op Projects Become Producer Risk

The Darigold Pasco story has become a cautionary lesson about how cooperative‑led capital projects can shift risk back onto member farms.

Initial plan: A $600‑million, world‑class plant to process up to 8 million pounds of milk per day and export butter and powder to more than 30 countries.
Updated reality: Cost overruns pushing total investment toward $900 million, plus a $4/cwt deduction on member milk checks, with $2.50 directly tied to the plant and the remainder covering other financial shortfalls.

What this development suggests isn’t that co‑ops shouldn’t invest. It’s that:

The scale and risk of major projects need to be clearly communicated to members at the farm level.
There should be a realistic plan for what happens if budgets slip or markets change.
Producers need to know how much of their milk check might be diverted to debt service if things don’t go according to plan.

In plain terms, Pasco is a reminder of what co‑op membership really means: you’re not just selling milk—you’re partnering in capital decisions. That kind of surprise bill would hurt any operation, no matter how well run.

Southeast: Structural Tailwinds and Careful Optimism

Now slide across the map to the Southeast—Florida, Georgia, the Carolinas, parts of the lower Appalachians—and the structural picture looks very different.

USDA federal order summaries consistently show higher Class I utilization in Southeast‑oriented orders because of dense population and strong fluid‑milk demand. That built‑in demand has always mattered, but recent policy changes have made it even more important.

USDA’s federal order modernization decision restored the “higher‑of” Class I skim pricing formula and updated Class I differentials. Analysis found that these changes tend to increase Class I values more in fluid‑deficit markets in the East and Southeast than in regions dominated by manufacturing. Progressive Dairy and Dairy Herd coverage of the 2024–2025 seasons described many Southeastern producers as having one of their better financial years in a while, with improved Class I pricing, decent overall milk prices, and somewhat softer feed costs lining up in their favor.

So if you take two 500‑cow herds—similar genetics, comparable butterfat performance, similar feed efficiency—and put one in a strong Southeast Class I market and the other in a Western market with lower Class I utilization, it’s common for the Southeast herd to see significantly higher gross revenue at the same production level. That’s geography and policy working together, not just management.

Upper Midwest: The “Deadly Middle” in America’s Dairy Heartland

In Wisconsin and Minnesota, the story is familiar but still evolving. This region still feels like the heart of U.S. dairying, but a certain band of herds is under real structural pressure.

USDA and state data show licensed dairy herds in Wisconsin falling from more than 10,000 in the early 2010s to under 7,000 by 2022, even as total state milk production stays near or at record highs. Farmdoc’s national work highlights the same pattern: sharp drops in herd numbers, modest changes in total cow numbers, and higher milk production overall.

Zisk Analytics’ profitability maps, featured regularly in Dairy Herd and other farm media, often show the Southeast and parts of the Southwest near the top for projected profit per cow, with many Upper Midwest herds—especially smaller and mid‑size ones—clustered in thinner‑margin categories. Plenty of Midwest producers say they’re still “making it work,” but they also admit there isn’t much cushion left if something goes sideways.

The 400–600 Cow Squeeze: Dairy’s “Deadly Middle”

This is the segment that’s really stuck in the middle.

Typical profile of the 400–600 cow “no‑man’s land” herd:

400–600 Holsteins, often in 20‑ to 30‑year‑old parlors or older freestalls
Solid, but not elite, feed efficiency and components
Bulk milk is sold into commodity pools, with limited premiums
Mix of family and hired labor, with real payroll costs
Some debt, but not extreme

Too big to run purely on family labor. Too small to fully capture the per‑cow cost advantages that 1,500‑ or 3,000‑cow herds can achieve. Not differentiated enough to earn strong value‑added premiums consistently. That picture lines up with Rabobank’s census‑based finding that farms with 100–499 cows have lost share of U.S. milk output while 1,000‑plus cow units gained share.

In many Wisconsin operations and across the Upper Midwest, what I’ve noticed is that these herds often feel boxed in. They can’t easily cut costs without hurting cow comfort or fresh cow management. They can’t easily scale without major capital. And they’re not always well‑positioned for organic, grass‑based, or on‑farm processing.

If you’re in that 400–600 cow band, the uncomfortable reality is that staying “average” has become a very risky strategy. Hoping your way out of structural math isn’t a plan—it’s a gamble. That doesn’t mean you’re out of options. It does mean this group needs especially clear decisions: whether to pursue scale, chase premiums, partner with neighbors, or plan a well‑timed transition. Just waiting for the next “good cycle” is a much bigger bet than it used to be.

California: Big, Efficient, and Still Under Pressure

We can’t talk about U.S. dairy without mentioning California. The state still has more dairy cows than any other and remains a powerhouse for cheese, butter, and milk powder.

Reports from the California Department of Food and Agriculture and USDA’s milk production summaries show that California’s dairy cow numbers have leveled off or edged down slightly in recent years, while per‑cow production remains among the highest in the country. Many of those cows are in large freestall and drylot systems with strong genetics, sophisticated feeding programs, and very deliberate fresh-cow management.

At the same time, California herds are navigating:

Groundwater and surface‑water regulations that shape where and how dairies can operate
Air quality and manure‑management rules that add cost and complexity
High land and labor costs relative to many other regions
A competitive but sometimes volatile processing environment

Analysts generally expect California to remain a major milk state, but to continue consolidating toward fewer, larger herds—similar to broader trends in the West. Some operations will double down on scale and efficiency, while others are leaning into value‑added products or multi‑state footprints to spread risk.

What Farmers Are Finding About Feed Efficiency

What farmers are finding, as they dig into their numbers with nutritionists and Extension, is that feed efficiency may be one of the most powerful levers they still fully control.

A national dairy Extension article on feed efficiency describes energy‑corrected milk per pound of dry matter as one of the strongest and most overlooked tools on many dairies. As a guideline, that article notes that for each improvement of 0.1 unit in feed efficiency—say, from 1.4 to 1.5—the increase in income can range from 15 to 22 cents per cow per day, assuming typical milk and feed prices. University economists and consultants have shown similar numbers, with Mike Hutjens demonstrating that feed efficiency improvements can quickly add tens of cents per cow per day to margins when feed costs are 15 cents per pound of dry matter.

To stay conservative, many advisors suggest budgeting 10–15 cents per cow per day for a 0.1 improvement. Over a full year, that’s about $35–55 per cow. On a 500‑cow herd, that’s roughly $18,000–27,500 a year from one modest bump in efficiency.

***Feed efficiency improvements offer $35-55 per cow annually with no capital investment – on a 600-cow herd, that’s up to $33,000 from better forage allocation and transition management***

Herd Size	Low Estimate ($35/cow)	High Estimate ($55/cow)	Total Range
200 cows	$7,000	$11,000	$7K–$11K
400 cows	$14,000	$22,000	$14K–$22K
600 cows	$21,000	$33,000	$21K–$33K
800 cows	$28,000	$44,000	$28K–$44K
1,000 cows	$35,000	$55,000	$35K–$55K

Peer‑reviewed work and Extension surveys on transition health and disease keep reinforcing that connection. A 2021 study of dairy herds in the journal Pathogens and subsequent reviews in Animals and other journals documented that mastitis and other health events increase treatment costs, reduce milk yield, and increase culling risk. Reviews of cow longevity and economic performance show that herds with fewer transition‑period problems and better reproductive performance can improve both animal welfare and profitability by extending productive lifespans.

On real farms, the herds that are squeezing more milk out of each pound of dry matter tend to share a few habits:

Forage testing and smart allocation. Forage analyses—NDF digestibility, starch, protein—are actually used, not just filed. The highest‑quality forages go to fresh and high‑producing cows, with lower‑quality lots assigned to late‑lactation cows and heifers. Extension specialists and industry nutritionists consistently show how differences in forage quality drive both butterfat performance and overall feed efficiency.
Transition period as a non‑negotiable. Comfortable close‑up and fresh pens, consistent DCAD and energy strategies, and careful monitoring of fresh cow intakes and health are built into daily routines. Field work and research keep showing that fewer fresh‑cow disorders mean higher peaks, better reproduction, and more efficient use of feed over a cow’s life.
Bunk management discipline. Feeding times are consistent, loading errors are minimized, refusals are checked, and feed is pushed up often enough that cows can access it throughout the day. Economists and nutritionists have pointed out how inconsistency—especially in timing and mix accuracy—can quietly erode both feed efficiency and component yields.

What’s encouraging is that most of these improvements don’t require new concrete. They require better measurement, clear targets, and consistent habits. In a year where margins are tight and interest isn’t cheap, that’s where a lot of the hidden money is.

Replacement Heifers, Beef‑on‑Dairy, and the New Culling Math

Category	Typical 2025 Range (USD)	Annual Impact (500-cow herd, 35% cull rate)
Replacement heifer (national avg)	$2,400 – $2,900	+$420,000 – $507,500 (175 replacements)
Western springer (top end)	$3,500 – $4,000	+$612,500 – $700,000 (if sourcing West)
Beef-on-dairy calf(weaned/feeder)	$1,000 – $1,400	+$50,000 – $70,000 (50 calves)
Day-old beef-cross calf	$600 – $750	+$30,000 – $37,500 (50 calves)
Cull cow (sound, 1,400 lb)	$1,700 – $1,800	+$297,500 – $315,000 (175 culls)
Net replacement cost (heifer – cull)	$800 – $1,300 per head	+$140,000 – $227,500 annual
Cost per CWT across tank	$0.50 – $0.75/cwt	Spread across 125,000 cwt shipped
Cull price risk (20% decline)	–$340 – $360 per cull	–$59,500 – $63,000 if you wait

To understand why culling decisions feel so different now, you’ve got to look at heifers and calves.

A 2025 report from CoBank’s Knowledge Exchange, highlighted that U.S. dairy replacement heifer inventories have fallen to a roughly 20‑year low. CoBank’s modeling suggests heifer inventories could shrink by another 800,000 headover the next two years before beginning to rebound around 2027, based on predictions of breeding practice changes and herd demographics. That’s coming from sexed dairy semen being used more strategically on the top end of the herd, beef semen on the rest, and more disciplined replacement strategies.

USDA’s Agricultural Prices reports show average replacement dairy heifer values moving into the mid‑$2,000s nationally, with some states seeing averages in the high‑$2,000s. In Wisconsin, the average replacement heifer prices jumped from about $1,990 to roughly $2,850 year over year—about a 69% increase—as the beef‑on‑dairy trend curtailed dairy heifer supply. Reports also show Western Holstein springers bringing $4,000 or more at the top end.

On the beef side, allied beef‑on‑dairy programs have documented how crossbred calves that might have brought $600–700 a few years ago are now often selling for $1,000–1,400 in many markets, depending on weight and timing, and how reports of day‑old beef‑cross calves at $600–750 in some Midwest and Plains auctions have become more common. Straight Holstein bull calves, as most of you unfortunately know from the checks, still trade at much lower levels.

In CoBank’s 2025 outlook, Corey Geiger, lead dairy economist at CoBank, emphasized that beef is contributing a larger share of total dairy revenue every year and that beef‑on‑dairy breeding has moved a significant portion of calves out of replacement pipelines and into beef streams.

Heifer & Beef‑on‑Dairy Economics at a Glance

Category	Typical 2025 Range
Replacement heifer (national avg)	$2,400–$2,900+
Western springer (top end)	$3,500–$4,000+
Beef‑on‑dairy calf (weaned/feeder)	$1,000–$1,400
Day‑old beef‑cross calf	$600–$750
Cull cow (sound, 1,400 lb)	$1,700–$1,800
Net replacement cost	$800–$1,300/head

Spread across the tank, that net replacement cost can quickly add 50–75 cents per cwt to your true cost of production, depending on cull rate and herd size. When you add in the fact that the transition period is still the highest‑risk phase of a cow’s life for disease, culling, and reproductive failure—something documented repeatedly in herd‑health research and field data—you can see why many herds are taking a closer look at which cows they ship and which they keep.

What I’ve noticed, talking with producers from the Upper Midwest to California’s Central Valley, is that many herds are shifting in three ways:

Using culling to clean up truly chronic problems first: repeated mastitis or high SCC, cows that don’t breed back after multiple services, recurring lameness, and persistently low fat‑protein corrected milk.
Being more thoughtful about longevity: hanging on to efficient, healthy fourth‑ or fifth‑lactation cows if they’re still producing well and breeding back, instead of automatically moving them just because of age. Recent work on cow longevity and economic performance from European and North American studies supports the idea that well‑managed, longer‑lived cows can improve both welfare and profit.
Raising or buying fewer replacement heifers overall, but putting more emphasis on genetics, calf and heifer management, and a smooth transition into the milking herd for those they do keep.

Three Decisions That Matter in the Next 90 Days

Given all this—consolidation, regional differences, heifer inventories, processor investment—three near‑term decision areas keep coming up in conversations with producers, nutritionists, and lenders.

1. Culling While Beef Prices Are Still Favorable

Right now, cull cow values are historically strong in many regions. USDA market reports and industry summaries show sound cull cows bringing high prices relative to long‑term averages, supported by a tight national beef supply after heavy beef‑cow liquidation. Beef‑market outlooks in USDA’s Livestock, Dairy, and Poultry Outlook and land‑grant analyses note that as the U.S. beef cow herd slowly rebuilds from very low levels, cull prices could soften over the next couple of years, especially if slaughter numbers ease.

For a 1,400‑pound cow, that’s easily a $250–300 swing per head between today’s strong prices and a softer market. For a 500‑cow herd with a 35% cull rate, that’s $40,000–50,000 across the year. So if you’ve got cows that are clearly on your “watch list”—chronic mastitis, repeated reproductive failures, recurring lameness that never fully resolves, consistently poor butterfat performance—the timing matters.

A simple cull checklist that many herds are using with their vets and consultants looks like this:

Chronic mastitis or consistently high SCC despite treatment
More than two or three unsuccessful breedings this lactation
Recurring hoof problems affecting production or mobility
Persistently low fat‑protein corrected milk compared with pen mates

At a recent Extension meeting in the Upper Midwest, a herd manager described sitting down with their vet and nutritionist, flagging about 60 cows that met those criteria, and prioritizing shipping them over several weeks while beef prices stayed strong. The cull income went straight to reducing their operating line and funding upgrades in their fresh‑cow area. Examples like that are showing up more often in Extension case studies and farm financial workshops.

If cull prices are 20% lower next year, are there cows you’ll wish you’d moved sooner? That’s the kind of question this window forces you to ask.

2. Treating Feed Efficiency as a Standing Agenda Item

We’ve already walked through the economics: a 0.1 bump in feed efficiency can reasonably be worth $35–55 per cow per year, or $18,000–27,500 on a 500‑cow herd, using conservative values drawn from Extension and economic analysis.

What farmers are finding is that the herds capturing that value aren’t necessarily spending more—they’re just managing more intentionally. A practical way to bake feed efficiency into your routine is to treat it as a standing agenda item at your regular herd meetings.

Here’s a simple framework to work from:

This month: forage and ration review
- Are all current forages tested for NDF digestibility, starch, and protein?
- Are the highest‑quality forages being targeted to fresh and high‑producing groups?
- Are ration changes reflected in updated dry‑matter intake targets for each group?
This quarter: transition and fresh cow focus
- Are close‑up and fresh pens overcrowded or short on bunk space?
- Are fresh cows being checked daily for intakes, temperature, and behavior during the first 10–14 days in milk?
- Are DA, ketosis, metritis, and early culling rates tracked and reviewed with your vet and nutritionist?
Every week: bunk management habits
- Are feeding times consistent from day to day?
- Are refusals checked and recorded, not just guessed at?
- Are feed push‑ups happening often enough to keep feed in reach between feedings?

From Wisconsin freestalls to Texas dry lot systems to Northeastern tie‑stalls, I’ve noticed the same pattern: the herds that treat feed efficiency as a core KPI—not just a once‑a‑year number—tend to be the ones that stay more resilient when margins tighten.

3. Getting Ahead of Liquidity and Risk Management

Class III futures and industry outlooks remain volatile for 2026, with projections shifting as feed costs, export demand, and herd size estimates change. USDA’s 2025 dairy outlooks highlight a wide range of possible milk‑price outcomes depending on those factors, rather than a single clear price path. For herds with low cost of production and strong efficiency, most reasonable price scenarios can still work. For those needing $18–19 just to break even—including full debt service and family living—it’s worth paying very close attention.

Farm financial advisors—from land‑grant universities to private consultants—keep coming back to a few core moves:

Use today’s strong beef and calf checks to build working capital. Paying down the operating line or building cash reserves when beef and beef‑cross calf prices are high gives you more room to maneuver if milk prices under‑perform. With interest costs where they are, every dollar you take off your line is worth more than it used to be.
Sit down with your lender early, not late. Bringing updated cost‑of‑production numbers, your culling and heifer plan, and your feed‑efficiency priorities to the table changes the tone: you’re managing risk, not just reacting to it. University Extension finance specialists make the same point in their 2024–2025 dairy profitability guides.
Match your risk tools to your comfort level. That might mean Dairy Margin Coverage for smaller herds, Dairy Revenue Protection or LGM for others, and selective use of forward contracting on milk or feed. The goal isn’t to hit the top of the market every time; it’s to keep the worst‑case scenarios off the table.

As one Wisconsin‑based advisor told a group at a recent meeting, you don’t want your first serious talk with the bank to be when you’re already in trouble. You want it to be when you still have options.

Why Processors Are Still Building While Farms Are Closing

A question that comes up a lot right now is: if producers are under this much pressure, why are processors pouring billions into new plants?

CoBank’s Knowledge Exchange team tackled that in a 2025 report. They estimate that the U.S. is undergoing a historic $10‑billion investment in new dairy‑processing capacity, expected to come online through 2027, much of it in large cheese, powder, and extended‑shelf‑life beverage plants in Texas, the Southwest, the Midwest, and the Northeast. Darigold’s Pasco facility is one example of these large investments in the Northwest.

Rabobank’s consolidation reports reinforce the big picture: processors see long‑term domestic and export demand for dairy proteins and fats, but expect that demand to be met by fewer, larger, more efficient herds with lower per‑unit costs. Modern plants designed to process 5–8 million pounds of milk per day require high utilization and a consistent supply to remain profitable.

Those plants aren’t being built for a world with more small herds. They’re being built assuming fewer, bigger suppliers who can hit volume and quality specs every day.

When you talk with processor representatives at meetings and plant tours, what often comes through is that they’re laser‑focused on reliability. They want suppliers who can hit volume, component, and food‑safety targets day in and day out. It’s simply easier to do that with a smaller group of large herds than with hundreds of small ones.

That doesn’t mean smaller and mid‑size farms are written out of the story. But it does mean they’re more likely to thrive if:

They’re among the most efficient herds in their region.
They supply processors that value specific quality traits—such as components, traceability, animal care, or local branding.
They focus on premium or niche markets where volume isn’t the only metric that matters.

So Where Does This Go—and What Can You Do?

USDA’s long‑term baseline projections, combined with outlooks from CoBank and Rabobank, point in a broadly similar direction:

Fewer dairy farms overall, but national cow numbers are hovering around 9–9.5 million in the medium term.
A growing share of milk is coming from herds with 1,000 or more cows, continuing the trend already highlighted by the 2022 Census and consolidation analyses.
Continued growth in regions like Texas, New Mexico, Idaho, South Dakota, and parts of the Southeast, with slower growth or contraction in higher‑cost or heavily regulated areas such as parts of the PNW and California.
Ongoing processor consolidation and large‑scale plant investments, including dry lot and freestall‑based supply clusters in the Plains and Southwest.

Nobody can promise exactly what the five‑year average milk price will be. But the structural forces—consolidation, plant expansion, heifer shortages, beef‑on‑dairy, Class I reform—are not hypothetical. They’re visible in USDA data, industry reports, and the checks you’re cashing.

Different operations will respond differently. A 4,000‑cow dry lot in west Texas, a 1,600‑cow freestall in California’s Central Valley, a 600‑cow parlor dairy in Wisconsin, and a 200‑cow grazing herd in Vermont all have different strengths, constraints, and family goals.

What’s encouraging is that some of the most important questions are the same for all of them:

Where’s our real edge—cost of production, components, quality, location, niche market, or some combination?
Are we measuring feed efficiency, fresh cow performance, and butterfat and protein yields clearly enough to guide decisions?
Does our region and processor mix support the kind of operation we want to be five to ten years from now?
If not, what realistic paths do we have—scaling up, shifting markets, partnering with neighbors, or planning a dignified exit or transition?

The Bottom Line: Three Moves for the Next 18 Months

If you boil this down, here’s the hard truth: hoping the next “good cycle” will fix structural math is a much riskier bet than it used to be. In the next 18 months, most herds will be better off if they:

Ship chronic problem cows while beef is still strong and replacement math still pencils, rather than waiting for cull prices to soften.
Put a real dollar figure on a 0.1 feed‑efficiency gain for their own herd and pick one or two habits to move that number, using Extension benchmarks and their own records.
Look their processor and region in the eye—on paper—and decide whether they’re doubling down, diversifying, or slowly pivoting, given the $10‑billion processing build‑out and the consolidation patterns already underway.

The “18‑month window” isn’t a countdown clock to disaster. It’s a realistic horizon in which most herds still have meaningful choices—about culling, feed efficiency, liquidity, and long‑term direction. Those choices are a lot easier to make while you still have room to maneuver than when your bank, your cooperative, or your cash flow is making them for you.

What I’ve noticed, talking with producers from British Columbia to Florida and from California to New York, is that the farms that come through tough stretches in good shape usually aren’t the ones with the fanciest barns. They’re the ones that combine solid cow sense with uncomfortable honesty about their numbers, their region, and their options—and then act before circumstances force their hand.

There’s still time to be one of those herds. The real opportunity in this next 18‑month stretch is to quietly, deliberately tilt the odds in your favor for whatever dairy looks like in 2030 and beyond.

Key Takeaways

Farm exits no longer fix milk prices. USDA’s 2022 Census shows 39% fewer dairy farms since 2017, yet total U.S. milk still climbed to 226 billion pounds—large herds absorb the volume, and the old “sellouts tighten supply” assumption no longer holds.
Heifer inventories are at a 20-year low—and still falling. CoBank projects another 800,000-head decline before a 2027 rebound, pushing replacements into the mid-$2,000s nationally and past $4,000 for top Western springers.
Geography now rivals genetics for survival. Darigold’s $4/cwt Pasco deduction, below-average Class I utilization in Western orders, and stronger fluid returns in the Southeast are making your region and processor mix as important as your herd’s butterfat.
Feed efficiency is hidden cash you already control. A 0.1 improvement can add $35–55 per cow per year—up to $27,500 on a 500-cow herd—without new buildings or equipment.
The next 18 months are a decision window, not a waiting room. Cull chronic cows while beef checks are strong, put a real dollar target on efficiency gains, and sit down with your lender while you still have options—not after your cash flow decides for you.

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 – Grab the blueprint to shave $470 per cow off your annual feed bill. This guide delivers precise procurement tactics for 2025’s volatile markets, arming you with the forage analysis and ration discipline needed to thrive.
Decide or Decline: 2025 and the Future of Mid-Size Dairies – Face the hard truth about surviving the ‘deadly middle’ of dairy’s structural shift. This analysis breaks down five-year positioning for 500-head herds, unpacking the exact moves needed to protect your equity before regional processor leverage shifts entirely.
Beef-on-Dairy’s $6,215 Secret: Why 72% of Herds Are Playing It Wrong – Stop leaking profit by treating beef-on-dairy like a side hustle. This deep dive exposes the genomic multipliers and reproductive benchmarks that separate elite operators from the 72% of herds currently playing the game wrong.

Join the Revolution!

Categories : Dairy Markets

Tags : dairy farm consolidation, dairy industry reset, dairy profitability, Feed Efficiency, milk production trends, replacement heifer supply

$8.2B Exports, $2,500 Heifers: Why Your Milk Check Is Stuck – and the Beef‑on‑Dairy and Genetics Decisions You Can’t Duck in 2026

Saturday, January 10th, 2026

$600 beef calf or $2,500 heifer? The farms still standing in 2026 didn’t trade their future for today’s calf check.

Executive Summary: U.S. dairy exports hit $8.2 billion in 2024, yet milk checks stayed stubbornly flat—and understanding why matters for your next move. The gap comes down to three forces: processing overcapacity that needs export markets to clear marginal pounds, a component shift in which cheese plants now reward protein over extreme butterfat, and a heifer shortage, many herds created by chasing $600 beef calf checks instead of protecting replacements. Today, quality heifers command $2,500–$3,000+, and the math has flipped. Consolidation has reshaped the landscape, too—15,000 dairies exited between 2017 and 2022, with 1,000+ cow herds now producing two-thirds of U.S. milk and demanding “invisible” cows that stay off the treatment list. The operations thriving in this environment share a playbook: components tuned to their plant’s grid, genomics and beef-on-dairy strategies that secure the replacement pipeline, and risk management treated as routine—not a crisis response. The next 12–24 months will separate the farms that planned from the farms that hoped.

You’ve probably lived this. You sit through a winter meeting where someone from the co‑op says, “Exports are strong, global demand looks good, U.S. dairy is well‑positioned.” The slides are full of big numbers. Then you get home, sit down at the kitchen table, open your milk check… and it feels like you’re farming in a different industry than the one they just described.

What’s interesting here is that those export numbers really are big. USDA’s Foreign Agricultural Service, in numbers summarized by IDFA, Dairy Processing, Dairy Foods, and Progressive Dairy, put 2024 U.S. dairy exports at about 8.2 billion dollars, the second‑highest export value on record after the 9.5‑billion‑dollar peak in 2022. Mexico took roughly 2.47 billion dollars of that total, and Canada about 1.14 billion, so together those two neighbors account for just over 40 percent of everything the U.S. ships overseas by value. Export coverage from USDEC highlights that Mexico is consistently the top buyer of U.S. cheese and skim milk powder.

Early 2025 commentary from market analysts suggests exports have generally held up reasonably well compared to 2024, with cheese shipments in particular staying firm in several key months. So that “exports are strong” line on the slides isn’t spin.

The question you and a lot of producers are asking is simple: if exports look that good, why doesn’t the milk check feel the same? To get at that, let’s walk through what’s happening at the plant, what’s changed with butterfat performance and protein, why geography still matters, what’s going on in Mexico—and then bring it right back to genetics, beef‑on‑dairy, fresh cow management, and risk decisions on your own farm.

Looking at This Trend from the Plant Side

Looking at this trend from the processor’s side is where the fog starts to clear a bit.

Over the last several years, processors have poured serious money into stainless steel. IDFA and industry analysts have talked about “historic levels” of processing investment, and Hoard’s Dairyman reported that roughly 8 billion dollarsworth of dairy processing projects—new cheese plants, powder facilities, and ingredient expansions—are in the works across the Upper Midwest, Plains, and Southwest. Brownfield Ag News and Dairy Herd have described “widespread growth underway,” citing new or expanded plants in South Dakota, Kansas, Texas, Idaho, and New York.

You see it most clearly along the I‑29 corridor. South Dakota has become one of the fastest‑growing dairy regions in the U.S., as new cheese capacity along I‑29 pulled in cows and capital. Kansas appears in USDA Milk Production reports and Progressive Dairy summaries as another state with steady multi‑year growth, driven by large freestall herds and added processing capacity. In New York, big yogurt and cheese plants—including Chobani’s facility at New Berlin—are regularly flagged in state and federal reports as major buyers anchoring regional milk sheds.

Here’s where the math gets real. Large cheese and powder plants are incredibly capital‑intensive. Dairy economists and plant managers consistently note that these facilities are built to run at high utilization—typically targeting 80 percent or higher—to spread fixed costs over as many cwt as possible. If you build a plant to handle 7 million pounds of milk a day and it only runs at 4 million, your cost per cwt jumps because the debt, labor, utilities, and maintenance don’t shrink just because the milk flow does.

So if the domestic market can only comfortably absorb, say, two‑thirds of what this whole system could produce at profitable prices, the rest has to move somewhere. That “somewhere” is export markets. USDEC summaries show that in 2024, the U.S. shipped record or near‑record volumes of cheese to destinations such as Mexico, South Korea, and Central America, and moved significant quantities of skim milk powder and whey to Asia and Latin America.

From the plant’s point of view, moving that extra product overseas at thin margins is often better than leaving vats idle. From your side of the milk check, those marginal export pounds don’t always create enough added value per cwt—after you factor in global competition, freight, and currency—to show up as a big jump. The plant can spread its fixed costs over a larger volume. You might see a bit better basis at times, but not the windfall “8.2 billion dollars” sounds like on a slide.

That’s the first piece of the export paradox: big export dollars and stubborn milk checks can absolutely coexist.

What Farmers Are Finding About Components

Now let’s bring this back into the parlor, because butterfat levels and protein are doing more of the talking on your milk check than many of us expected a few years ago.

For much of the last decade, butterfat looked like the star. USDA and CME data show U.S. butter prices and per‑capita butter consumption rising, and for many years, Class III and IV values put butterfat at a clear premium over protein on a solids basis. So a lot of us leaned into butterfat—through breeding, rations, and fresh cow management—to capture those butterfat premiums.

As more milk has flowed into cheese vats, though, the balance has shifted. Cheesemakers live on protein. That’s what builds curd. The Federal Milk Marketing Order Class III formulas use cheese, whey, and butter prices to calculate fat and protein values using specific yield factors. The way those formulas are structured creates a kind of see‑saw: when butterfat prices move sharply higher, the implied value of protein tends to get pulled down, and when butterfat softens, protein can carry more of the pay pool.

If you look at USDA component price reports across 2024, butterfat values often ran in the 3.00 to 3.50 dollars per pound range, while Class III protein values showed significant volatility—bouncing from around 1.10 to over 2.50 dollars per pound depending on the month. Dairy market updates from MCT Dairies and federal order bulletins highlighted several months where fat was historically strong while protein sagged, reflecting that cheese‑heavy product mix. Analysts like Sarina Sharp with the Daily Dairy Report have talked about co‑ops finding themselves “long on cream” at times, which makes it hard to fully reward sky‑high butterfat tests when protein and cheese demand are really driving the bus.

What farmers are finding—and what a lot of field nutritionists and independent advisers will tell you—is that balancedmilk tends to pay better than extreme milk in this environment. Herds averaging around 3.5–3.8 percent protein and 3.8–4.1 percent butterfat, with solid fresh cow management and a smooth transition period, often see more stable component checks than herds that push butterfat into the mid‑4s while letting protein linger around 3.0–3.1 percent. That profile matches what many cheese plants say they want: strong pounds of solids, but in a ratio that actually fits their vats.

Month	Butterfat ($/lb)	Protein ($/lb)
Jan	3.15	1.85
Mar	3.35	1.45
May	3.10	2.20
Jul	3.45	1.30
Sep	3.25	2.05
Nov	3.05	2.45

If you haven’t done it recently, it’s worth a quick kitchen‑table exercise:

Take a month’s milk statement and write down the total pounds of fat shipped and total pounds of protein shipped.
Divide each by the total pounds of milk shipped to confirm your average butterfat and protein tests.
Then look up that month’s USDA or co‑op Class III/IV component values and see how many dollars per cwt those pounds are really generating.

A recent review on milk quality and economic sustainability points out that herds with better component performance and milk quality tend to show stronger economic sustainability—so long as they aren’t trading away health and fertility to get there. And Mike Hutjens, Professor Emeritus and extension dairy specialist at the University of Illinois, has hammered the same point for years: it’s pounds of fat and protein shipped per cow and per cwt that drive income, not just pretty percentages on the DHI sheet.

This development suggests something important: chasing maximum butterfat at the expense of protein and cow health doesn’t pay the way it once might have. The money today is in a balanced component profile, backed by good transition‑period management and consistent TMRs.

Why Your ZIP Code Still Matters More Than You’d Like

Looking at this trend across regions, it’s hard to ignore how much your postal code still shapes your milk check.

USDA Milk Production reports make it pretty clear that cows and milk have been shifting into certain regions, especially the interior. South Dakota is one of the clearest examples. The state has become a major growth engine as the I‑29 corridor cheese plants and expansions pulled in herds and investment. Kansas appears in USDA and Progressive Dairy statistics as another state with consistent year‑over‑year growth, driven by large freestall operations and added plant capacity. At the same time, USDA/NASS and state reports often rank Michigan near the top for milk per cow, thanks to strong forage programs, cow comfort, and efficient parlors.

What I’ve noticed, looking at those numbers and listening to producers, is that geography flows directly into basis and hauling. A 1,500‑cow freestall in eastern South Dakota, 20 or 30 miles from a modern cheese plant, is playing a different game than a 200‑cow tie‑stall in a New England valley where there’s limited processing and plants are already full. The close‑in herd may save 30–50 cents per cwt on hauling and pick up stronger over‑order premiums and quality incentives because the plant really needs their milk. The more remote herd often pays more just to get milk to town and has fewer realistic buyers if contracts change.

To put some rough numbers on it, imagine a herd shipping 20,000 cwt per month. If better basis and lower hauling together net 0.75 dollars per cwt more than a herd in a less favored location, that’s 15,000 dollars per month, or roughly 180,000 dollars per year. That’s just an example based on USDA and regional data; every farm will have its own version of that spread. But it shows why two herds can read the same export headlines and feel completely different realities when the milk checks arrive.

Factor	Herd A: Close to Growing Plant (SD, KS, TX)	Herd B: Remote or Declining Region (VT, Upstate NY, Rural West)
Distance to Plant	20–30 miles	80–150+ miles
Hauling Cost	$0.25–$0.40/cwt	$0.60–$1.00/cwt
Over-Order Premium/Basis	$0.50–$1.25/cwt	$0.00–$0.50/cwt
Quality/Volume Incentives	Strong (plant needs milk)	Weak (plant at capacity or shrinking)
Monthly Advantage (20,000 cwt)	Baseline	−$15,000
Annual Impact	Baseline	−$180,000

It’s not about “good” or “bad” states. It’s about plant geography, infrastructure, and policy. Many producers in the Midwest and Plains will tell you their biggest advantage right now is simply being inside the pull radius of expanding cheese plants. Producers in some Northeast or Mountain West pockets, or even parts of Canada, may have very competitive herds but face higher freight and less processor competition, even while exports are booming.

Mexico: Our Best Customer—and a Big Exposure

Now let’s talk about where a lot of those extra cheese and powder pounds actually end up: Mexico.

USDA FAS, IDFA, USDEC, and trade outlets like Dairy Processing are all on the same page here: Mexico is the single largest foreign market for U.S. dairy by value. In 2024, the U.S. shipped roughly $2.47 billion in dairy products to Mexico and about $1.14 billion to Canada. Together, Mexico and Canada account for more than 40 percent of U.S. dairy export value, with Mexico consistently the top buyer for U.S. cheese and skim milk powder.

What’s encouraging in the near term is that Mexico is structurally short on milk. CoBank’s export analysis and USDA FAS reports describe a situation where Mexican dairy demand has outpaced domestic production, leaving a persistent gap that imports—mostly from the U.S.—fill. Per‑capita dairy consumption in Mexico is still lower than in the U.S., which gives some headroom for growth as incomes rise. That combination—structural deficit plus room for per‑capita growth—is a big part of why analysts see Mexico as critical to U.S. dairy’s near‑term export outlook.

But there’s another side that matters for your risk. FAS and industry coverage point out that Mexico is investing in its dairy sector, particularly in northern states, where newer farms are increasingly resembling large freestall and dry-lot systems in the U.S. Southwest, with upgraded genetics, improved feed efficiency, and better milk-handling infrastructure. The goal is to trim back some of that import dependence over time.

So what farmers are finding is that Mexico is both a tremendous asset and a concentration point. Over the next one to three years, it’s hard to imagine a strong U.S. export story that doesn’t lean heavily on Mexico. Over a three‑to‑ten‑year window, if Mexico succeeds in significantly boosting its own production, the growth rate of U.S. exports there could slow, or the mix of products could shift—even if the trading relationship remains strong.

For Canadian readers in Ontario and Quebec, supply management and quota systems buffer your farm‑gate price from a lot of these swings, as multiple analyses of the 2022 Census and Canadian policy have noted. But U.S. export performance and Mexico’s appetite still shape the broader North American environment you’re operating in—especially for processors, trade negotiations, and on‑going USMCA disputes.

One Herd That Fits Today’s Market

Sometimes these big forces are easier to digest when you see how they play out in a real barn.

Top‑Deck Holsteins, a roughly 700‑cow Holstein herd in Iowa, is one of those examples. A recent profile describes Top‑Deck as a freestall operation shipping milk with a rolling herd average around 33,500 pounds per cow per year, built on intentional management and breeding decisions. The exact numbers can move with feed and weather, but the pattern is what matters.

On the cow side, that profile explains that Top‑Deck:

Pushes forage quality and ration balance hard to drive dry matter intake and feed efficiency.
Treats cow comfort as a core investment—stall design, bedding, ventilation, and milking routines are all tuned for long lying times and low stress.
Watches fresh cow management and the transition period closely, with protocols aimed at catching issues early and supporting strong peaks without burning cows out at 30–60 days in milk.

Genetically, Top‑Deck uses genomic testing to rank heifers and cow families, then:

Uses sexed Holstein semen on top‑merit animals to generate replacements with strong production, components, fertility, and health traits.
Uses beef semen—often Angus—on lower‑merit animals to produce calves that bring better beef value than traditional Holstein bull calves.

Recent genomic and evaluation‑system reviews in the Journal of Dairy Science and related outlets note that millions of dairy animals worldwide have been genotyped, and that using genomic evaluations with economic indexes has significantly improved progress in production, fertility, and health compared with relying on parent averages. Work from the University of Guelph’s “beef on dairy” research program—funded through the Ontario Agri‑Food Innovation Alliance and national beef research groups—shows that beef‑sired dairy calves, when managed and marketed correctly, can deliver clearly higher prices than straight Holstein bull calves, and that optimizing their early‑life management is key to maximizing value.

What’s interesting here is that Top‑Deck’s approach isn’t about chasing one extreme number. It’s about building cows that quietly ship a lot of pounds of fat and protein, stay healthy and fertile, and leave behind replacements that can do the same—while using beef‑on‑dairy to lift calf revenue. That’s exactly the kind of herd that fits a cheese‑heavy, component‑sensitive, export‑connected world.

The Consolidation Reality—and What It Means for Genetics

Now let’s punch in the consolidation piece, because this really matters for breeders and for anyone thinking about where their herd fits.

The 2022 Census of Agriculture shows U.S. dairy farm numbers dropping from 39,303 in 2017 to 24,082 in 2022. That’s roughly a 39 percent decline—about 15,000 dairies gone in five years—even as total U.S. milk production climbed roughly 5 percent, on about 9.4 million milk cows. Rabobank analysis cited in those same reports estimates that herds with more than 1,000 cows now produce around two‑thirds of U.S. milk by value, up from around 60 percent in 2017.

On top of elemental market forces, environmental and labor policies are nudging in the same direction. California, Washington, and other states have tightened manure, water, and methane rules, pushing dairies toward digesters, lagoon covers, and more sophisticated nutrient management systems—investments that are easier to justify on a 2,000‑cow dairy than on an 80‑cow tie‑stall. Labor and immigration constraints also tend to hit smaller farms harder, while larger operations often have more tools to recruit, pay, and house workers.

So the center of gravity has shifted. The buyers of genetics and semen are increasingly large freestall and dry-lot herds milking 1,000, 3,000, or 10,000 cows, not just smaller family herds picking bulls at a local sale. And those large herds are demanding a specific type of cow.

European and Scandinavian research has started using the phrase “invisible cows” to describe the ideal animal in large, modern dairy systems: basically trouble‑free, almost boring cows that don’t show up on the treatment list, have few metabolic or hoof problems, calve easily, breed back reliably, and quietly ship components that fit the plant’s grid. U.S. management and genetics advisers are framing similar ideas—focusing on cows that minimize disruptions in high‑throughput, labor‑tight environments.

What I’ve noticed, talking with large‑herd managers and AI folks, is that this is changing the genetic marketplace. Big herds don’t want “project cows” that constantly need special attention. They want cows that are almost invisible day‑to‑day:

Strong on productive life and livability.
Good mastitis resistance and udder health.
Sound feet and legs that keep them moving to the bunk and parlor.
Fertility and calving traits that keep fresh cow problems to a minimum.
Moderate size with solid feed efficiency.

Trait Category	Old Priority (Show Ring / Single Trait)	2025 Large-Herd Priority (“Invisible Cow”)
Production	Max milk volume or max butterfat %	Balanced pounds of fat + protein shipped per cow/year
Health	Treat problems as they come	Mastitis resistance, low SCC, minimal treatments
Fertility	Secondary concern	Strong heat detection, conception rate, calving interval
Calving	Some assistance acceptable	Calving ease (sire & maternal), low stillbirths
Longevity	Cull and replace as needed	Productive life, low cull rate, multiple lactations
Structure	Extreme dairy form, show-ring style	Sound feet/legs, good locomotion, moderate frame
Temperament	Not formally selected	Calm, easy to handle in high-throughput parlors
Feed Efficiency	Rarely considered	Moderate intake, strong component output per lb DMI

For breeders, that has two big implications. First, there’s an opportunity for those who can breed and market families that consistently deliver these trouble‑free, “invisible” cows and back it up with real herd performance. Second, there’s risk if a herd or breeding program stays focused only on show‑ring traits or single‑trait extremes without a clear economic story tied to big‑herd, high‑throughput systems.

As herds get larger, the market is slowly but surely rewarding genetics that reduce problems rather than create them.

Beef‑on‑Dairy: Cash Cow or Heifer Trap?

Now let’s lean into beef‑on‑dairy and replacements, because this is where a lot of operations are feeling both opportunity and pain.

Over the last several years, beef semen sales into dairy herds have surged. CoBank analysts and semen company data indicate that beef semen units going into dairy cows have roughly tripled compared to the late 2010s, with estimates that 7–8 million beef units were sold into U.S. dairies in 2024 alone. The attraction is obvious: in many markets, newborn beef‑on‑dairy calves can bring 600 to 900 dollars per head in the first week, while Holstein bull calves often lag well behind that.

At the same time, USDA’s annual Cattle reports and independent analyses have been ringing the bell on dairy replacement inventories. A 2024 Farmdoc Daily review noted that just 2.59 million dairy heifers were expected to calve and enter the herd that year—the lowest since USDA began tracking that series in 2001. More recent updates and CoBank commentary suggest replacement inventories have been revised downward multiple times and remain historically tight.

On the price side, USDA’s Agricultural Prices reports show average dairy replacement heifer values moving into the 2,200 to 2,700 dollar range in many regions over 2023–2024, with springing heifers at auctions commonly bringing 2,500 to 3,000 dollars, and top lots in some Midwest and Western states touching 3,600 to 4,000 dollars. Several economic studies and extension bulletins peg the cost of raising a replacement heifer from birth to calving around 1,700 to 2,400 dollars, depending on the system—confinement, dry lot, or pasture.

So here’s the hard truth many of us are dealing with: a lot of farms leaned into beef‑on‑dairy so aggressively—because that 600–900 dollar beef calf check looked awfully good—that they’re now staring at 2,500‑plus replacement heifer prices when they want to expand or even just maintain herd size. Analysts in Dairy Herd have gone so far as to say that America’s heifer shortage is actively limiting expansion and that the “big money in beef‑on‑dairy” is one of the key drivers.

For a Bullvine reader, the warning needs to be crystal clear:

Don’t sell your future for a 300‑dollar calf check today.

Decision Point	Today’s Cash	Cost to Raise	Market Price	Real Economics
Beef-on-Dairy Calf	$600–$900	$0 (buyer’s problem)	N/A	Immediate income, no future cow
Holstein Bull Calf	$150–$250	$0 (buyer’s problem)	N/A	Minimal income, no future cow
Keep & Raise Heifer	$0 today	$1,700–$2,400	$2,500–$3,600	24-month investment, future production
Annual Impact (100 beef calves)	+$60,000–$90,000	Clear	−$250,000–$360,000 in replacement costs	Net position depends on replacement needs

In some markets, the calf check is 600 or 800 dollars, not 300, but the principle is the same. Beef‑on‑dairy is a powerful tool when it’s aimed at the bottom of the herd with a clear replacement plan. Used without a plan, it can hollow out your future cow herd and leave you paying top-of-the-market prices to fill stalls.

The sweet spot, based on both research and what well‑run farms are doing, looks something like this:

Top 30–40 percent of females: Genomic‑tested and top‑merit cows and heifers get sexed dairy semen to generate replacements.
Middle group: Conventional dairy semen, adjusted up or down depending on your replacement needs.
Bottom end: Clearly identified low‑merit cows and heifers get beef‑on‑dairy semen to turn them into higher‑value calves.

And that plan isn’t static. It gets revisited each year as calf, beef, and replacement markets change. But the order of operations doesn’t change: protect your future herd first; chase beef calf checks second.

What Farmers Are Finding Works Right Now

Talking with producers from Wisconsin to South Dakota, from Idaho to Ontario, three themes keep showing up on farms that seem to be navigating all this better than most.

Breeding for Profit and “Invisible” Cows

Looking at this trend in breeding decisions, the herds that look most resilient aren’t chasing a single extreme trait. They’re using tools like genomic selection, economic indexes, and on‑farm records to build cows that are profitable and low‑drama.

Peer‑reviewed work on dairy genetics and national evaluation systems, summarized by the Council on Dairy Cattle Breeding and others, shows that genomic selection combined with economic indexes like Net Merit (U.S.) and Pro$ or LPI (Canada) can significantly improve progress in production, fertility, and health traits compared to traditional selection. That’s the backbone of how most major AI studs and progressive herds are making mating decisions today.

On the farms I’ve seen, a practical genetics plan often looks like this:

Use a profit index (Net Merit, Pro$, LPI) as the main filter rather than picking bulls off a single trait like butterfat or total milk.
Inside that pool, favor bulls that nudge both fat and protein percentages modestly upward while maintaining or improving fertility, udder health, and productive life.
Put real weight on traits that keep cows in the herd: mastitis resistance, hoof health and locomotion, calving ease, and overall robustness.

In that context, many commodity‑oriented herds are targeting cows with butterfat around 3.8–4.0 percent, protein in the mid‑3s, and reproduction performance that aligns with their culling and replacement plans. That doesn’t win you banners at a show, but it tends to win you more predictable component checks, fewer headaches, and a cow that’s “invisible” in the best way—just quietly doing her job.

Turning Genomics and Beef‑on‑Dairy into Everyday Tools

Genomics and beef‑on‑dairy aren’t fringe ideas anymore—they’re everyday tools for a growing number of herds.

Recent genomic reviews indicate that genomic evaluations can roughly double the accuracy of selecting young animals compared to using parent averages alone, especially for complex traits such as fertility and health. Breeding programs that use sexed semen on the top tier of females and beef semen on the bottom tier to accelerate dairy genetic gain while also lifting calf value.

On many commercial farms, that has turned into a straightforward three‑tier system like the one above. The key shift on farms that are doing it well is that they’ve stopped guessing:

They genomic‑test at least a subset of heifers to identify which families deserve replacements.
They run replacement‑need projections based on real cull rates, expansion plans, and age at first calving.
They adjust the proportion of sexed, conventional, and beef semen to hit those replacement targets rather than just chasing what the calf market looks like this month.

University of Guelph research and beef‑on‑dairy extension materials emphasize that dairy‑beef cross calves can command solid premiums over straight Holstein bull calves when marketed correctly, but they also warn that early‑life management and health are critical to capturing that value. The farms that treat beef‑on‑dairy as a strategic tool—not just a quick cash grab—are the ones turning it into a durable advantage.

Making Risk Management Routine Instead of a Panic Button

The third big shift isn’t genetic or nutritional—it’s in how farms treat price risk.

Extension economists and dairy market advisers have been pushing for years now that tools like Dairy Margin Coverage and Dairy Revenue Protection should be part of a routine risk plan, not just something you sign up for when prices crash. Herds that quietly use DRP or basic options strategies year after year to put a floor under part of their milk price while leaving some upside open.

What many advisers suggest, as a starting point, is that producers consider protecting something like 30–50 percent of their expected milk production with DRP, options, or fixed‑price contracts when forward prices cover their cost of production and debt needs. It’s not a rule; it’s a range that seems to work for a lot of operations. Some herds are comfortable covering more, while others are less comfortable, depending on their balance sheets and risk tolerance.

A simple example might look like this:

A 900‑cow herd in Wisconsin, selling mainly into Class III, uses DRP to set a revenue floor under part of its projected spring and summer milk based on its typical butterfat and protein tests and the markets it ships into.
At the same time, the herd forward‑contracts a portion of its corn and soybean meal when futures plus local basis give them a feed cost that supports a margin they can live with.

The rest of the milk and feed stays unhedged, leaving room to benefit if markets move higher. The point isn’t that 900 cows in Wisconsin need this exact plan. The point is that treating risk tools as normal business practice—as much a part of the job as booking soybean meal—can turn wild swings into manageable bumps.

From conversations with producers who’ve made that shift, the hardest step usually wasn’t understanding the math. It was deciding to stop waiting for the next crisis to start learning.

Different Starting Points, Different Options

Given all this, the logical question is: “So what does this mean for my farm?” The honest answer depends on your size, your location, and your timeline. But some patterns show up pretty consistently.

Larger Herds Close to Growing Plants

If you’re milking 800–3,000 cows in eastern South Dakota, western Kansas, the Texas Panhandle, southern Idaho, or near growing plants in Wisconsin or New York, you’re in a spot where processors need your milk. That doesn’t solve everything, but it’s a real advantage.

On farms like yours that seem to be in decent shape, you usually see:

Sharp focus on components and cow flow. Butterfat and protein targets are tuned to what nearby cheese and ingredient plants actually pay for, and fresh cow management during the transition period is geared to support strong peaks without wrecking cows.
Structured breeding and replacement plans. Genomics and sexed semen build replacements from the top of the herd; beef‑on‑dairy is used thoughtfully on the bottom end to boost calf revenue without starving replacements.
Habitual risk management. DRP, DMC, options, and feed contracts are used when the math works, not just when the market is already in free fall.
Cautious growth decisions. Expansion plans are stress‑tested against lower milk prices and higher costs, often with lender and adviser input, not just modeled on today’s strong basis.

Mid‑Size Herds in Stable Regions

If you’re running 400–800 cows in places like Wisconsin, Michigan, Pennsylvania, Vermont, or Southern Ontario, you’re big enough to feel serious capital pressure but not always big enough to be your plant’s top priority.

Mid‑size herds that look resilient tend to:

Drive the cost of production hard. They lean into cow comfort, parlor throughput, and ration consistency to get into the top third of their region’s cost curve, using benchmarks from lenders, extension, and trade media.
Make themselves “must‑keep” suppliers. Plants know they can count on them for consistent volume, strong quality, and components that fit the product mix.
Explore niches where they truly fit. Some find success with organic, grass‑fed, A2A2, on‑farm processing, or regional branding—especially in the Northeast and Upper Midwest—but only when local demand and the family’s temperament for marketing line up.
Treat succession and timing as strategic variables. Major upgrades or expansions are tied to clear family plans for who wants to be there in 5–10 years, not just to what the bank will finance.

Smaller or More Isolated Herds

If you’re milking 50–200 cows in a rural pocket far from growing plants, or in a region losing processing, the export‑driven, capacity‑heavy system frankly isn’t built with you in mind.

Smaller herds in that position that manage to stay in the driver’s seat often:

Get brutally honest about cost and equity trends. They know, in numbers, whether they’re gaining ground, treading water, or slowly slipping.
Decide what role the dairy plays. For some, the dairy is still the primary economic engine. For others, it’s part of a mix with off‑farm jobs, cash crops, custom work, or direct‑marketing businesses. That choice shapes everything else.
Explore niches carefully, not desperately. On‑farm processing, direct‑to‑consumer sales, or agritourism can work—especially near population centers—but only when location, market, and family skills align. They’re not automatic lifelines.
Plan early for transitions. The most successful exits or step‑downs start with early, candid conversations with family, lenders, and advisers—before external forces make the decision for them.

A Few Practical First Steps

If you’re looking at your own numbers and wondering where to start, here are a few simple, concrete steps that many producers have found useful:

Pull a year’s worth of milk checks and component reports.
Work out your true average butterfat and protein tests, and—more importantly—your pounds of fat and protein shipped per cow and per cwt. Then talk with your field rep or plant contact about how that profile lines up with what your leading buyer wants and pays best for.
Map your replacement needs before you map beef‑on‑dairy.
Sit down with your records and figure out your real replacement rate and any expansion plans. Estimate how many quality dairy heifers you’ll need calving in over the next two to three years. Use that number to double-check how much beef‑on‑dairy your breeding program can truly support without putting you in the heifer penalty box.
Pilot genomic testing on a subset of heifers.
Work with your AI rep or herd vet to test a group, rank them, and use that ranking to decide who gets sexed dairy semen and who gets beef. Treat this as a learning process, not a one‑off experiment.
Schedule an hour with a risk adviser.
Sit down with someone from your co‑op, a dairy‑focused broker, or an extension economist and ask them to walk you through what it would look like to protect roughly 30–50 percent of your expected milk and some of your feed at prices that cover your costs and debt needs. Then adjust that percentage based on your own risk tolerance and lender expectations.
Run a stress‑test budget.
Put together a simple cash‑flow scenario at a lower milk price—say 13–14 dollars Class III—and slightly higher feed costs. See where the pinch points are. Use that information to decide whether your next move should be to tighten costs, adjust debt, lock in some margins, pursue measured growth, or plan a gradual pivot.

Three Questions Worth Asking Yourself

As you work through all that, three blunt questions keep coming up in good kitchen‑table conversations:

Do my components actually fit my buyer’s product mix and pricing grid—or am I leaving money on the table chasing the wrong butterfat/protein profile?
Am I using genomic tools and beef‑on‑dairy with a clear replacement strategy—or am I selling my future herd for today’s calf checks?
Do I have even a basic risk plan for the next 12–24 months, or am I still gambling that spot markets will treat me kindly?

The Bottom Line

At the end of the day, the export headlines and your milk check are telling different parts of the same story. The export dollars keep plants running and markets open. The milk check reflects how that big system—stainless steel, global competition, butterfat and protein pricing, consolidation, geography, heifer supply, and policy—lines up with your cows, your barn, and your ZIP code.

What I’ve noticed, sitting at a lot of kitchen tables and in a lot of barn offices, is that once you really understand those connections, the whole situation feels a little less random. You won’t control the world price of cheese. But you can control how your herd is bred, how your fresh cows come through the transition period, what your cost of production looks like, and whether you use the genetics, beef‑on‑dairy, and risk tools that are already on the table.

There isn’t one right answer. For some operations, the smart play will be to lean in and grow with the local plant. For others, it’ll be carving out a well‑defined niche that truly fits their region and family. And for some, the bravest and best decision will be planning a thoughtful transition that protects family, equity, and sanity. The key is making that call with clear eyes, honest numbers, and a solid grasp of the forces that are shaping all of us—whether we like them or not.

Key Takeaways

$8.2B exports, stubborn checks: Record dairy shipments didn’t lift every milk check because expanded plant capacity needs export markets to clear marginal pounds—at margins that rarely flow back to producers.
Protein now drives the pay grid: Cheese plants reward curd yield, not extreme butterfat. Herds balancing 3.5–3.8% protein with 3.8–4.1% fat are capturing more consistent component premiums than single-trait chasers.
Beef-on-dairy created a heifer crisis: Replacement inventories fell to their lowest since 2001. Farms that grabbed $600 beef calf checks now face $2,500–$3,000+ heifer bills—proof that short-term cash can cost long-term cows.
Big herds are buying “invisible” cows: 15,000 dairies exited in five years; 1,000+ cow operations now ship two-thirds of U.S. milk. They’re paying for genetics that deliver fertility, health, and components—not project cows that hit the treatment list.
Three moves that separate planners from hopers: Tune your component profile to your plant’s grid, use genomics and beef-on-dairy with a locked-in replacement plan, and treat DRP and feed hedges as standard practice—not emergency measures.

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

Learn More

The $4,000 Heifer: Seven Strategies to Navigate the New Dairy Economy – Reclaim your margin with a tactical breakdown of the “Raise vs. Buy” math. This guide arms you with the leverage needed to negotiate with lenders while surviving $3,000 replacements in a historically tight-supply market.
2025’s Dairy Dilemma: Record Exports, Falling Checks, and What Every Producer Must Decide Next – Exposes the “Volume over Value” trap where being the world’s cheapest cheese supplier bleeds your bottom line. Gain the strategic foresight to outmaneuver the coming Mexican production pivot and Southeast Asia’s critical processing shift.
The December Genetic Reckoning: Former Champions Fall, New Kings Rise, and Your 2026 Strategy Just Changed – Reveals the “Invisible Cow” dominance reshaping global Holstein rankings. Learn to manage genomic volatility and leverage concentrated bloodlines to build the low-drama, high-component herd that modern processors and large-scale managers demand.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy, dairy markets, dairy profitability, Heifer rearing, Milk Production, North American dairy, risk management

You Won the Whole Milk Fight. Here’s Why Your Milk Check Didn’t Move.

Saturday, January 10th, 2026

Whole milk finally won. Your check didn’t move. The $140/cow answer is in your protein-to-fat ratio.

Executive Summary: This feature digs into why, even after full‑fat dairy won big in the 2025–2030 Dietary Guidelines and whole milk returned to U.S. schools, many producers aren’t seeing bigger milk checks. It shows how years of chasing butterfat performance left U.S. herds slightly out of step with cheese and whey plants that now pay more attention to protein and protein‑to‑fat ratio than to record fat tests. Using current data from CoBank, Federal Orders, and major plant investments, the article walks through real numbers—including a two‑herd example with a $70,000‑per‑year difference in component revenue—to prove how protein is quietly becoming the main driver of milk value in cheese‑heavy markets. Regional sections help producers in the Upper Midwest, California, the Northeast, and Canada see how these shifts look under their own pricing and quota systems. The core takeaway is simple: if you want to stay ahead, you need to manage for protein at least as actively as you manage for butterfat. A three‑stage playbook then outlines what to do next—short‑term component audits and ration tweaks, one‑year genetics and genomics choices, and three‑year positioning around new cheese, whey, and sustainability‑linked programs—delivered in a practical, farmer‑to‑farmer tone that respects both the win for whole milk and the new math on the milk check.

If you just skimmed the headlines this year, you’d swear dairy finally got everything it’s been asking for.

In early January, the U.S. Department of Agriculture and the Department of Health and Human Services rolled out the new 2025–2030 Dietary Guidelines for Americans under the “Eat Real Food” banner at realfood.gov, and dairy is right in the middle of that plate. The guidelines lay out a 2,000‑calorie pattern that includes three daily servings of dairy and spell out that when people consume dairy, they can choose full‑fat dairy with no added sugars as part of a healthy eating pattern, describing dairy as an excellent source of protein, healthy fats, vitamins, and minerals. USDA and HHS press materials even call this a historic reset of nutrition policy that puts real, minimally processed foods—meat, eggs, full‑fat milk, fruits, vegetables—front and center while urging people to prioritize protein and cut back on added sugars and highly processed foods.

On the industry side, the International Dairy Foods Association jumped in with both boots. In a January 6, 2026 statement, Michael Dykes, D.V.M., president and CEO of IDFA, said these guidelines “send a clear and powerful message to Americans: dairy foods belong at the center of a healthy diet,” and he highlighted that the document recommends dairy products “at all fat levels,” including whole and full‑fat milk, yogurt, and cheese. That’s a long way from the older “choose low‑fat or fat‑free dairy most often” messaging many of you have been pushing back against for years.

At the same time, Congress finally moved on to something dairy has chased for more than a decade: getting whole milk back into schools. The Whole Milk for Healthy Kids Act of 2025—H.R. 649—updates National School Lunch and School Breakfast rules so schools can serve whole, 2%, 1%, and fat‑free milk, flavored and unflavored, and it excludes milk’s saturated fat from the weekly saturated‑fat limits used to score school menus. Coverage from Dairy Reporter and farm policy outlets notes that the law also tightens rules for what counts as a nutritionally equivalent non‑dairy beverage, and both dairy and plant‑based groups weighed in heavily as the bill advanced. USJersey organizations formally backed the legislation, arguing that it restores whole- and reduced‑fat milk options in cafeterias and better reflects what families actually drink at home.

On paper, that’s full vindication for how a lot of you have been feeding your own kids for decades.

Then the milk check lands on the table… and the numbers don’t exactly say, “You’re finally getting paid for this,” do they?

So let’s walk through why that is, and what it really means for your butterfat performance, your protein, and your next moves.

Looking at This Trend: What Really Changed in the Guidelines

Looking at this trend, here’s what’s interesting: it’s not just that dairy survived another guideline cycle. It’s that full‑fat dairy stepped out of the penalty box.

The new guidelines on realfood.gov lay out a 2,000‑calorie pattern with three servings of dairy and clearly state that when people consume dairy, they can choose full‑fat dairy with no added sugars as part of a healthy eating pattern. The text calls dairy an excellent source of protein, healthy fats, vitamins, and minerals, and it emphasizes that Americans should prioritize protein-rich foods at every meal, including dairy. USDA and HHS fact sheets describe the package as ending the “war on healthy fats,” encouraging more dairy and other whole‑food fat sources, while still stating that saturated fat should remain below 10% of total calories.

Harvard’s T.H. Chan School of Public Health weighed in with a JAMA Viewpoint in January 2025 that’s worth noting. The authors point out that the numeric saturated‑fat cap stayed at 10% of calories, but the visuals and examples in the new guidelines now prominently feature steak, butter, and full‑fat milk, which could easily make people think the cap has quietly loosened. They argue that the “eat real food” emphasis reflects justified worry about ultra‑processed diets, yet also raises fair questions about whether the 10% cap will be applied consistently in practice.

On the research side, more nutrition scientists have been questioning the old blanket advice always to pick low‑fat dairy. A 2021 review in Nutrients concluded that the evidence supporting a strict saturated‑fat cap is more nuanced than many past guidelines suggested and that saturated fat in whole foods such as full‑fat dairy may not carry the same risk profile as saturated fat in ultra‑processed snacks. A 2024 analysis of U.S. diets found that a large share of saturated fat and added sugar comes from processed meats, desserts, and snack foods, rather than just milk and cheese, which supports a more targeted approach to “bad actors” in the diet.

Now fold in the Whole Milk for Healthy Kids Act. The Congress.gov summary of H.R. 649 spells out that schools in the National School Lunch and School Breakfast Programs can once again offer whole and reduced‑fat milks, both flavored and unflavored, and that fluid milk’s saturated fat is excluded from the weekly saturated‑fat calculation used to judge school menus. Dairy Reporter’s coverage shows dairy groups praising the bill for restoring taste and choice, while public‑health advocates worry it could raise saturated‑fat intake among kids who already overshoot recommended levels.

So nutritionally and politically, the wind is finally at dairy’s back. Full‑fat milk, cheese, and yogurt are back in government advice and school cafeterias.

But as many of you have already noticed, that doesn’t automatically change what your processor pays the most for in each hundredweight of milk.

What Farmers Are Seeing: Butterfat Performance and the Protein Gap

What I’ve seen, looking at the data and listening to producers, is that U.S. herds have done an outstanding job at one thing: butterfat.

University of Minnesota’s Isaac Salfer, assistant professor of dairy nutrition, has tracked bulk tank fat tests in the Upper Midwest in work shared through Dairy Herd Management and extension channels. He showed that from roughly 2000 through 2012, average bulk tank butterfat in that region floated around 3.7 to 3.8 percent. By 2021, the regional average climbed above 4.0 percent, and in January 2022, the average fat test for Upper Midwest herds came in around 4.25 percent. Salfer has even commented that a 3.75% fat test—once considered high for Holsteins—now looks more like the low end of what he expects from well‑managed herds with modern genetics and feeding.

From “pretty good” to “best in the neighborhood” in 25 years: Upper Midwest herds pushed butterfat from 3.7% to 4.33%—hitting that target right when mozzarella plants decided they didn’t need any more cream

National numbers line up with that story. The average U.S. butterfat climbed from about 3.8% in 2015 to 3.94% in 2020, then 4.01% in 2021, and hit 4.33% by March 2025, based on Federal Milk Marketing Order data. CoBank’s 2025 analysis on components goes a step further and notes that butterfat percentage in U.S. milk has risen about 13% over the last decade, compared to only 2–3% growth in places like the European Union and New Zealand.

The gap tells the story: U.S. dairy pushed butterfat 13% higher in a decade while protein crawled ahead just 6%—leaving many herds fat-rich and protein-poor exactly when cheese plants started begging for the opposite

Protein has been moving too, but not nearly as fast. That same CoBank work points out that the average true protein in U.S. milk has increased roughly 6% over the decade, from about 3.1% to around 3.3%. Solid progress, but the gap between fat gains and protein gains is exactly where the trouble starts for processors.

None of this happened by accident. A lot of you have deliberately pushed butterfat performance:

Picking sires with strong butterfat PTAs, including some Jersey influence in Holstein herds to boost fat and total component yields, as reflected in both CoBank’s commentary.
Improving forage quality—more digestible fiber, better harvest timing—and ration balance so cows can produce more milk fat without getting knocked off balance energy‑wise.
Tightening up fresh cow management through the transition period—watching negative energy balance, ketosis risk, rumen function—so higher butterfat doesn’t come with more displaced abomasums or down cows.

For several years, that was exactly what the market seemed to want. CoBank notes that butterfat pay prices led protein in eight of the ten years heading into the mid‑2020s, fueling what its analysts call a butterfat boom. Butter prices ran strong, cream multiples were attractive, and churns running hard while cream supplies periodically looked for a home.

The hitch is that protein hasn’t kept up, and processors—especially the cheese and whey plants—are showing more and more concern about that imbalance.

CoBank’s component work shows that from 2000 to 2014, protein prices exceeded butterfat every year, which encouraged a pretty balanced growth in both components and kept the national protein‑to‑fat ratio in the 0.82–0.84 range. As butterfat advanced in both genetics and pricing, the ratio slipped to roughly 0.77. For plants that need a tight balance of casein and fat to fill cheese vats and whey dryers efficiently, that shift matters a lot.

The number your co-op watches closer than you do: the U.S. protein-to-fat ratio slid from 0.84 to 0.77 over 25 years—meaning more cream to manage, less protein for cheese, and higher costs. Cheese plants want you back above 0.80

Why Processors Care So Much About the Protein‑to‑Fat Ratio

Looking at this trend from the plant’s side of the road, you start to see why they keep talking about protein‑to‑fat ratios instead of just “more components is better.”

Cheese makers design their yields around a specific relationship between casein and fat. Many plants like their incoming milk somewhere around 3.2% protein and 4.0% fat, giving a protein‑to‑fat ratio near 0.80—not because they’re fussy, but because that ratio makes their cheese vats and whey systems run efficiently. When milk rolls in at, say, 4.2% fat and 3.1% protein, a few things happen:

There’s more cream than they can easily use in the products they’re making today.
There are fewer pounds of protein per hundredweight to turn into cheese and high‑value whey proteins.
They have to spend extra time and money standardizing milk just to hit the specs their equipment and contracts are built around.

CoBank lays that trajectory out clearly. For years, fat and protein grew in step, and protein generally sat ahead of butterfat on the price sheet, so plants got a nicely balanced stream of components. Then, as butterfat stayed “the money maker” in many markets, genetics and feeding strategies pushed fat faster than protein, leaving cheese‑oriented plants awash in cream but relatively short on protein.

At the same time, USDA Class and component price announcements show that butterfat and protein often trade closer together than many folks expect. For example, March 2025 Federal Order component prices reported butterfat near the mid‑$2.60s per pound and protein in the mid‑$2.40s, with month‑to‑month swings moving those numbers back and forth. In some 2025 months and orders, protein has led fat; in others, fat has led protein. Either way, the gap isn’t always as wide as “butterfat always wins” would suggest.

Corey Geiger, CoBank’s lead dairy economist, has been pretty frank about it. In an October 2025 interview, he pointed out that U.S. butterfat percent is up about 13% over the past decade, while New Zealand and the EU sit closer to 2%, and that U.S. true protein is up around 6%. His takeaway was that U.S. producers in many markets should start shifting some focus from butterfat toward producing more protein, especially as cheese and whey plants expand and protein “takes over the pole position on milk checks” in those regions.

So if it feels like you spent ten years building the butterfat levels the market seemed to want, just in time for the same market to start telling you it’s short on protein, you’re not imagining it.

What Producers See in Their Checks: A Simple Milk Check Example

You know how sometimes the only way to really feel a change is to run the math on two herds that look a lot like what you see in your area? Let’s do that.

Picture two 500‑cow herds shipping to the same cheese‑and‑whey plant in a Midwestern Federal Order:

Herd A (Holstein‑Jersey cross): 75 lb of milk per cow per day, 4.2% butterfat, 3.1% protein.
Herd B (Holstein): 78 lb of milk per cow per day, 3.8% butterfat, 3.35% protein.

Now layer on representative 2025 component values from Federal Order announcements where both butterfat and protein are in play—think butterfat somewhere in the mid‑$2.60s per pound and protein in the mid‑$2.40s to low‑$2.50s, depending on the month. In some recent orders, protein has nudged above fat; in others, fat has had the edge. But they’re in roughly the same ballpark.

Under those kinds of prices:

Herd A clearly “wins” on butterfat performance and ships more pounds of fat per cow.
Herd B gives up some fat, but pushes more protein pounds and a bit more milk.

When you crank those numbers through an actual component pay sheet—with each herd’s fat and protein production multiplied by their respective prices, plus a bit of milk yield difference—it’s easy to reach a scenario where Herd B’s milk brings in tens of thousands of dollars more per year in component revenue than Herd A, despite Herd A’s better fat test. CoBank’s modeling and case examples bear this out in a variety of cheese‑heavy markets: modestly lower fat with noticeably higher protein and milk volume often wins the total component dollar race when protein prices are competitive.

Metric	Herd A (Fat Focus)	Herd B (Protein Balance)	Difference	Winner
Herd Size	500 cows	500 cows	—	—
Milk Yield (lb/cow/day)	75	78	+3 lb	Herd B
Butterfat %	4.20%	3.80%	-0.40%	Herd A
Protein %	3.10%	3.35%	+0.25%	Herd B
Protein:Fat Ratio	0.74	0.88	+0.14	Herd B
Total Daily Milk (lb)	37,500	39,000	+1,500 lb	Herd B
Est. Annual Revenue Advantage	Baseline	+$72,400	+$144/cow/year	Herd B

Your exact math will depend on your local component values, premiums, solids‑non‑fat rules, quality bonuses, and hauling costs. But that basic story—that very high butterfat can be outgunned financially by strong protein plus solid fat in a cheese‑oriented market—is showing up again and again when producers, nutritionists, and farm business advisors sit down and run 6–12 months of milk checks through real pay grids.

Regional Reality Check: It Doesn’t Look the Same Everywhere

It’s worth saying out loud here that the “right” butterfat‑to‑protein balance isn’t identical in every region or every plant.

In Wisconsin and the broader Upper Midwest, Federal Order 30 and neighboring areas send a large share of milk into cheddar, mozzarella, and other cheeses, with modern whey protein recovery. CoBank has noted that these plants tend to be especially sensitive to the protein-to-fat ratio and overall component balance because both cheese and whey yields depend heavily on those ratios. It’s not unusual to hear co‑op reps there say they’re comfortable around 4.0% fat, but they get more excited when they see protein closer to 3.3–3.4%.

In California, the picture is more mixed. Since joining the Federal Order system in late 2018, California milk has flowed into a blend of Class I fluid products, Class III cheese, and Class IV butter and powder. State and federal data make clear that nonfat dry milk and skim powder still matter a lot for that market, which means solids‑non‑fat, class utilization, and balancing costs share the stage with component pricing. A large dry lot herd near Tulare shipping to a plant making both cheddar and powder is playing a slightly different game than a freestall herd in central Wisconsin shipping primarily to a mozzarella‑plus‑whey facility.

In the Northeast, Orders 1 and 33 still lean more heavily on Class I fluid, with strong branded players in whole milk, flavored milk, and ice cream. Those brands often pay healthy butterfat premiums because they’re selling the “cream line” and indulgence story, even while yogurt, cheese, and ultra‑filtered milk plants in the region are watching protein very closely. That’s why you’ll see some Northeast‑targeted analysis—including Bullvine pieces—warning that a 3.15% protein test doesn’t cut it anymore if you want to land in the top tier of certain processor grids.

Then there’s Canada, where the entire structure is different. Under supply management and the Canadian Dairy Commission’s component pricing, producers are paid based on a national grid that’s designed to match butterfat and solids‑non‑fat production with domestic demand for different milk classes. A Holstein herd in Quebec or Ontario that pushes fat too high relative to SNF can quickly bump into quota over‑production penalties or create an SNF surplus, even if the component test looks impressive on paper. That’s a very different optimization problem than a U.S. herd chasing Federal Order component prices and cheese‑plant premiums.

So while the national numbers say butterfat is up double digits, and protein is up single digits, your local reality might be:

“Our mozzarella plant really wants more protein and doesn’t pay much once we’re above 4.0% fat.”
Or, “Our regional fluid brand still rewards butterfat heavily because most of our milk ends up in bottles and ice cream.”
Or, “Our quota system is about staying in tight butterfat and SNF bands, not maxing out a single component.”

In that context, one of the most useful questions you can ask your buyer is very simple: “For the products you’re actually making, what does ideal milk look like for you over the next five years?” It sounds basic, but many of us don’t ask it directly enough.

Region / Market	Primary Products	Preferred Butterfat %	Preferred Protein %	Target Ratio	Key Notes
Upper Midwest (WI, MN)	Cheddar, mozzarella, whey	3.9–4.1%	3.3–3.4%	0.80–0.85	Cheese-focused; protein drives value; above 4.2% fat adds cost
California	Cheese, powder, fluid mix	3.8–4.0%	3.2–3.3%	0.80–0.83	SNF matters for powder; Class IV still significant; balancing act
Northeast (NY, PA, VT)	Fluid milk, yogurt, ice cream	4.0–4.3%	3.2–3.4%	0.75–0.85	Fluid brands reward fat; UF/Greek yogurt wants protein; mixed signals
Canada (Supply Mgmt.)	Quota-based mix	3.9–4.1%	3.3–3.4%	0.80–0.85	Exceeding quota in any component triggers penalties; balance is mandatory

Where School Milk Fits: Stabilizer, Not Silver Bullet

Looking at this trend, you know, it’s tempting to think, “Great—whole milk is back in schools, so butterfat is king again, and we’re saved.”

From a nutrition and category‑health standpoint, the Whole Milk for Healthy Kids Act really is a big win for dairy. The law lets cafeterias put whole and reduced‑fat milk back on the line by exempting milk’s saturated‑fat content from the weekly limit used in menu scoring, and it clarifies what counts as a nutritionally equivalent non‑dairy alternative. Dairy groups have highlighted better taste, greater acceptance, and improved nutrition for kids, while public‑health advocates worry this adds saturated fat back into diets that already exceed recommended levels.

From a volume and pricing standpoint, though, the impact is more modest. Federal Order utilization data and CoBank’s broader market analysis both show that beverage milk is now a minority of total U.S. milk disappearance, and school milk is just one piece of that Class I segment. CoBank economists describe school milk policy changes as important stabilizers: they support butterfat demand, likely raise the floor under fat pricing a bit, and help defend dairy’s relevance with younger consumers. But they’re not big enough to re‑balance a national milk supply that’s become very efficient at producing cream in a system where new stainless steel is increasingly pointed at protein.

So yes, whole milk in schools is a long‑overdue positive. It’s just not a magic lever that can rescue butterfat pricing in markets where everything else is screaming for more protein.

What Producers Are Learning: Reading the Signals That Matter

What I’ve noticed, listening to producers from larger freestall setups in Wisconsin to big dry lot systems in Idaho to smaller tie‑stall herds in the Northeast, is that the folks who seem a little calmer right now aren’t necessarily the ones who guessed every move right. They’re the ones who have been quietly watching a few key signals and adjusting as they go.

First, they’ve watched where the stainless steel is going. CoBank’s late‑2025 work on “Protein will drive milk checks for the foreseeable future” highlights roughly $11 billion in new and expanded dairy plant investments across the U.S., with cheese projects leading the way at about $3.2 billion and significant additional investment in high‑protein fluid and yogurt/cultured dairies. That’s a huge bet on turning milk into cheese, whey, protein‑forward beverages, and cultured products—categories where protein drives a lot of the value.

Hilmar Cheese’s Dodge City, Kansas, facility is a good real‑world example. Company announcements and state economic‑development releases describe an investment north of $600 million, roughly 250 new jobs, and a new cheese and whey production plant designed to handle a substantial stream of milk in southwest Kansas. The message around that project is all about cheese and whey—no one is building a plant like that just to chase cream.

On the cultured side, expansions at places like Chobani’s Twin Falls, Idaho complex have turned it into one of the world’s largest yogurt operations, with multiple rounds of investment in Greek‑style yogurt and other high‑protein cultured products. Those lines rely heavily on ultrafiltration and protein concentration. Butterfat still matters for flavor and mouthfeel, but protein is very much in the lead role in the business model.

Second, some herds have quietly fine‑tuned how they look at genetics. Land‑grant extension specialists and geneticists have been pointing out that composite indexes like Net Merit are built around assumptions about component prices and milk usage that get updated in stages. When butterfat enjoyed a long run of leading the milk check, those indexes reflected that. As protein becomes more valuable in cheese‑heavy markets, there can be a lag before the standard indexes fully adjust. That’s why you see some progressive herds—especially larger ones with more replacements and genomic budgets—using custom indexes that put extra weight on protein PTA, total pounds of fat plus protein, and cheese‑specific traits alongside fertility, health, and feed efficiency.

Third, these operations talk with their processors in pretty practical terms. In some cheese‑heavy areas, field reps have told producers, “We’re fine around 4.0% fat, but what we really want is 3.3–3.4% protein.” That kind of specific feedback has a way of influencing ration design, bull selection, and even which cows get sexed semen versus beef semen when replacement numbers aren’t the bottleneck.

None of this guarantees big margins. But it does show how paying attention to where plants are investing, where component prices actually sit on your milk check, and what your buyer says they need can help you tune your herd toward where the market is going, not just where it’s been.

So What Can You Do? A Time‑Framed, Practical Look

So, given all that, the real question is: given your herd, your market, and your resources, what can you realistically do from here?

I’ve found it helps to think in three timeframes: the next few months, the next year, and the next three years.

In the Next Few Months: Low‑Cost Levers and Better Information

In the short term, you’re not going to rewrite your genetics. But you can sharpen your picture of where the money’s really coming from and see if your ration is leaving easy protein dollars on the table.

A good first step is a simple component value audit. Sit down with your nutritionist, accountant, or farm business advisor and pull out the last 6–12 months of milk checks. Using the USDA’s component price announcements alongside your plant’s pay sheet, calculate what you effectively received per pound of butterfat and per pound of protein once you factor in quality bonuses, premiums, and any penalties. In conversations with extension folks from Minnesota, Wisconsin, and New York, many producers say that once they see those numbers in black and white, they’re surprised at how much work protein is doing in their own pricing grid.

Once you know your real numbers, ask your nutritionist whether small ration changes could nudge protein up while keeping butterfat performance and cow health solid. That might mean:

Fine‑tuning amino acid balance—through rumen‑protected methionine and lysine, for example—so the cows have what they need to add 0.10–0.15 point of protein and potentially a bit more milk, which recent nutrition research suggests is feasible when correctly balanced.
Re‑evaluating bypass fat or specialty fat products to make sure you’re truly getting paid enough for those extra butterfat pounds to justify the cost and any impact on intakes or rumen function.
Double‑checking fiber digestibility and effective fiber so any push toward higher protein doesn’t trigger butterfat drops or more fresh cow problems during the transition period.

These tweaks might add a few cents per cow per day to your feed cost, depending on products and inclusion rates. Before you spend the money, it’s worth running the full cost‑benefit: if you add X cents per cow per day in amino acid products and get Y more pounds of protein and milk, how does that compare to your actual protein prices and margins?

To keep things manageable, there are three numbers worth tracking closely this month:

Your average butterfat percent.
Your average protein percent.
Your herd’s protein‑to‑fat ratio.

Those three alone will tell you if you’re in the ballpark for your market or if you’ve drifted into very high‑fat, modest‑protein territory that might not fit where your milk is going.

Over the Next Year: Genetics and Relationships

Over the next year, the biggest levers you’ll pull are about genetics and relationships.

On the genetics side, it’s a good time to ask whether your bull selection has leaned too hard toward fat at the expense of protein. CoBank’s work on protein‑driven milk checks, combined with the component gains we’re already seeing, suggests that in many cheese‑oriented markets, protein is poised to do more of the heavy lifting in the milk check, even as butterfat stays important. That doesn’t mean abandoning butterfat—it means looking for bulls that deliver strong combined fat and protein, with a bit more emphasis on protein PTA and total component pounds than you might have used five or ten years ago, especially if your milk is headed primarily into cheese and whey plants.

Many studs now offer custom or cheese‑oriented indexes, and university geneticists and extension specialists have shown how to build your own in‑house index that weights fat, protein, fertility, health traits, and feed efficiency according to your actual pay program and costs. For large freestall or dry‑lot herds shipping primarily into cheese and whey plants, those tools can make a noticeable difference in total component yield and income over a few calf crops.

Genomics fits into this picture differently depending on herd size and replacement pressure. For a 2,000‑cow herd, targeted genomic testing can help identify families that reliably deliver higher components and feed efficiency, and that information can shape both culling and mating plans; extension work in states like Wisconsin and California suggests that this kind of targeted approach tends to pencil out better than testing every heifer. For a 120‑cow tie‑stall herd, it often makes more sense to limit genomics to a handful of top heifers each year, lean on proven sires with strong component proofs, and focus more attention on fresh cow management, forage quality, and reproduction.

On the relationship side, this is a very good year to have a plain‑language component conversation with your co‑op or plant. Some questions worth asking directly:

“Given what you’re making now, what butterfat and protein levels would you most like to see from us?”
“Are there specific protein thresholds where you start paying more, or fat levels where it doesn’t really pay for us to push higher?”
“As new plants or product lines come online, do you expect your component pricing or premiums to shift in the next few years?”

You won’t get a perfect forecast, but even a rough answer can tell you whether chasing another 0.05 point of butterfat is really the smartest use of your dollars, or whether leaning into protein, overall component balance, or even sustainability metrics might be a better focus for your market.

Over the Next Three Years: Positioning Around Protein and New Trends

Once you stretch the horizon out to three years, you’re really deciding what sort of milk you want to produce and where you want it to end up.

On the traditional processing side, CoBank’s December 2025 analysis and related industry reporting highlight that processors have made about an $11 billion bet on protein‑oriented capacity—cheese and whey plants at the front, followed by high‑protein fluid and yogurt/cultured investments. Cheese projects alone account for roughly $3.2 billion of that investment, with the rest spread across fluid and cultured plants that are often geared toward ultra‑filtered and high‑protein products. The message for many U.S. regions is pretty clear: protein is becoming the main driver of value at the plant level, even as butterfat remains vital.

On the emerging technology side, precision‑fermented dairy proteins have moved from PowerPoints into actual steel tanks. Perfect Day’s acquisition of Sterling Biotech in India and the build‑out of a whey‑protein facility in Gujarat—with commercial production targeted for 2026 and scale‑up into 2027—is one example of how non‑farm protein production is stepping into markets like sports nutrition powders, ready‑to‑drink protein beverages, and specialized foods. At the same time, companies like Bel Group are working on precision‑fermented casein and on turning acid whey from cheese and yogurt plants into higher‑value ingredients instead of a disposal headache.

What’s encouraging, even if it’s complicated, is that analysts are still divided on how big a bite precision‑fermented proteins will take out of traditional dairy. Some see them as a growing but niche ingredient stream; others think they’ll capture a meaningful share of specific protein ingredient markets over the next decade. Either way, they’re unlikely to replace the bulk of conventional cheese and milk anytime soon, but they will complicate pricing and positioning for certain whey and casein markets.

Layered on top of that, global buyers like Nestlé and Arla are steadily tightening their climate and sustainability expectations. Nestlé has piloted net‑zero and low‑carbon dairy farms, including projects highlighted in Dairy Global, and Arla’s Climate Check program has been paying its farmers a sustainability incentive tied to farm‑level climate performance while building a massive dataset on emissions per kilo of milk. Those programs aren’t identical to U.S. efforts, but they give a good sense of where large buyers and brands are aiming.

For small and mid‑sized farms in regions like the Northeast, Upper Midwest, and certain Western milksheds, that means the long‑term strategy conversation now includes questions like:

“Do we want to position ourselves for a low‑carbon or regenerative milk program if our buyer offers one?”
“Are there animal‑welfare or environmental certifications that could stack on top of our component premiums?”
“Does it make more sense for us to stay a pure commodity shipper, or to direct a portion of our milk into a program that pays for attributes beyond components?”

Those are big questions, and they won’t have the same answers in every region. But they’re increasingly part of the same conversation as butterfat, protein, and where your milk actually ends up.

The Part We Don’t Put in Charts: Being “Right” at the Wrong Time

There’s one more piece here that doesn’t show up in the spreadsheets, and that’s how this all feels.

A lot of farm families have spent decades defending whole milk—at school board meetings, in conversations with dietitians, even in the grocery aisle—while official advice kept pushing low‑fat and fat‑free dairy. Over those same years, many of you re‑tooled your herds and feeding programs to take butterfat performance from “good enough” to “best in the neighborhood,” while steadily improving forage quality, TMR consistency, and transition‑cow programs so those high components didn’t wreck your fresh pens.

Now the federal government finally turns around and says, “Full‑fat dairy belongs in a healthy diet, and we’re putting whole milk back in schools,” at almost the exact moment your processor is telling you, “We really need more protein in your tank.”

I’ve heard more than one producer say some version of, “My dad argued for whole milk in schools his whole life. He’d love to see this—but it’s crazy it took this long, and it’s not what’s moving our check now.” That kind of bittersweet feeling is real. It deserves to sit right alongside any butterfat or protein chart in this discussion.

What’s interesting is that the farms that tend to ride these swings better over time usually aren’t the ones that predicted every move. They’re the ones that treat each new policy change, plant announcement, and component price sheet as more information—not as a verdict on past decisions. They ask, “Given what we know now, what’s the next smart adjustment for our herd, our market, and our family?” and they keep doing that year after year.

That doesn’t make the frustration go away—especially when you feel like you were “right” about whole milk nutritionally for decades and still aren’t getting rewarded the way you’d hoped. But it does give you a way to respond with intention instead of just reacting.

The Bottom Line

So, you’re sitting at the kitchen table with your milk checks, ration sheets, and breeding list. Where does all this leave you?

A few things feel pretty solid:

The new Dietary Guidelines and the Whole Milk for Healthy Kids Act are real wins for dairy’s image and full‑fat milk’s place in U.S. nutrition policy. They reflect updated nutrition science and finally line up a bit better with what many of us have believed and practiced on our own farms since the early 2010s.
At the same time, CoBank’s component work, USDA price announcements, and billions of dollars in cheese, whey, and high‑protein dairy plant investments all point to protein being a major driver of milk value in many U.S. markets over the next several years, especially where most of the milk ends up in manufactured products.
U.S. herds have done an exceptional job with butterfat performance. The next big opportunity is to balance that fat with stronger protein so your component profile lines up with what your plant can actually use and pay for most profitably—not just with what a genetic index favored during the butterfat boom years.
You still have practical levers: short‑term ration tweaks that respect cow health and the transition period, medium‑term breeding and genomic choices that nudge your herd toward better component balance, and longer‑term positioning around where your milk goes—cheese, fluid, powders, or value‑added and sustainability‑linked programs.

You don’t have to fix everything this season. You don’t have to stop being proud of the butterfat performance you’ve built. But given where the money and the stainless steel are moving—from Washington’s “Eat Real Food” rollout to Hilmar’s cheese and whey lines in Kansas, from high‑protein yogurt lines in Idaho to new whey‑protein tanks in Gujarat—it’s worth asking yourself a simple question:

What’s one step I can take this season, and one step over the next year, that nudges our herd a little closer to where our milk, our component pricing, and our margins are actually headed?

Because the rules around components and milk pricing have changed before, and they’ll change again. The farms that tend to stay in the game are the ones that keep reading the signals, keep asking good questions, and keep making those small, smart adjustments—without losing who they are in the process.

Key Takeaways

Policy wins ≠ bigger milk checks. Full-fat dairy in the Dietary Guidelines and whole milk back in schools are image wins—but your processor still pays on components, not nutrition headlines.
Butterfat boomed; protein lagged. U.S. butterfat jumped ~13% over the past decade while protein rose only ~6%, pushing the national protein-to-fat ratio to 0.77—below the ~0.80 cheese plants need.
Protein now drives the check in cheese markets. A 500-cow herd shipping 3.35% protein and 3.8% fat can out-earn a 4.2% fat, 3.1% protein herd by $70,000+ per year at the same plant.
Know your three numbers. Track butterfat %, protein %, and protein-to-fat ratio monthly. These reveal whether your component profile matches what your market actually rewards.
Act across three timeframes. Now: audit components and adjust rations. This year: shift genetics toward balanced fat + protein. Next three years: align your herd with new cheese, whey, and high-protein plant investments.

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

Learn More

FMMO Reality Check: Why 2025’s $2.3 Billion Dairy Pricing Revolution Exposes the Fatal Flaw in American Milk Marketing – Arms you with the exact benchmarks—150,000 SCC and 3.3% protein targets—needed to capture the 2025 pricing revolution premiums. Stop chasing volume and start managing for the December 1 composition factors that drive real margin growth.
$11 Billion Bet on Protein: Is Your Milk Check Positioned to Win? – Exposes the structural $11 billion shift in dairy processing, showing you how to audit your specific pay grid. This strategy helps you stop subsidizing someone else’s cheese yield and captures a potential $70,000 annual protein advantage.
How Brazil’s Cow-Free Proteins Challenge Everything We Know About Milk – Reveals the 2026 biotechnology timeline that could force your farm into an “efficiency trap.” This analysis prepares you for market disruption by pivoting toward hybrid production models and sustainability-linked premiums before the competition catches on.

Join the Revolution!

Categories : Dairy Markets

Tags : cheese yield efficiency, dairy market trends, dairy profitability, federal milk marketing orders, milk component pricing, milk protein-to-fat ratio, whole milk policy

Mercosur Math: Why 30,000 Tonnes of Cheese is Actually 550 Displaced Herds

Saturday, January 10th, 2026

Mercosur was sold as “modest.” The math says 550 EU family herds’ milk and a headwind that can shave cents off every litre you ship. Ready to see where you stand?

Executive Summary: EU dairy farmers are walking into the Mercosur era with costs already running hot, milk output basically flat at about 149.4 million tonnes, and some of the toughest environmental and welfare rules anywhere. The “modest” EU–Mercosur deal quietly opens the door to 30,000 tonnes of cheese, 10,000 tonnes of milk powder, and 5,000 tonnes of infant formula on zero‑tariff quotas once it’s fully phased in—roughly 345,000 tonnes of milk when you convert it back to tanker‑loads. That’s the annual production of more than 500 average EU family herds trying to find a home in a market where cow numbers and drinking‑milk use are already slipping. This article walks through that “Mercosur math,” shows what those quota volumes could mean for your milk cheque over a season, and lays out the practical questions every EU dairy should be asking about compliance costs, product mix, and risk‑sharing with processors.

You know that feeling. The milk cheque shows up, it’s lighter than you hoped, the co‑op newsletter says it’s been “a solid year,” and then the radio starts talking about Brussels pushing the EU–Mercosur trade deal across the finish line.

That’s usually when the questions you’ve been parking for months finally bubble up: “So what does this actually mean for my milk price? For our cows? For whether this place is still viable ten years from now?” Those are fair questions. And they deserve more than slogans, whether they’re coming from farm groups or politicians.

So let’s walk through this together. We’ll start with the cost pressure you’re already feeling, then dig into what’s really in the Mercosur dairy package, translate it into tanker loads and euros, and finish with some practical things you can do at the kitchen table over the next 90 days.

Looking at the Cost Gap We’re Up Against

Looking at this trend over the last five years, here’s what’s interesting: every major dairy region has seen costs go up, but not at the same speed or from the same starting point.

AHDB in the UK pulled together a clear summary of Rabobank’s latest global milk production cost work early in 2025. They looked at eight big exporting regions—Argentina, Australia, China, Ireland, New Zealand, the Netherlands, California, and the US Upper Midwest—from 2019 through 2024. Across that group, average total production costs rose about 14%, which works out to roughly 6 US cents more per litre over that period, and more than 70% of that increase occurred between 2021 and 2024, as feed, energy, and labour spiked. Rabobank’s team also highlighted that feed expenses were the main culprit, with average feed bills across those regions up around 19% since 2019.

The same work shows Oceania at the sharp end of low‑cost production. New Zealand and Australia have been neck‑and‑neck for the lowest cost among the eight regions, with a five‑year average total cost of about US$0.37 per litre versus roughly US$0.48 for the others. That’s roughly a 17% advantage for Oceania once you standardise for milk composition and express everything in US dollars. By contrast, production costs in local currencies in the US, the Netherlands, and China rose about 10–20% over that period, around 25% in Australia and New Zealand, and roughly 30–40% in Ireland and Argentina.

What I’ve found, looking across north‑west Europe, is that this lines up pretty well with what many of you are seeing in your own books. Once you add feed, labour, power, interest, and then the cost of complying with environmental and animal‑welfare rules, you’re often looking at a cost base that’s several euros per 100 kg higher than a low‑cost pasture system in New Zealand or some of the better Mercosur herds. Rabobank’s comparisons suggest that on a typical European cost level, that 17% gap can easily translate into a few euros per 100 kg of milk once everything is counted in.

And it’s not that EU cows are managed badly. In most freestall herds in France, Germany, the Netherlands, or Ireland, butterfat performance, fresh cow management during the transition period, and general cow comfort would look very familiar to good herds in Wisconsin or Ontario. What really racks up the bill is what sits around the cows rather than the cows themselves.

So where do those extra euros actually hide:

Animal‑welfare and environmental rules that govern cubicle dimensions, stocking densities, bedding, sometimes minimum days on pasture, and increasingly strict slurry and housing rules tied to EU nitrates and climate policy
Traceability and food‑safety systems that mean more tagging, sampling, milk recording, and third‑party audits than you’d see in many lower‑regulation exporting regions
Labour laws and social charges that make every hired hour more expensive than in much of South America or Oceania

What’s interesting is that when families actually sit down with their accountant and a highlighter, and pull out projects and costs that exist mainly because of regulation—extra lagoon capacity, environmental testing, certification and audit fees, software for traceability systems—it’s common to end up with a compliance bill in the low single‑digits of euro cents per kilo of milk. A recent systematic review of milk quality and economic indicators in dairy farming backs up the idea that quality schemes and regulatory measures are significant cost drivers, even if the exact cents‑per‑litre number varies from farm to farm. It’s not some official EU‑wide metric, but it’s big enough to matter, especially when global prices turn down.

That’s the cost base Mercosur milk and cheese is going to be bumping into.

What’s Actually in the Mercosur Dairy Package?

So, what’s actually in this deal? Because you’ve probably heard everything from “it’s a minor opening” to “it’ll wipe out EU dairy.”

EU trade documents on the EU–Mercosur association agreement, along with analysis from AHDB, all draw a very similar picture. On the dairy side, the agreement adds new duty‑free tariff‑rate quotas (TRQs) for three main products:

Up to 30,000 tonnes of cheese per year, where current most‑favoured‑nation tariffs sit around 28%
Up to 10,000 tonnes of milk powder per year, also dropping from roughly 28% to zero in‑quota
Up to 5,000 tonnes of infant formula per year, down from about 18% duty to zero on those quota volumes

These aren’t switched on at full volume on day one. European Dairy Association commentary notes that cheese quotas are expected to start around 3,000 tonnes in the first year and then step up to 30,000 tonnes by year ten, while milk powder TRQs move from 1,000 to 10,000 tonnes over the same period. Infant formula quotas are phased in to a final volume of 5,000 tonnes.

On the flip side, EU processors gain better access to Mercosur markets—especially Brazil—for European cheeses, powders, and infant nutrition products, plus stronger protection for EU geographical indications, such as key cheese names. That’s why you see support from groups like the European Dairy Association; they’re looking at supermarket shelves in São Paulo as much as at your yard in Brittany.

But if you’re milking cows in Bavaria or western France, the key question isn’t “is this good for EU industrial exports overall?” It’s “what do those tonnes actually mean on the milk side and on my milk cheque?”

Turning Policy Tonnes Into Tanker Loads

This is where the math gets real.

On paper, 30,000 tonnes of cheese doesn’t sound like much when the EU produces close to 150 million tonnes of milk. To get a feel for it, you have to convert that cheese and powder back into the milk that made it.

Cheese makers often use a rule of thumb of roughly 8.5 kg of whole milk to produce 1 kg of semi‑hard cheese, depending on fat and protein levels. For milk powder, typical technical references put whole milk powder at around 7.8 kg of milk per kg of powder and skim milk powder at just over 10 kg; using 9 as a blended average for a basket of powders is a fair shorthand.

If we run those numbers:

Cheese: 30,000 tonnes × 8.5 kg milk/kg cheese ≈ 255,000 tonnes of milk equivalent
Powder: 10,000 tonnes × 9 kg milk/kg powder ≈ 90,000 tonnes of milk equivalent

Together, that’s roughly 345,000 tonnes of milk equivalent per year, once those quotas are fully ramped up.

Now let’s lay that alongside EU milk production.

A USDA GAIN report on the EU, summarised by Dairy Global, forecasts total EU milk deliveries at about 149.4 million tonnes in 2025, roughly 0.2% below a revised estimate for 2024. That same analysis expects domestic consumption of fluid milk to keep easing and notes that cheese production is likely to edge higher, with more milk being channelled to cheese and powders.

So, into a basically flat pool of around 149–150 million tonnes, you add the equivalent of 345,000 tonnes of milk.

To make that concrete, German data from BZL show that by the end of 2023, Germany had 50,581 dairy cattle holdings—about 2,400 fewer than in 2022—and a national herd of roughly 3.7 million cows, down 2.5% in a year. Average yield was around 8,780 kg per cow, up from 8,504 kg in 2022. On those numbers, a 75‑cow family herd ships roughly 658,500 kg—call it 650 tonnes—of milk per year.

Divide 345,000 tonnes of milk equivalent by 650 tonnes per 75‑cow herd, and you’re looking at the annual output of about 530–550 herds of that size.

No, that doesn’t mean 550 farms will shut their doors the day this deal kicks in. Markets don’t work in straight lines. But you can see why something labelled as a “modest” quota package starts to feel a lot less modest when you translate it into tanker loads and real farms.

And if you turn that into price pressure, here’s a handy way to think about it. Say that extra competition from Mercosur trims the milk price by an average of 1–2 cents per litre over a cycle. On 650,000 litres of milk, that’s €6,500–€13,000 a year. On 2 million litres, you’re talking €20,000–€40,000. It’s not a forecast; it’s just basic arithmetic. But it puts a number on what “a bit more headwind” could mean in everyday cash‑flow terms.

Annual Milk Volume	Impact at 1 cent/L	Impact at 2 cents/L
500,000 L	€5,000	€10,000
650,000 L	€6,500	€13,000
1,000,000 L	€10,000	€20,000
2,000,000 L	€20,000	€40,000

Where the EU Dairy Sector Is Starting From

Before we hang everything on Mercosur, it’s worth being honest about where EU dairy already stands.

The same three threads keep showing up in USDA GAIN summaries, forecast, and national statistics.

First, milk production is flat to slightly down. For 2025, EU milk deliveries are forecast at about 149.4 million tonnes, 0.2% below 2024, as tight margins, environmental restrictions, and disease pressures push some smaller farmers out and cow numbers keep easing.

Year	EU Milk Production (M tonnes)	German Dairy Farms (thousands)
2019	151.2	64.5
2020	150.8	62.5
2021	150.5	60.4
2022	150.1	53.0
2023	149.6	50.6
2024	149.6 (est.)	—
2025	149.4 (forecast)	—

Second, cow numbers and farm numbers are steadily shrinking. We already talked about Germany losing about 2,400 dairy farmers in 2023, with cow numbers slipping to 3.7 million and average yields rising to 8,780 kg. Similar structural change is underway in France and the Netherlands, even if the exact figures differ.

Third, the product mix is shifting. The same GAIN‑based forecast expects domestic fluid‑milk consumption to continue declining, down by about 0.3% in 2025, while cheese production holds or grows slightly, and more milk heads into cheese and powders.

If you glance across the Atlantic, you see a related pattern. Hoard’s Dairyman recently highlighted that average US butterfat in the national bulk tank has climbed steadily, with annual averages moving from roughly 4.01% in 2021 to about 4.15% in 2023, and monthly data in 2024 showing every month at or above 4.0% fat. That mirrors what many of you are seeing on your own test sheets: cows that used to sit at 3.6–3.7% butterfat now comfortably over 4.0. In the Upper Midwest, for example, butterfat in the federal order serving Wisconsin averaged over 4% for the first time in 2021, driven by the cheese focus in that region.

So the EU isn’t unique. High‑standard dairy regions worldwide are trying to get more value out of every litre—more fat, more protein, more cheese yield—without relying on endless volume growth. The twist is that EU farms are doing it under some of the strictest welfare and environmental rules anywhere, which means their cost of production is higher before they even start.

And if you’re reading this in Wisconsin, Ontario, or Canterbury, you’ll recognise some of these pressures: higher input costs, tighter environmental expectations, more scrutiny from buyers, and a slow drift away from fluid milk into cheese and ingredients. The details differ, but the direction of travel feels familiar.

So What Does This Do to Price?

This is the question everyone wants answered in one number: “How much does Mercosur take off my litre?”

Here’s the honest take: nobody reputable is putting a clean, Mercosur‑only discount into a forecast yet. But there are enough signals to sketch the shape of the impact.

Rabobank’s work on structural costs makes a straightforward point: regions like north‑west Europe, with higher labour, land, and regulatory costs, will face ongoing margin pressure if they’re playing in global commodity markets. The path forward, in their view, is more scale, more differentiation, or both.

Analysis of Rabobank’s 2024 outlook for EU farmers notes that margins are expected to improve compared to the worst of 2022, with an average base price in the high 40s €/100 kg, but it also warns that costs remain elevated and that weaker Chinese demand and low output in Argentina are key uncertainties. AHDB’s own work on 2024–2025 costs underlines that while fertiliser and some purchased feeds have come off their peaks, total production expenses are still well above 2019 levels.

Then you drop Mercosur into that picture. You’ve got a mature, high‑cost market, where milk volume is flattening, and you add a stream of lower‑cost cheese and powder competing at the commodity end. Over time, that acts like a headwind on prices—peaks don’t climb quite as high, and recoveries after a downturn can be slower and shallower.

Farm organisations have been very clear on this. Groups like the European Milk Board and Copa‑Cogeca argue that EU farmers are being asked to meet some of the strictest environmental and animal‑welfare standards in the world while competing against imports that don’t face those same on‑farm obligations. They see the risk that, unless the value chain pays properly for higher standards, more low‑cost imports will tighten already narrow margins and accelerate structural change.

On the other side, the European Dairy Association and export‑oriented processors see opportunities. They’ve publicly welcomed progress on the EU–Mercosur deal, pointing to better access for EU cheeses and ingredients, and stronger protection for European cheese names, as ways to grow value in Mercosur markets. From their perspective, this is about getting more branded EU product onto high‑value shelves abroad.

The short version? For a commodity‑leaning family farm, Mercosur is another weight on a scale that was already tipping toward tighter margins. For a processor with good brands and strong GI‑protected products, it’s a mix of added risk at home and new opportunity abroad. And for the co‑ops and private buyers in the middle, it raises the stakes on how they share risk and reward with suppliers.

In some regions, you’re starting to see buyers offer longer‑term cost‑plus or fixed‑margin contracts on a slice of milk—tying pay‑out more closely to real costs for part of your volume—which is one way to spread the risk between farm and plant. It’s still early days for those models, though. Most of you are still living off the commodity roller coaster.

Mirror Clauses: Why “Same Standards for Imports” Is Harder Than It Sounds

When farmers hear all this, it’s totally understandable that the first instinct is: “Fine—if they want to ship dairy here, make them meet our standards.”

On principle, it feels fair. You’ve invested in better housing, in slurry storage that actually holds enough for the whole winter, in emissions and nutrient management plans, in full traceability. Why should you compete with milk that hasn’t carried the same load?

The catch is that most of what drives your cost is about how things are done, not the physical product you test at the dairy plant. That’s where life gets tricky for mirror‑clause ideas.

You can lab‑test cheese and milk powder for residues, pathogens, and composition. You can’t test a block of cheese for stall dimensions, resting time, or whether the cows had 120 grazing days that year. Those are process standards. They’re invisible at the border.

We’ve already seen how tough that gets with the EU’s deforestation regulation. When Brussels moved to regulate imports linked to illegal deforestation, there was a lot of optimism that satellite imagery and digital tools would make things straightforward. In practice, enforcement has run into mismatches between forest maps and national land registries, patchy local records in exporting regions, and the sheer volume of supply chains that have to be traced. Dairy would have similar traceability headaches, just without the helpful “forest/no forest” satellite contrast.

Trade lawyers also point out that under WTO rules, it’s generally easier to defend restrictions based on what a product is—its composition, safety, or residues—than on production methods that don’t change the product itself. Push too far on telling exporting countries they have to run their barns and manure systems just like Europe does, and you risk a trade dispute that’s hard to win.

There’s also a simple economic angle. If Mercosur exporters really had to meet fully equivalent EU‑level requirements for housing, slurry storage, and emissions—and if those rules were enforced correctly—their cost advantage would shrink. At that point, their appetite for pushing big volumes into an already competitive EU dairy market might cool.

So mirror clauses are likely to make inroads on some clear things—keeping banned substances out of the food chain, tightening traceability on deforestation-linked feed—but they’re not a magic wand for equalising on‑farm standards and costs in the near term.

What’s Going On in Mercosur Dairy?

To keep this fair, we shouldn’t pretend Mercosur is static either.

Brazil and Argentina are the main dairy players in that bloc. Global trade reports and USDA’s “Dairy: World Markets and Trade” show that over the last decade, both countries have increased dairy exports, particularly in whole‑milk powder, cheese, and UHT milk, into neighbouring Latin American markets, North Africa, and parts of the Middle East. Brazil, in particular, has swung between being a net importer and a net exporter depending on domestic demand, currency, and policy.

If you look at typical export‑oriented herds in those regions, you see a lot more pasture and semi‑intensive systems than full concrete‑and‑steel freestalls. Housing tends to be lighter, with cows spending more time on grass and less in enclosed barns. Land and labour costs, in local terms, are generally lower than in north‑west Europe, even allowing for inflation and volatility. Environmental and animal‑welfare rules exist and are evolving, but they don’t yet put the same pressure on stocking rates, slurry storage, or greenhouse gas accounting that EU farmers are now dealing with.

Rabobank’s cost analysis notes that while production costs in Argentina and Ireland have jumped 30–40% in local currency since 2019, farms in low‑cost pasture systems still tend to sit below EU per‑litre costs because they started from a lower base and have fewer regulatory-driven capital investments to service.

From a Mercosur perspective, the EU deal is about locking in stable, rules‑based access to a high‑value market. From Brussels’ perspective, dairy is one moving part in a larger trade‑off that also covers sectors like cars and machinery, where the political stakes are high.

And from your parlour? It’s another external force you can’t control but have to respond to, just like feed markets or weather.

How Some Farms Are Adjusting Their Playbook

So let’s bring this back to the farm gate. Given higher structural costs, flat or slowly easing milk volumes, and this new trade headwind, what can a dairy actually do?

What I’ve noticed, visiting herds and talking with producers in Germany, the Netherlands, France, and Ireland—and comparing notes with folks in Wisconsin or Ontario facing their own pressures—is that farms which seem to be staying a step ahead have a few habits in common.

1. Treating Compliance as a Real Cost, Not Just a Headache

A lot of us complain about regulation, but relatively few actually put a number on it. On the herds that do, the conversation changes fast.

Here’s what that looks like in practice:

They list capital projects where regulations were the main driver—extra slurry storage to meet new rules, lagoon covers for emissions, manure separators, stall renovations for welfare standards, upgraded ventilation that goes beyond pure production needs
They pull out ongoing expenses that are mostly about compliance—environmental sampling, emissions monitoring, nutrient‑management plans, audit and certification fees, software licences for traceability and quality programmes
They estimate the labour hours that go into paperwork and inspections that simply wouldn’t exist in a lower‑regulation environment

When you add those up and divide by litres delivered, you don’t get a perfect number. But you do get a rough compliance cost per 100 kg. On some farms, that works out to just above one cent per kilo; on others, especially right after big environmental investments, it creeps closer to two or three. A 2024 systematic review on milk quality and economic sustainability makes the same point: regulatory and quality‑scheme demands are a real component of total cost, and they vary widely by system and region.

A simple way to start is this: print last year’s accounts, grab a highlighter, and mark anything that’s there primarily because of regulations or certification schemes. On one European case example, that list looked like roughly €12,000 for extra slurry storage, €3,000 for environmental testing and nutrient planning, and €1,500 in audit and certification fees—about €16,500 spread over roughly 800,000 litres. That’s the kind of breakdown that turns “regulation is expensive” into something you can actually talk through with your bank, your advisor, and your buyer.

Compliance Cost Component	Typical Annual Cost (EUR)	Cost Type
Extra slurry storage (beyond production need)	€2,000	Amortized
Environmental testing & nutrient plans	€3,000	Recurring
Audit & certification fees	€1,500	Recurring
Emissions monitoring equipment	€1,200	Amortized
Traceability software & milk recording	€800	Recurring
Welfare-driven barn upgrades	€3,500	Amortized
TOTAL (Annual Equivalent)	€12,000	Mixed

Once you’ve got your own ballpark compliance cost written down, a few deeper questions come almost automatically:

Are we carrying too much fixed compliance infrastructure for the litres we’re producing?
Does our current herd size spread those fixed costs sensibly?
Are we picking up any premium for the standards we’re already meeting, or are we just ticking boxes?

You don’t have to like the answers. But you can’t manage what you won’t measure.

2. Moving a Slice of Milk Out of the Commodity Stream

The second pattern you see, especially near towns and cities, is farms that accept they can’t compete on cost for every litre, so they move a slice of their milk into a different game.

We’re not talking massive on‑farm bottling plants. A typical success story looks more like this:

An 80–120‑cow freestall or loose‑housing herd on the edge of a Dutch town, a German city, or a French provincial centre
Modest capital spend—a small pasteuriser, one or two simple cheese vats, decent refrigeration, and either a tidy farm shop or a regular place at local markets
A family member who doesn’t mind dealing with customers and local social media

Case studies out of regions like Minas Gerais in Brazil and various European direct‑sale operations show that when everything is set up sensibly, the milk that goes through that direct channel can net 20–40% more per litre than the base co‑op price, after you’ve covered packaging, extra labour, and energy. The majority of milk still goes on the truck. But that 20–40% slice can be the difference between a red year and a black one.

Of course, that’s the best‑case scenario. You probably know someone whose on‑farm processing turned into an expensive, exhausting second job. The key conditions that keep coming up, both in the research and in real herd stories, are:

You’re within a reasonable distance of enough customers who value local dairy
You keep the product range focused and manageable
You run the numbers hard, including your own time and the extra compliance burden

So before you rush out to buy a pasteuriser, it’s worth asking:

Are we close enough to a town or city with people who’ll pay more for local milk and cheese?
Do we have someone in the family who genuinely likes selling and storytelling, not just milking and scraping?
What existing platforms—farmers’ markets, local food shops, online “farm‑to‑door” schemes—could we plug into first, before we build everything ourselves?

If you can line up “yes” answers for those, then looking at a small, seasonal product line—like ice cream or fresh cheese—might be a sensible toe‑in‑the‑water move.

3. Turning Constraints Into a Product Story

In mountain and hill regions, the options look different again. You’re dealing with slopes, short growing seasons, and fragmented fields. Big dry lot systems or 700‑cow freestalls just aren’t realistic on that ground.

What’s encouraging is that some of these farms are still hanging in—and some are thriving—because their milk is tied into PDO or GI cheeses and dairy products with strong regional identities. Studies of mountain dairy systems in the Alps and other upland regions show that farms linked into well‑managed GI value chains often receive higher average prices per kilo of solids than standard commodity milk, though they also face higher production costs and depend more on environmental payments.

In other words, they’ve turned what might look like “inefficiencies”—steep land, traditional breeds, strict building rules—into part of the brand and value story.

If you’re already in one of those regions, or your co‑op is talking about building a new origin or welfare scheme, you might want to ask three blunt questions:

What’s the average farm‑gate price difference compared with standard milk for farms actually in the scheme?
How many local farms have successfully transitioned into it, and what did they have to change in terms of housing, feeding, or certification?
How steady has that premium been through the last couple of price cycles?

Research and farm‑level evidence suggest that in some regions the premium holds up well; in others, it narrows during low‑price periods. Knowing which kind of region you’re in matters before you commit to major changes.

Five Questions for a Winter Night at the Kitchen Table

By this point, it’s easy to feel like the world is throwing too many variables at you at once: global costs, trade deals, standards, climate, and consumer shifts. You can’t fix any of those alone.

What you can do is see your own situation clearly and make a few deliberate moves.

Here are five questions worth scribbling down and working through with whoever shares in the decisions on your farm.

1. What’s our best estimate of compliance cost per 100 kilos?
Grab last year’s accounts and a highlighter. Mark the items that wouldn’t be there—or would be much smaller—if you didn’t have to meet today’s environmental, welfare, and traceability rules: slurry and storage projects, environmental testing, nutrient plans, emissions monitoring, audit fees, and software for quality schemes. Add them up and divide by your litres. It won’t be perfect, but it will turn “regulation is expensive” into a number you can bring to your bank, your advisor, and your processor.

2. Does our current scale fit our region and our system?
Very small herds sometimes survive with low debt and off‑farm income. Very large units spread fixed costs—buildings, slurry, compliance, labour—over a lot of litres. The 60–200‑cow, fully regulated freestall herd is often caught hardest—too big to be a hobby, too small to spread heavy fixed overhead comfortably. Given your land base, labour, building layout, and local rules, are you trying to carry more cows than you can handle efficiently, or is your physical and regulatory infrastructure too big for your current litres?

3. Where does each litre of our milk actually go—and under what contract terms?
Map it out. How much milk goes into pure commodity cheese and powder pools? How much, if any, goes into premium streams—pasture‑based, non‑GMO, organic, higher‑welfare, local‑origin? A good question for your buyer is: “What premium programmes—pasture‑based, non‑GMO feed, higher‑welfare, local—do you offer today, and what would it take for us to qualify?” In some northern EU regions, pasture milk contracts pay an extra one or two cents per litre in exchange for documented grazing days and limits on concentrates, while GMO‑free feed contracts can offer similar premiums if you can show full feed traceability. Not every farm can make those programmes work—but you don’t know until you ask.

4. How much are we relying on emergency support to balance our risk?
The last few years—Covid disruptions, energy price spikes—have shown that EU and national support schemes do appear when things get rough, but they can also be slow and administratively heavy. It’s sensible to argue for better policy. It’s risky to build your whole business plan on the hope that the next crisis cheque will land when you need it. So ask: “If prices were poor for the next two years and no new support arrived, what would we actually do—cut costs, change system, adjust scale, or something else?”

5. Who are we comparing ourselves with, and who can we be honest with?
Benchmarking and business clubs aren’t just a British thing. Chambers of agriculture, levy bodies like AHDB, and private consultants run groups where people share real numbers, not just coffee‑shop talk. In Wisconsin and Ontario, similar business‑focused producer groups have helped farms identify which changes actually move the needle in their systems. If you’re not part of any peer group like that, one practical 90‑day goal after reading this could be: find or form a small circle where you can put actual figures on the table and talk openly about strategy.

If you want a simple starting point for the next three months, it might look like this:

Estimate your own compliance cost per 100 kilos.
Have a direct conversation with your buyer about premium contract options and what it would take to join one.
Commit to at least one meeting—formal or informal—where you compare real numbers with peers instead of just stories.

None of that changes Mercosur. But it does change how exposed—or how prepared—you are for the headwinds it adds to a game that was already getting tougher.

The Bottom Line

The EU–Mercosur deal isn’t going to change what your cows need tomorrow morning. Fresh cows still need careful handling through the transition period, calves still need feeding, and loans still need paying. What it does change is the wind you’re sailing in: a bit more pressure from low‑cost imports in a market where your costs are already high, and your support systems aren’t always fast or generous.

You can’t stop that wind. What you can do is understand it—and then decide what kind of boat you’re in, how you’re trimming your sails, and who you’re rowing with. In a world where none of us can afford to just drift, that’s where your real leverage lies.

Key Takeaways:

“Modest” adds up fast: The Mercosur deal’s 30,000 tonnes of cheese and 10,000 tonnes of powder convert to about 345,000 tonnes of milk, like dropping the annual output of 550 EU family herds into an already flat market.
The cost gap is real and structural: Rabobank shows New Zealand and Australia holding a roughly five‑cent‑per‑litre edge, while EU herds carry extra euros in slurry, emissions, welfare, and traceability costs that low‑cost competitors simply don’t pay.
Mirror clauses sound fair, but won’t fix it: You can lab‑test cheese for residues—you can’t test it for stall dimensions or grazing days. Process standards are nearly impossible to enforce at the border.
Mercosur lands where EU milk is already headed: With EU production flat at 149.4 million tonnes and more milk flowing into cheese and powders as fluid demand fades, the quota volumes compete exactly where margins are thinnest.
Your best lever is knowing your own numbers: Farms that can pin down their compliance cost per 100 kg, push buyers on premium contracts, and benchmark honestly with peers will ride this headwind better than those waiting on Brussels to fix it.

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 export quotas, EU dairy sector, EU Mercosur trade deal, farm compliance costs, Global Dairy Trends, milk production costs, trade policy impact

European Butter Down 35%: The 90-Day Playbook That’s Helping Dairy Farmers Protect $150,000+

Friday, January 9th, 2026

European butter crashed 35%. History shows your milk check is due in 90 days. The farmers protecting six figures right now aren’t smarter. They’re just 90 days earlier.

Executive Summary: European butter crashed 35%—your milk check follows in 60-90 days. With Class III at $17-18/cwt, production growth running three times normal pace, and spring flush weeks away, the proactive window is narrowing. The wealth gap between acting at 1.3 DSCR versus waiting until 1.0 typically exceeds $150,000—not because one group is smarter, but because they moved earlier. This framework covers the metric your lender is watching, component strategies adding $800-1,200/month, and beef-on-dairy premiums hitting $350-700/head. The playbook mirrors 2015-16: three conversations before pressure hits—accountant, nutritionist, lender.

You know, German retail butter dropped to €0.77 per pack in late December 2025. That’s down from nearly €2.00 just a few months earlier—a correction that barely registered in most North American dairy publications. But here’s what caught my attention: for farmers who’ve learned to read global dairy signals, that price move wasn’t just European grocery news. It might be a 60-90 day advance signal for what’s heading toward our milk checks.

I spoke with a Wisconsin producer running about 280 cows near Fond du Lac recently. He put it simply: “I started watching European butter after 2015. That year taught me that what happens in Germany doesn’t stay in Germany. By the time it shows up in your mailbox, you’re already behind.”

The 60-90 Day Warning System: When European butter dropped 35% from €7,200 to €4,400 between early 2024 and late 2025, it preceded U.S. Class III pressure by roughly 75 days. The Wisconsin producer who learned this pattern in 2015 gained a $150,000+ advantage over his neighbor who ignored these global signals

And he’s not wrong. Understanding these global connections—and knowing when they might warrant action—is becoming increasingly valuable for dairy operations navigating interconnected markets. So let me walk you through what farmers across North America are learning about price signals, financial positioning, and the strategic decisions that can make the difference between weathering market pressure and getting caught flat-footed.

AT A GLANCE: Key Insights

The Signal: European wholesale butter down ~35% year-over-year; historically correlates to North American price pressure within 60-90 days
The Metric That Matters: Know your Debt Service Coverage Ratio—acting at 1.3x versus waiting until 1.0x can mean a six-figure difference in preserved wealth
Near-Term Strategies: Feed-based butterfat improvements can add $800-1,200/month within 60-90 days; beef-on-dairy premiums running $350-700/head
The Framework: Proactive positioning beats reactive response—farmers who move early consistently outperform those who wait
The Bottom Line: Markets may surprise either direction, but stress-testing your operation at $15-16/cwt scenarios is sound management

How European Butter Prices Connect to Your Milk Check

The relationship between European dairy commodities and North American milk prices follows a transmission path that agricultural economists have tracked for over a decade now. It typically unfolds across 60-90 days, which—when the signals are reliable—gives observant farmers a meaningful window to prepare.

Dr. Mark Stephenson, who served as Director of Dairy Policy Analysis at the University of Wisconsin-Madison before his recent retirement, studied this lag extensively throughout his career. His research shows that when European wholesale butter drops significantly, the effects tend to ripple through Global Dairy Trade auctions in New Zealand within 2-3 auction cycles, then influence contract negotiations across Oceania before reaching North American processor discussions.

What’s happening right now appears to fit that pattern. European wholesale butter fell from over €7,200 per tonne in early 2024 to the €4,000-5,000 range by late 2025, according to AHDB’s EU wholesale tracking—that’s roughly a 35% year-over-year decline. Class III futures for Q1-Q2 2026 are currently trading in the $17.00-18.00/cwt range on CME, which is actually better than some analysts projected a few months back, but still tight for operations with higher cost structures.

Industry estimates suggest that breakeven for mid-size Wisconsin dairies typically runs $18-19/cwt when all costs, including family living and debt service, are accounted for. Operations in California’s Central Valley often see higher numbers due to feed costs and regulatory compliance, while Northeast operations face their own regional dynamics. Western operations dealing with water constraints and Southeast dairies facing heat stress economics have their own cost pressures layered on top. Canadian producers navigate a different reality entirely—quota values and supply management provide price stability but bring their own capital and cash flow considerations. The specific math varies by region and management, but the directional pressure applies when Class III hovers near or below regional breakevens.

Region	Typical All-In Breakeven ($/cwt)	Primary Cost Drivers	Current Margin @ $17.50 Class III	Projected Margin @ $15.50 Scenario	Risk Level Q2 2026
Wisconsin	$18.00 – $19.00	Feed, labor, debt service	-$0.50 to -$1.50	-$2.50 to -$3.50	Moderate-High
California Central Valley	$20.00 – $22.00	Feed costs, water, regulatory compliance	-$2.50 to -$4.50	-$4.50 to -$6.50	High
Northeast (NY, PA, VT)	$19.00 – $21.00	Labor, fuel, regional feed premiums	-$1.50 to -$3.50	-$3.50 to -$5.50	Moderate-High
Texas/New Mexico	$17.50 – $19.50	Water constraints, heat stress mitigation, feed	$0.00 to -$2.00	-$2.00 to -$4.00	Moderate
Southeast (GA, FL)	$19.50 – $21.50	Heat stress, humidity management, feed transport	-$2.00 to -$4.00	-$4.00 to -$6.00	High
Canada (Quota Systems)	Quota value amortized varies	Quota costs, supply management compliance	Price stability via quota system	Price stability via quota system	Low (different market structure)

Now, I want to be clear about something. Markets can and do surprise us. Futures have been wrong before—2022 comes to mind, when projections sat around $18, and actual prices hit $23 on unexpectedly strong export demand. Some analysts I’ve spoken with remain cautiously optimistic that domestic demand strength could offset some of the pressure we’re discussing. But what’s different about the current setup is the structural inventory situation, which has its own timeline regardless of demand fluctuations.

The Financial Metric Your Lender Is Already Watching

If there’s one number that shapes the conversation you’ll have with your bank—whether it’s a proactive discussion or a reactive one—it’s your Debt Service Coverage Ratio. DSCR tells you whether your operation generates enough cash to cover debt obligations with breathing room… or whether you’re running closer to the edge than you might realize.

Farm Credit Canada’s educational materials lay out the basics pretty clearly. A DSCR of 1.5 is generally considered healthy—it means you’ve got 1.5 times more cash available than your debt obligations require. Drop below 1.0, and you’re looking at difficulty servicing debt without off-farm income or other support. Most agricultural lenders use similar thresholds, though the specific trigger points for increased monitoring or restructuring conversations vary by institution.

DSCR Ratio	Financial Position	Who Controls the Conversation	Restructuring Options Available	Typical Cost of Restructuring
1.5x or higher	Healthy, strong cushion	You lead; bank follows	Full menu: extend terms, consolidate, refinance at competitive rates	Standard processing fees (~$500-1,500)
1.25x – 1.49x	Adequate but tightening	Partnership discussion	Most options available; minor rate premiums possible	Standard to slight premium (~$1,000-3,000)
1.0x – 1.24x	Operating in yellow zone	Shared control; bank monitoring increases	Limited options; rate premiums likely	Moderate premium (~$3,000-8,000 + 50-100 bps higher interest)
0.85x – 0.99x	Distressed territory	Bank controls terms	Restricted; workout scenarios	$8,000-15,000 + 100-150 bps higher interest
Below 0.85x	Crisis mode	Bank workout team drives	Forced asset sales likely	$15,000+ legal/processing + distressed sale losses

Here’s what farmers are discovering—sometimes later than they’d prefer—the difference between acting at 1.3x DSCR and waiting until you hit 1.0x isn’t just about the numbers themselves. It’s about who’s leading the conversation and who’s following.

I spoke with a senior agricultural lender at a Midwest Farm Credit association who asked to remain anonymous but offered this perspective: “When a producer comes to us at 1.3 with a plan, we’re partners working on optimization. When they come at 0.95 because their operating line is maxed, we’re in workout mode. Same bank, same farmer, completely different dynamic.”

Why does this matter so much? Industry data on distressed agricultural loans shows some significant cost differences. Farms entering workout typically pay 100-150 basis points higher on restructured debt and face substantially higher legal and processing fees. Proactive restructuring—the kind you initiate while your ratios still look reasonable—generally costs a fraction of what a reactive workout costs. And perhaps more importantly, you’re often selling assets into stable markets rather than whatever conditions happen to exist when you’re forced to act.

Agricultural lenders like AgAmerica have documented case studies showing the financial benefits of proactive restructuring. In their published examples, operations that restructured early reported significant annual savings through debt consolidation and strategic use of bridge financing during capital-intensive phases. These options existed because producers initiated conversations while their ratios still demonstrated operational viability.

Here’s a calculation worth doing this week:

Pull your most recent income statement and loan documents. You need three numbers:

Net cash income (gross revenue minus operating expenses—but don’t subtract interest, depreciation, or principal payments)
Annual debt service (all monthly loan payments × 12)
Divide the first by the second

Pro-tip: Remember that while your tax preparer uses depreciation to lower your tax bill, your lender “adds it back” to your net income to determine your actual cash flow capacity. Don’t let a “paper loss” scare you away from a proactive lender meeting. That $80,000 depreciation expense on your Schedule F doesn’t mean you’re $80,000 poorer in cash—it’s an accounting entry, not money leaving your checking account. Lenders understand this, and you should too when evaluating your real financial position.

If you’re above 1.3, you likely have options and time to be strategic. Between 1.0 and 1.25, the window for proactive decisions may be narrowing. Below 1.0, that conversation with your lender probably needs to happen soon—and having a professional guide you in is worth considering.

RED FLAGS: Signs You May Already Be Past Proactive Positioning

Operating line balance is climbing more than $5,000/month for three consecutive months
Deferred maintenance backlog growing—you’re skipping repairs you’d normally make
Breeding decisions driven by cash flow rather than genetic strategy
Accounts payable stretching beyond normal terms with key suppliers
Finding yourself calculating “which bills can wait” rather than “which investments make sense.”

If three or more of these apply, the proactive window may be closing. That doesn’t mean it’s too late—but it does mean the conversation with your lender needs to happen this month, not next quarter.

What’s Building Toward Q2 2026

Several market forces appear to be converging, potentially creating price pressure this spring. I want to be thoughtful here—market projections are exactly that, projections—but the structural setup is worth understanding so you can make your own assessment.

The cheese inventory factor: When butter prices declined through late 2025, processors across the U.S., UK, and EU made a logical shift. Butter had compressed margins and ongoing storage costs. Cheese—particularly aged cheddar—can sit in inventory for months as it matures, serving as a financial buffer during uncertain times.

You probably already know the aging timelines: mild cheddar reaches market readiness in 2-3 months, medium in 4-9 months, and sharp in 9-12 months. The cheese made in December 2025 and January 2026 will mature and need to be moved to market starting around April-May 2026. That’s not speculation about demand—that’s just aging biology meeting calendar math.

The spring flush timing: Every dairy farmer knows spring flush, but the research on its consistency is worth noting. Studies published in the Journal of Dairy Science on annual rhythms in U.S. dairy cattle show that the spring production peak is remarkably consistent across regions, parities, and management systems—driven more by photoperiod and reproductive biology than management decisions.

USDA’s December 2025 forecast projects U.S. milk production for 2026 at 106.2 million metric tons, up 1.2% from 2025. StoneX Director of Dairy Market Insight Nate Donnay noted in late December that milk production growth was running at an estimated 5.5% pace in September and October—about three times the normal rate. That’s notable context heading into the new year.

The export question: Here’s what’s been encouraging—September 2025 U.S. cheese exports hit 116.5 million pounds, up about 35% year-over-year, according to USDA Foreign Agricultural Service data. That was a remarkable achievement for the industry. The question some analysts are asking is whether markets that absorbed those record volumes will have the same appetite just as domestic production peaks.

None of this means $13 milk is coming. Markets find equilibriums, demand can surprise to the upside, and spring flush intensity varies year to year. But farmers projecting cash flow for Q2 2026 might consider running scenarios at $15.00-16.00/cwt alongside their base case assumptions. That’s not pessimism—it’s the kind of stress-testing that helps operations stay resilient when surprises happen.

Why Component Performance Is Becoming a Competitive Advantage

One of the most significant structural shifts in U.S. dairy over the past decade has been the steady improvement in milk components. And the numbers here are pretty remarkable. CoBank’s Knowledge Exchange published an analysis in September 2025 showing that U.S. butterfat levels increased approximately 13% over the past decade—from about 3.75% in 2015 to 4.24% by 2024. That’s roughly six times the improvement rate seen in the EU and New Zealand.

What’s particularly noteworthy is how this shifts farm-level economics during price compression. Class III and Class IV pricing formulas reward butterfat and protein by the pound rather than by volume. When base prices compress, the premium for higher components becomes proportionally more valuable as a share of the milk check.

Let me walk through some rough math on two cows producing identical volume but different components:

Cow A at 3.7% butterfat: 75 lbs/day = 2.78 lbs butterfat daily
Cow B at 4.4% butterfat: 75 lbs/day = 3.30 lbs butterfat daily

At current butterfat component pricing—which has been running in the $1.55-1.75/lb range in recent months according to USDA announcements—that 0.52-pound daily difference represents roughly $0.80-0.90 per cow per day. Scale that across a 200-cow herd over a year, and we’re talking meaningful revenue differences.

Now, genetic improvement takes 2-3 years to show up meaningfully in the bulk tank. But feed ration adjustments can produce measurable butterfat improvements within 60-90 days—which matters for operations looking at near-term margin pressure.

A Penn State study published in the Journal of Dairy Science in June 2024 found that replacing about 5% of ration dry matter with whole high-oleic soybeans improved income over feed cost by approximately $0.27/cow/day—roughly $99/cow annually. The research synthesized results from multiple feeding trials, so the findings are pretty robust.

Dairy nutritionists generally recommend adding 2-5% molasses to TMR to stimulate fiber-digesting bacteria and boost acetate production, which supports butterfat synthesis. Many farms report butterfat increases of 0.10-0.15 percentage points from this relatively simple adjustment. Protected fat supplementation—combinations of palmitic and oleic acids—can increase milk fat yields within 30-45 days of implementation.

For farms facing compressed margins, even a 0.15-0.2% butterfat improvement translates to meaningful revenue—potentially $800-1,200 monthly for a 200-cow operation at current component pricing. It’s not a complete solution to price pressure, but it’s real money that shows up in the tank relatively quickly.

The ration adjustment that pays for itself in monthly milk checks: Feed-based butterfat improvements show up in the tank within 60-90 days—potentially adding $800-1,200 monthly for a 200-cow operation. Penn State research found protected fat and molasses additions can boost butterfat 0.10-0.15 percentage points within 30-45 days

The Beef-on-Dairy Opportunity

One revenue diversification strategy that’s gained remarkable traction is beef-on-dairy crossbreeding. Industry surveys, including data from the American Farm Bureau Federation, based on Purina’s 2024 producer research, indicate that roughly seven in ten dairy operations are now actively implementing crossbreeding programs. That’s a significant shift from even five years ago.

The economics are fairly straightforward. Industry analysis shows that the majority of dairy farmers participating in these programs receive meaningful premiums for beef-on-dairy calves, with reports of additional revenues ranging from $350 to $700 per head compared to straight dairy bull calves. For an operation producing 70 male calves annually, switching half to beef crosses could generate $18,000-$20,000 in additional annual revenue.

What stands out to me about this trend is the timeline. Beef-on-dairy calves sell at 6-9 months, meaning breeding decisions made in Q1 2026 generate cash in Q4 2026. That’s a faster payoff than almost any other diversification strategy available to dairy producers—which matters when you’re managing through uncertain price periods.

Penn State Extension research on beef×Holstein crosses shows these animals have greater potential to put on muscle than purebred Holstein steers and generally show improved feedlot performance. The carcass quality has proven competitive, and the market infrastructure has developed rapidly to accommodate increased supply. One California producer I spoke with mentioned that his local auction now has specific beef-on-dairy sales days—something that would have seemed unlikely five years ago.

A Texas Panhandle operation I connected with recently shared a different angle on this. They’ve been running beef-on-dairy for three years now and emphasized that buyer relationships matter as much as genetics. “We spent six months building connections with regional feedlots before we started,” the manager told me. “Knowing where those calves are going—and what those buyers want—shaped our sire selection from day one.”

Implementation is fairly straightforward for most operations: genomic testing identifies which cows should continue breeding to elite dairy genetics (typically top 50% by genomic merit) versus which shift to beef sires—Angus, Simmental, or Charolais being common choices depending on regional buyer preferences.

WHAT ONE PRODUCER LEARNED FROM 2015

A 320-cow operation in Dodge County, Wisconsin, offers a useful case study. The producer—who asked that I not use his real name but was willing to share his experience—was running at about 1.28 DSCR in October 2015 when he started noticing warning signs.

“My accountant said I was fine. My neighbor said I was overreacting. But I’d been watching powder prices in Europe drop for months, and I had a feeling about what was coming.”

He restructured his equipment notes that November, extending terms and reducing his monthly obligation by $2,800. He culled 40 head—his bottom performers on both production and components—before spring 2016.

“When milk hit $13 that summer, I was tight but managing. My neighbor, who waited until April to act? He was in a workout by July. Similar starting points, different decisions, very different outcomes.”

His estimate of the wealth difference: around $150,000-$180,000 preserved by moving about six months earlier. Not from being smarter, he emphasized—just from reading the signals and acting before he had to.

What Peer Accountability Groups Are Teaching Farmers

There’s growing evidence suggesting that farms participating in structured peer groups make major financial decisions 6-12 months earlier than farms relying solely on individual analysis. And the mechanisms behind this are fascinating—rooted in behavioral economics as much as farm management principles.

Research on structured farm management groups has consistently shown meaningful financial advantages for participants. Studies tracking farms in peer advisory programs have found notable improvements in operating profit and return on assets compared to non-participants—though the specific magnitude varies by region, group structure, and management intensity.

The Ohio State University Extension put together a helpful fact sheet on peer group value that explains part of the mechanism. As they describe it, “With trusting relationships, members can share their farm’s production data such as yield, inputs, labor, and equipment, along with core financial ratios. Peers then act as an informal board of directors by identifying the strengths and areas for improvement.”

Here’s something I’ve noticed over the years: most dairy farmers don’t actually know their neighbor’s DSCR. They might know what kind of tractor he bought or roughly what he’s feeding, but the real financial picture? That stays behind closed doors. And that isolation can be expensive.

Having sat in on several of these groups over the years, I’ve observed something important about what actually happens in those rooms. The groups seem to override the cognitive biases that can cause all of us—not just farmers—to delay difficult decisions. Loss aversion makes culling cows feel worse than the abstract benefit of “preserving financial flexibility.” Status quo bias creates comfort with continuing current practices even when data suggests change might be warranted. Optimism bias whispers, “we’ve always made it through before.”

The farmers losing the most money right now aren’t necessarily the ones with the worst operations. They’re often the ones who calculated correctly but couldn’t pull the trigger—who knew what they should do but found reasons to wait another month, another quarter, another year.

Peer groups interrupt these patterns through straightforward mechanics: quarterly meetings with financial transparency, benchmarking against similar operations, and accountability for stated commitments. When you tell five other farmers in January that you’re going to restructure your equipment debt and cull your bottom 15%—and they’re going to ask you about it in April—it changes the calculus.

Kim Gerencser, a Saskatchewan-based farm business and management consultant who has been facilitating peer groups for well over a decade, has written and spoken extensively about the value of accountability structures. In interviews with Country Guide, he’s emphasized that the groups that sustain themselves over many years do so because participants find genuine value in the structure. The accountability piece, he’s noted, is what really matters.

For farmers who haven’t participated in this kind of group, options include Cornell’s Dairy Profit Discussion Groups, various state extension programs, cooperative-facilitated groups, and private consultant-led formations. The common elements that seem to make groups effective: quarterly meetings, financial transparency among members, neutral facilitation, and strong confidentiality agreements.

A Practical Six-Month Framework

For farmers who’ve assessed their position and decided proactive action makes sense, here’s what a practical timeline might look like. I want to emphasize that this isn’t the only approach, and every operation’s circumstances differ. A 500-cow California dairy faces different cost structures and cooperative relationships than a 150-cow Vermont operation or a 2,000-cow Texas facility.

But the underlying framework—financial clarity first, then cost structure adjustment, then ongoing accountability—seems to apply broadly based on what I’ve seen work across different regions and operation sizes.

Month 1 (January): Financial Clarity

The starting point is knowing exactly where you stand. Complete the DSCR calculation using both historical and projected prices. Pull your operating line balance trend over the past six months—if it’s been climbing $3,000-8,000 monthly, you may already be running negative cash flow, regardless of what last year’s financial statement showed.

Review your DHIA reports to identify the bottom 15-20% of your herd by combined production and components. These become your first-look candidates if cash flow requires culling decisions.

And if you’re considering a lender conversation, schedule it now while you’re initiating from a position of relative strength. The framing matters. Something like: “I’ve run forward projections based on current futures. I’d like to discuss options while we’re still well above your monitoring threshold” positions you as a proactive manager rather than a distressed borrower.

Month 2 (February): Cost Structure Adjustment

If culling decisions make sense for your operation, executing them while cattle prices remain stable preserves value. Current market prices for cull cows typically range from $1,200-1,800/head, depending on region and market conditions; distressed selling in a soft spring market could mean $800-1,100. That difference across 35 cows adds up quickly—real money for most operations.

Implement any feed ration adjustments to improve butterfat. The 60-90 day timeline for feed-based component gains means February changes can show up in April milk checks.

If beef-on-dairy makes sense for your operation, begin that breeding protocol on lower genomic performers. Revenue arrives in Q4 2026.

Month 3 (March): Risk Management and Accountability

Evaluate hedging options based on your operation’s risk tolerance and expertise. Dairy Revenue Protection and Class III options are available for farms that want price-floor protection, though they come with costs and basis risk that warrant careful evaluation—ideally with someone who understands these tools well.

Consider joining or establishing a peer accountability group. The first meeting should present your current position and action plan. Having external accountability through the spring flush period can be valuable.

Months 4-5 (April-May): Monitor and Maintain Discipline

Track actual versus projected cash flow weekly. This is where discipline matters—there can be temptation to reverse culling decisions or restructuring if short-term prices tick up.

If you’re in a peer group, the meeting during this period provides external validation. Present your January baseline, your April position, and your variance analysis. Let the group help you assess whether you’re on track.

Month 6 (June): Assessment and Forward Planning

Compare actual DSCR to January projections. Evaluate what worked, what didn’t, and what you’ve learned. Develop your Q3-Q4 plan incorporating any beef-on-dairy calf revenue and continued component focus.

What success might look like: A farm that entered January at 1.3x DSCR with $18.50/cwt breakeven, facing uncertain milk prices, emerges in June at 1.15-1.18x DSCR with $16.80/cwt breakeven—having maintained position above the critical 1.0x threshold even through potential price pressure. That’s not a dramatic turnaround story. It’s just solid management under challenging conditions.

The Conversation That Matters Most

Perhaps the hardest part of proactive financial management isn’t the calculations or even the lender meetings. It’s the kitchen table conversation about making significant changes before a crisis becomes undeniable.

What farmers who act early seem to be deciding is whether the discomfort of acknowledging vulnerability now is worth the financial protection it might provide later. And honestly, that’s not an easy trade-off. Culling cows you’ve raised can feel like a retreat. Calling your lender proactively can feel like admitting weakness. Joining a peer group and sharing your financials can feel uncomfortable.

But the alternative—waiting until circumstances force the same decisions from a weaker position—tends to cost real money, according to the research and case studies I’ve reviewed. The wealth difference between proactive and reactive positioning can range from $150,000 to $300,000 or more over a 2-3-year market cycle, depending on the operation’s size and the severity of the downturn.

That’s what tends to happen when operations restructure at penalty rates rather than market rates, sell cattle into distressed markets rather than stable ones, pay workout fees rather than standard processing fees, and navigate restricted credit access for years rather than maintaining banking relationships.

Key Takeaways

On global market signals:

European butter prices and Global Dairy Trade auction results can provide 60-90 days of advance indication for U.S. milk price direction
Current signals suggest potential price pressure in Q2 2026, though markets can surprise, and projections always carry uncertainty
Worth monitoring: GDT auction results at globaldairytrade.info, AHDB EU wholesale prices, and CLAL’s international databases

On financial positioning:

DSCR is the metric lenders watch most closely—knowing yours and projecting it forward matters
The wealth difference between acting proactively versus reactively can be substantial over a market cycle
Proactive restructuring conversations tend to yield significantly better terms than reactive conversations during distress

On operational strategies:

Component improvement through feed rations can generate meaningful monthly revenue within 60-90 days
Beef-on-dairy crossbreeding offers $18,000-$20,000 potential annual revenue diversification with a 6-9 month payoff timeline
Culling decisions reduce cost structure but require careful analysis of volume versus efficiency trade-offs specific to each operation

On decision-making:

Peer accountability groups appear to help farmers make structural decisions earlier than solo analysis
The psychological barriers to early action—loss aversion, status quo bias, optimism bias—are normal human tendencies
The farms that navigate market pressure most successfully seem to share a common trait: they made uncomfortable decisions while they still had meaningful control over terms and timing

The Bottom Line

The European butter correction of 2024-2025 wasn’t just a European story. It appears to be an early chapter in a global market adjustment that’s still developing. For dairy farmers willing to monitor these signals, clearly understand their financial position, and make proactive decisions, it may also represent an opportunity to strengthen operations before market pressures fully test them.

The question isn’t whether to prepare—smart operators are always preparing. The question is whether you’ll do it on your terms or the bank’s.

For producers reading this in January 2026, that means three conversations in the next 30 days: one with your accountant to calculate your current DSCR, one with your nutritionist about component-focused ration adjustments, and—if your number is below 1.25—one with your lender before spring flush hits. The farmers who preserved six figures in 2015-2016 didn’t have better operations. They had better timing.

For dairy producers seeking resources: University extension dairy programs in most states offer farm financial analysis services. The Center for Dairy Profitability at UW-Madison publishes annual benchmarking data. Regional cooperatives increasingly offer member financial planning support. Farm Credit institutions provide forward-looking cash flow analysis. The key is engaging these resources while your financial position still allows flexibility to act thoughtfully on what you learn.

Note: Market projections are inherently uncertain. This article provides educational framework, not financial advice. Consult qualified professionals for operation-specific decisions.

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

Learn More

2025’s $21 Milk Reality: The 18-Month Window to Transform Your Dairy Before Consolidation Decides for You – Choose your survival model—mega-scale, niche, or partnership—before consolidation decides for you. This long-range analysis reveals the restructuring heading toward 2030 and delivers a strategic 18-month window to transform your farm gate revenue.
The 90-Day Dairy Pivot: Converting Beef Windfalls into Next Year’s Survival – Stack $266 per cow in additional revenue using this tactical guide to cull cows, component premiums, and beef-crosses. It arms you with the specific breakeven calculations needed to out-manage and out-last the current flat-price market cycle.
The New Dairy Playbook: 5 Trends Redefining Profitability in 2025 – Gain a competitive edge by mastering the automated feeding and robotic systems delivering $180 per cow in annual savings. This report breaks down current payback periods, helping you build a high-efficiency operation during global supply surges.

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Categories : Dairy Markets

Tags : dairy markets, dairy profitability, European dairy sector, farm efficiency, Global Dairy Trends, milk prices, risk management

4.23% Butterfat, $187,000 Gone: The Margin Math That Broke 2025 – And Shapes Your 2028

Thursday, January 8th, 2026

4.23% butterfat—an all-time record. $187,000 gone from a 500-cow herd—silently. That’s not bad luck. It’s the margin math that broke 2025 and shapes who wins by 2028.

Executive Summary: U.S. butterfat hit 4.23% in 2024—an all-time record. Exports topped $8.2 billion. Margins still collapsed. For a 500-cow herd underestimating true breakeven by just $1.50/cwt, that translates to roughly $187,000 in equity vanishing annually—often invisibly, until the lender starts asking hard questions. This isn’t cyclical bad luck; genomic selection has locked the national herd into high-component production through at least 2028, while 82% of U.S. milk still clears domestically, no matter how strong exports run. Regional pain points vary sharply: eroding Class I premiums in the Northeast, punishing cost structures in California, and processor-dependent fortunes across the Southwest. What follows is the margin math that explains 2025’s wreckage—and a 2026-2028 checkpoint framework for aligning genetics, breakeven reality, and processor fit before options narrow further.

You know that feeling when you look at the milk check and think, “This isn’t what the markets promised me a year ago”? A lot of dairy folks were right there in 2025.

What I’ve found, digging through the numbers and talking with economists, lenders, and producers across the country, is that 2025 wasn’t just “one bad year.” It was the point where years of genetic progress in butterfat performance, record-high component tests, and massive processing investments finally collided with the hard limits of demand and pricing. And that’s the math we need to walk through together.

The 2025 Reality: Less About Volume, More About Butterfat

Looking at this trend, one of the first surprises is that the U.S. didn’t suddenly drown in extra milk. Industry analysis based on 2024 and 2025 statistics indicates that total U.S. milk production has been relatively flat compared with earlier decades of growth. So the story isn’t just “too many cows.”

What really changed was what was in the tank.

Here’s what’s interesting. Industry reports traced national milkfat trends going back decades, and for a long stretch—from the mid-1960s up to about 2010—average U.S. butterfat hovered in a remarkably tight band, around 3.65–3.69 percent. Then things started to climb. By 2021, we hit a national average of about 4.01 percent milkfat for the first time in recorded history—breaking a record that had stood since 1944 and 1945.

That moved to roughly 4.06–4.08 percent in 2022 and 4.14–4.15 percent in 2023, depending on the calculation method, with each year setting a new record. By 2024, calculated national averages around 4.23 percent butterfat and 3.29 percent protein using monthly USDA National Agricultural Statistics Service data. That lines up with what many of you are probably seeing on DHI sheets—cows that were once 3.6–3.7 percent now sitting comfortably over 4.0.

It’s worth noting that because total milk volume hasn’t grown nearly as fast as butterfat tests, the total pounds of milkfat have jumped faster than the pounds of milk. From 2022 to 2023 alone, U.S. milkfat production increased by about 136.2 million pounds—a 1.5 percent gain—despite modest growth in total milk.

At the same time, price reports and commentary from CME, USDA, and the Farm Bureau, along with our own analysis here at The Bullvine, showed butter and cheese markets under pressure in 2024 and 2025 as stocks built and global competition intensified. So the 2025 reality wasn’t just “more milk.” It was a lot more fat in roughly the same milk pool, with fewer places to sell that fat at the premiums we’d gotten used to.

The Long Component Shift, in One Glance

To put the component story in perspective, here’s a simple snapshot using ranges and figures drawn from USDA statistics and industry analysis.

Table 1. The Component Shift (National Picture)

Year	Approx. Avg. Milkfat %	Primary Market Focus	Phase
2005	mid-3.6% range	Fluid milk / volume	Old baseline
2021	4.01%	Fat premiums are gaining traction	The “pivot”
2023	4.14–4.15%	Fat clearly leading the check	The “boom”
2024	~4.23% (estimated)	High-component “new normal.”	The “overload”

Industry reports confirm that milkfat set a new annual record four years in a row, leading into 2024. And when you combine that with industry genetics coverage and what we’ve been tracking here, the component gains have been fueled by coordinated genetic selection, nutrition programs, and management improvements. Put together, the message is clear: we’re not drifting back to 3.6–3.7 percent as a national norm anytime soon.

Why Exports Didn’t “Save” 2025

What farmers are finding—and you probably know this already if you’ve been watching the trade reports—is that the export story is a bit of a double-edged sword.

USDA’s Foreign Agricultural Service and industry groups like USDEC and IDFA have all highlighted that U.S. dairy exports hit record or near-record levels in recent years. Dairy Foods reported that U.S. dairy exports topped $8.2 billion in 2024—the second-highest total export value ever—with strong cheese and powder shipments to key buyers such as Mexico and Southeast Asia. And here’s the figure that really matters: according to IDFA, roughly 18 percent of U.S. milk production, on a solids basis, is now exported. That’s about one day’s worth of milk produced on America’s dairy farms each week going overseas. A huge change from 20 years ago.

So it’s fair to ask: if exports were that strong, why did domestic prices still slump?

The scale math is pretty unforgiving. If about 18 percent of U.S. milk production goes out as exports, that still leaves roughly 82 percent that has to be consumed domestically. At the same time, the national butterfat average went from roughly 4.01 to 4.08 to 4.15 to over 4.2 percent in just a few years. So even if total milk volume is nearly flat, the pounds of fat looking for a home are not.

Market Destination	% of U.S. Milk (Solids Basis)	Key Vulnerability	2024–2025 Reality
Domestic consumption	82%	Hard ceiling on fat absorption	Butter stocks built despite record components; Class I utilization down to 30% in Northeast
Export markets	18%	Price competition with EU/Oceania	$8.2B record exports in 2024, but often at discounted prices to move volume
Processing capacity	100%	Processor product mix locked in	$11B in new plant investments (2025), but most designed for specific component profiles

On top of that, USDEC and Farm Bureau’s dairy trade analysis have emphasized that keeping those export channels open often means being competitive on price. In multiple periods, U.S. butter and skim milk powder have had to trade at a discount to European and Oceania products to move volume.

Industry reports have described that dynamic as a mix of record exports and tight margins, as a defining feature of the last couple of years. We covered the implications of this in our piece on 2025’s dairy dilemma.

What’s encouraging is that in some regions, especially in the West and Southwest, export-oriented plants have been a lifeline. Industry coverage of new powder and cheese facilities in Texas, New Mexico, and Kansas shows how those plants have created strong localized demand and a better basis for dairies in those draw areas, many of them large freestall or dry lot systems. In those cases, exports aren’t an abstraction; they’re the reason the local processor can keep taking milk.

But zooming out, the data from USDEC, IDFA, Farm Bureau, and industry analysts suggests exports did about as much as they reasonably could—and still couldn’t completely mop up the extra butterfat coming out of U.S. herds. When 80-plus percent of your product still has to clear domestically, multi-year component expansion will eventually show up in the price.

Genetic Momentum: The Part You Can’t Undo Next Breeding Season

Here’s where the genetics piece comes in, and it’s one of the most important parts of this whole story.

Coverage has spelled out how dairy cattle in the U.S. have essentially entered a “high-component era” thanks to genomics and selection for fat and protein. Genomic selection, shorter generation intervals, and focused breeding goals have stacked more fat and protein into the national herd over the last decade.

And the research backs this up. Peer-reviewed genetics papers published in journals such as Genetics, Selection Evolution, and PNAS have documented that genomic selection has increased genetic gain rates for production and component traits by 50% or more compared with traditional progeny-testing systems. Some studies show even larger gains—the Frontiers in Genetics review on U.S. dairy cattle genomic selection noted that the program has essentially doubled the rate of genetic gain.

The April 2025 Holstein base change really drove this home. According to documentation from NAAB and Select Sires, this was one of the largest base changes in history—resetting values to 2020-born cows with PTAs for fat dropping by about 44-45 pounds in the adjustment. That tells you just how much the genetic level has climbed. We covered the implications in our April 2025 US Holstein Evaluations analysis.

Here’s what that means in the parlor. A heifer you bred in 2021 or 2022 to a high-component genomic bull freshened in 2023 or 2024. Her daughters—already on the grow—will be milking through 2028–2030. So while you can start adjusting your sire lineup today—maybe shifting a bit more emphasis toward protein, feed efficiency, and health—you can’t un-breed the decisions from five years ago.

Land-grant university extension programs have been pretty clear in their 2024–2025 outlook discussions: the industry is genetically “pre-loaded” for high butterfat and strong solids for at least the next several years. The cows in the pipeline and the base-change data both point in that direction.

If current component and utilization trends continue, it’s hard to see a world in the late-2020s where butterfat returns to scarcity. Much more likely is a reality where high butterfat is the baseline, and the true differentiators are metabolic efficiency, health, and how closely your herd’s profile matches your plant’s needs.

Regional Pain Points: Same Storm, Different Boats

What farmers are finding is that the same national trends play out very differently depending on where you are and who you ship to.

Table 2. Regional Pain Points (2025–2026 Snapshot)

Region	Primary Market Structure	Biggest Margin Killer (2025)	Est. Breakeven Range ($/cwt)	Strategic Position
Northeast (FMMO 1)	Fluid-to-manufacturing shift	Loss of Class I premiums (44% → 30% utilization)	$21–$24	High-cost structure meets manufacturing pricing; margin squeeze acute
California & West Coast	Mixed fluid/manufacturing/export	Feed + regulatory costs + co-op loss pass-throughs	$20–$23	Punishing input costs; basis often below U.S. average
Upper Midwest (WI/MI)	Cheese-focused, high components	Component mismatch with some plants; 4.2%+ fat not always rewarded	$17–$20	Strong processing diversity, but not all plants optimize ultra-high butterfat
Central Plains / Southwest (TX/NM/KS)	New cheese & ingredient plants, export-linked	Processor-dependent; need consistent volume to justify $11B buildout	$16–$19	Best positioned if tied to new plants; vulnerable if outside draw areas

In the Northeast, FMMO 1 data and Cornell/Penn State extension work indicate that Class I (fluid) utilization has declined significantly. Analysis has documented that in the Northeast, Class I milk utilization fell from 44 percent in 2000 to 30 percent by 2022. That’s a dramatic shift, and it means more milk is being priced in manufacturing classes. Coverage of FMMO reform and Order 1 discussions has highlighted how that erodes the fluid premium that used to support many smaller and mid-size herds. Producers there are now being judged much more directly on components and the all-in cost structure.

In California and other Western states, the cost picture is especially tight. Feed, water, and regulatory burdens are already higher than in many other regions.

On top of that, reports have documented co-ops passing losses through to members during tough stretches, leaving some producers with net milk prices materially below the national all-milk price. Stack those together, and you have a very narrow margin for error.

In the Central Plains and Southwest, there’s been massive investment in new processing capacity. IDFA reported in October 2025 that more than $11 billion is flowing into 53 new or expanded dairy manufacturing facilities across 19 states, with Texas alone receiving about $1.5 billion. We examined these dynamics in our piece on the $11 billion wave of processor investments. Industry coverage has documented specific projects including Cacique Foods in Amarillo, Great Lakes Cheese in Abilene, H-E-B in San Antonio, and Leprino Foods in Lubbock. Many of those plants are designed around large freestall and drylot systems that supply consistent volume. Producers in those regions often report strong local demand and aggressive base allocations, even in weaker price windows, but they’re also tied tightly to the success of those new plants and their export programs.

In Wisconsin and other Upper Midwest states, statistics and extension data show a mix of strong production, high butterfat, and diversified processing: cheese, butter, whey, specialty products. But even there, when state and national butterfat levels pushed firmly into the 4.0+ range, not every product mix could reward unlimited fat—especially plants focused heavily on cheese yield and whey solids.

A Note for Canadian Producers: The specifics differ north of the border—quota systems buffer volume swings and provide different price dynamics. But the underlying component and cost pressures are real in Canada too, and conversations about efficiency, genetics, and processor fit are just as relevant. The genetic momentum we’re describing is continental, not just American, and many of the strategic questions around breeding emphasis and cost structure apply regardless of which side of the border you’re milking on.

So while the national numbers are the same for everyone, the pain points—and the opportunities—vary a lot by region and processor.

The Breakeven Trap: Where “Almost Okay” Eats Equity

Here’s the part that’s easy to overlook when you’re just trying to get through another month: the breakeven math.

Farm financial analysts, including those at American Farm Bureau and in land-grant university farm management programs, have flagged a significant uptick in Chapter 12 bankruptcies. Chapter 12 filings were up 56 percent in June 2025 compared to the prior year. Farm Policy News documented that family farm bankruptcies increased 55 percent in 2024 compared to 2023. And University of Arkansas Extension noted that Q1 2025 saw 88 Chapter 12 filings compared to just 45 in Q1 2024.

What’s striking is that these filings often don’t coincide with the absolute lowest milk prices we’ve ever seen—they show up after a few years of “thin but not terrible” margins. We explored this pattern in depth in our analysis of the 55% surge in strategic bankruptcies.

Our own “$200K Dairy Margin Trap” analysis here at The Bullvine walked through an example of how a relatively modest $1.25–$1.75/cwt squeeze between expected and actual margins can quietly drain $150,000–$200,000 a year out of a 500-cow operation. You don’t always feel that in any one month, but the balance sheet sure feels it in three to five years.

Extension bulletins from universities like Wisconsin and Penn State have stressed that many farms underestimate their true cost of production by omitting paid-equivalent owner labor, reasonable machinery replacement, heifer-raising costs, and deferred maintenance. When those are fully accounted for, breakeven often ends up $1–$2 per hundredweight higher than the “mental” number many producers are using.

To put some real numbers on it: a 500-cow herd averaging about 25,000 pounds per cow per year ships roughly 12.5 million pounds—125,000 hundredweight. If your real breakeven is $1.50/cwt higher than you think, that’s around $187,500 a year in unrecognized loss. At $2.00/cwt, it’s roughly $250,000. On a 150-cow herd producing around 37,500 hundredweight, the same $1.50–$2.00 error still adds up to roughly $56,000–$75,000 per year—enough to decide whether you can replace a tractor or re-roof a barn.

“If you think your breakeven is $19 but you haven’t fully counted owner labor, capital replacement, heifer costs, and deferred maintenance, you’re probably not breaking even—you’re quietly liquidating your farm one hundredweight at a time.”

Across three lean years, that’s hundreds of thousands of dollars of equity quietly eroded. It’s no wonder some producers feel blindsided when the bank suddenly looks nervous; the erosion happened slowly, while everyone hoped “next year” would fix it.

That’s why you’re seeing more talk from lenders and extension teams about detailed cost tracking, FINBIN-style benchmarking, and honest breakeven exercises. The goal isn’t to beat anyone up; it’s to make sure the math behind the milk check is as clear as the test sheet for butterfat.

Rethinking “Winning” in a High-Component Era

So, what farmers are finding is that the definition of “winning” has shifted.

Most serious market outlooks—including USDA’s Livestock, Dairy, and Poultry Outlook, CoBank’s Knowledge Exchange dairy briefs, Farm Bureau’s dairy market overviews, and multiple land-grant university outlook meetings—converge on a similar picture: a high-component milk supply, robust processing capacity, strong but not unlimited export growth, and ongoing Class I decline. They don’t pretend to know the exact Class III price in 2027, but they do suggest the structural pressures we’re seeing now aren’t going away.

Against that backdrop, three themes keep emerging in industry coverage and in our analysis here at The Bullvine.

1. Genetics: From “More Fat” to “Smart Fat.”

Industry analysts have shown we can absolutely keep breaking component records with the tools we have. The question isn’t “Can we add more fat?” anymore; it’s “Is more fat the best use of the next unit of genetic progress on this farm, with this processor?”

Reviews on milk quality and economic sustainability in journals such as Animals, and systematic reviews on performance indicators, point to a growing emphasis on metrics such as feed efficiency, health, and fertility. These align with what extension geneticists say: we now have the genomic tools to select for cows that convert feed into milk solids more efficiently, stay healthier through the transition period, and last longer in the herd.

For herds shipping mainly to cheese plants with strong whey and lactose streams, it can make sense to lean a little harder into protein, casein, and efficiency traits, while maintaining solid butterfat performance. For plants more dependent on butter and cream, maintaining high butterfat is still logical—but even there, balancing it with health and feed efficiency can keep production sustainable.

2. Efficiency and Health: Durable Competitive Edge

Our margin analysis and university farm business summaries both highlight that in tight times, the herds that stay profitable are the ones that consistently produce higher income over feed cost per stall, not just more pounds per cow. We explored the feed cost dynamics in our recent piece on why smart dairies are spending more on feed.

Research on seasonal milk composition, transition cow health, and fresh cow management shows that better control of the transition period—reducing displaced abomasum, ketosis, retained placenta, and metritis—pays off in both milk components and lower vet bills. The National Mastitis Council’s “Best of the Best” roundtable and industry coverage of quality award winners show that herds with strong udder health and milking routines capture more premiums and generally have more stable production.

In practical terms, as many of us have seen and extension case studies generally support, herds that clean up transition management and tighten ration consistency often see substantial improvements in income over feed cost—sometimes more than a dollar per cow per day—without adding new technology. That’s the kind of advantage that holds up whether butter is $1.80 or $3.00.

3. Market Alignment: Matching Cows to Plants

Industry coverage and our market pieces here keeps coming back to one simple idea: the same hundredweight of milk can be worth very different amounts, depending on what your plant does with it.

Cheese plants with advanced whey and ingredient streams can usually capture more value from both protein and fat than butter-powder plants with no side-streams. Plants that sell a lot of branded consumer products may be less exposed to global commodity swings than plants that sell mostly unbranded bulk product. Co-ops that spent heavily on certain commodity investments have more riding on specific market segments.

In Wisconsin operations, for example, producers shipping to specialty cheese plants with strong whey programs often report different checks than neighbors shipping to a more traditional commodity mix, even with similar butterfat performance and protein levels. In Texas and Kansas, dairies tied to new cheese/ingredient plants have reported strong demand and competitive pricing, while those just outside certain draw areas don’t see the same benefits.

The farms that seem to be navigating this best aren’t always the biggest, but they usually have a clear grasp of three things:

How their buyer makes money
How their butterfat and protein profile fits that product mix
How their cost of production stacks up against the risk profile of that market

2026–2028: Checkpoints Instead of Crystal Balls

So, where does that leave you when you sit down with your family, your lender, or your advisory team?

Nobody can tell you exactly where prices will be in June 2027. But the combination of USDA data, component trends, USDEC/IDFA trade reports, CoBank outlook briefs, and farm financial analysis provides enough structure to use checkpoints rather than crystal balls.

2026: Get Honest and Get Oriented

Lock in a real breakeven. Work with a farm business specialist or your lender to build a fully loaded cost of production that includes owner labor, realistic machinery replacement, heifer raising, and deferred maintenance.
Map your buyer. Identify your processor’s main products—cheese, powder, butter, fluid, ingredients, branded retail—and how they price butterfat and protein. Ask them directly how your component profile helps or hurts their system.
Audit your herd plan. With your genetic advisor, review whether your current sire choices and culling strategy still make sense for where you expect your milk to go in 2029–2031, not just where it went in 2022.

2027: Test Your Plan Against Reality

Compare plan vs. actual. Take your 2026 plan and match it against your actual margins, cull rates, heifer inventory, and debt service. Did the quiet equity erosion show up despite your adjustments?
Reassess market fit. If your plant is clearly long on cream and struggling with butter, but you’re chasing ever-higher butterfat performance, it might be time to rebalance breeding goals and rations slightly toward protein, efficiency, and health.
Decide whether to fix or pivot. If you’re still below true breakeven after making reasonable operational changes, 2027 is the year to have honest conversations about restructuring, resizing, or exploring different income strategies before equity erosion gets out of hand.

2028: Choose Your Long-Term Role

If current genetic and utilization trends continue, by 2028, we’re likely still in a world of high component prices, strong processing capacity, and export markets that are vital but not omnipotent. At that point, it’s less about hoping for a return to “normal” and more about choosing who you want to be in this system.

Are you positioned as a lean, efficient, component-savvy herd aligned with a processor that can pay for what you produce?
Is your breeding program clearly set up for metabolic efficiency, health, and the component balance your market values, not the one it valued five years ago?
Does your balance sheet give you room to keep investing in fresh cow management, transition cow care, and facilities that support cow comfort, instead of just plugging leaks?

Those aren’t easy questions, but the sooner they’re asked, the more options you tend to have.

Editor’s Note on Data and Methods

The numbers in this article come primarily from USDA National Agricultural Statistics Service milk production and composition data; U.S. dairy statistics; USDEC/IDFA and Dairy Foods export summaries; Farm Bureau, Farm Policy News, and University of Arkansas Extension analysis of dairy financial stress and bankruptcy trends; CoBank Knowledge Exchange dairy briefs; IDFA manufacturing investment data; and The Bullvine’s own breakeven and margin modeling. Genetic trends and efficiency themes reflect published reviews on milk composition and economic sustainability in peer-reviewed journals, including Genetics, Selection, Evolution, PNAS, and Frontiers in Genetics, as well as NAAB/Select Sires base change documentation. These are national or regional averages and may not mirror your exact situation; that’s why we encourage you to run your own numbers and share your experience.

The Bottom Line

What’s interesting is how consistently the data and the on-farm stories line up when you step back. USDA analysis shows a steady march to higher butterfat; industry genetics coverage shows record components driven by genomics; USDEC, IDFA, and Farm Bureau show exports doing well but still capped around that 18-percent share; and farm financial analysis points to slow, quiet equity erosion when breakeven is misjudged.

What’s encouraging is that producers have more tools than ever—genomic testing, better transition period nutrition research, fresh cow management protocols, quality benchmarking, and robust financial tools—to respond thoughtfully rather than just react.

If current trends continue, the late-2020s likely won’t be about “getting back” to some old version of the milk check. They’re going to be about thriving in a world where high butterfat is common, where efficiency and health are as valuable as raw output, and where being matched to the right plant matters more than ever.

The 2025 downturn wasn’t a random fluke; it was a feature of a system that finally caught up to its own success in components and capacity. The big question going forward isn’t when the market will fix itself. It’s whether our cows, our costs, and our contracts are lined up with the market we actually have.

So let me leave you with the same question I’ve been asking in winter meetings:

Are you still breeding and budgeting for the 2022 milk check—or are you starting to design your herd and your business for the 2028 reality the data keeps pointing toward?

KEY TAKEAWAYS:

Record butterfat broke the margin math: 4.23% components and $8.2 billion in exports still left producers struggling—82% of milk clears domestically, and American fat demand has hard limits
$187,000 vanishes without warning: A 500-cow herd underestimating true breakeven by just $1.50/cwt bleeds that much equity every year—often invisibly, until the lender starts asking hard questions
Genetics locked this in through 2028: Genomic selection doubled the rate of component gain; the high-fat cows freshening now were bred years ago, and their replacements are already growing out
Same storm, very different boats: Northeast herds face eroding Class I premiums, California operations fight punishing cost structures, and Southwest dairies have bet heavily on new processing capacity
Decide by 2027 or drift into trouble: Lock in your real breakeven, understand what your processor actually pays for, and audit your breeding direction—the window for strategic repositioning shrinks every season

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 – Eliminate equity leakage and regain operational control with this blueprint for 2025. It delivers the three-point checklist—financial clarity, revenue diversification, and management decisiveness—required to stop the invisible liquidation of your farm’s future.
Breeding Into a Moving Market: What Butterfat’s Crash Reveals About Dairy’s Genetic Timing Problem – Protect your long-term equity from market volatility by mastering the genetic timing gap. This analysis exposes the mismatch between five-year breeding cycles and six-month market reversals, arming you with a diversified strategy to survive future pivots.
Genetic Correlations Upended: Why Sticking with Old Breeding Indices Could Cost Your Dairy $486 Per Cow – And What the Data Really Proves – Capture an extra prioritize metabolic efficiency and component value over traditional, profit-killing conformation traits.

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Categories : Dairy Markets

Tags : butterfat trends, dairy economics, dairy markets, genomic selection, herd profitability, milk check math

The 18-Month Protein Window: $11 Billion in New Plants Signals It’s Time to Rethink Your Sire Lineup

Wednesday, January 7th, 2026

$11 billion in new processing capacity. A protein-hungry consumer base. And an 18-month breeding window that will shape your milk check through 2030.

Executive Summary: The protein line on your milk check is about to matter more—and your next 18 months of breeding decisions will determine whether your herd is positioned to benefit. GLP-1 weight-loss medications now reach 15.5 million Americans, with clinical guidance steering patients toward protein-dense dairy like Greek yogurt and cottage cheese. Processors have responded by locking in $11 billion in new cheese and cultured capacity across 19 states, scheduled to come online by 2028. University of Minnesota research shows many Holstein herds already carry significant A2 and favorable kappa-casein genetics without active selection, and genomic testing at $30-50 per head makes it practical to know where you stand. The timeline is clear: calves from 2026 matings will hit peak production just as this new capacity reaches full stride. Whether you’re scaling for growth, navigating mid-career capital decisions, or planning a clean exit, the protein opportunity is real, and the window to position for it is now.

Healthcare analysts tracking GLP-1 medications like Ozempic, Wegovy, and Mounjaro are projecting that this class of drugs could grow from about 64.42 billion dollars in annual sales in 2025 to roughly 170.75 billion by 2033—around 13 percent growth per year, according to MarketsandMarkets’ latest global forecast. And that number may have more to say about your protein line than any milk market report you’ve read this year.

Here’s what’s interesting: analysts have been telling food and agriculture reporters that a market that big doesn’t just change what’s in the pharmacy aisle. It spills over into what people put in their carts and on their plates, because these drugs influence appetite, satiety, and what doctors and dietitians tell patients to look for in the grocery store.

And that’s where our dairy conversation really starts to get interesting over coffee.

Why Protein Seems to Be Doing More of the Work

Not long ago, I was at a winter meeting in Wisconsin and a producer leaned over between sessions and said, “You know, I’m starting to see protein doing more of the heavy lifting on my milk check than it used to. It’s not huge yet, but it’s moving.” In a lot of Midwest herds, when folks actually line up a few years of milk cheques, they see the same thing—the protein line quietly pulling a bit more weight relative to butterfat performance than it used to.

If you look north of the border, the Canadian Dairy Commission has adjusted support prices and farm-gate returns to reflect rising feed and operating costs, and those decisions feed into the detailed component-based payment formulas that provincial boards publish. When you study those formulas in Ontario or across Western Canada, you can see that protein and other non-fat solids account for a substantial share of the value, especially in classes tied to cheese and yogurt.

On the U.S. side, federal order component pricing and plant pay schedules in cheese-oriented markets show the same general pattern: butterfat still matters a lot, but protein has become more important as plants capture value from cheese, powders, and high-protein ingredients.

The thing that jumps out to me is that this shift at the pay-stub level isn’t happening in isolation. If you step back and connect a few dots—the GLP-1 story, a growing stack of gut-health research around yogurt and fermented dairy, and more than 11 billion dollars in new processing investments that IDFA says are already locked in—you start to see a pretty coherent picture pointing toward solids, and especially protein.

That’s why I keep coming back to this simple idea: the bulls you pick over the next 18 months are a direct bet on what your milk check looks like in 2029.

GLP-1: The Drug Class Turning Up the Volume on Protein

Looking at this trend, we’ve got to spend a little time on GLP-1 drugs, even though they can feel a long way from the parlor.

Peer-reviewed clinical reviews published in PubMed-indexed journals describe how these medications mimic incretin hormones and work on several fronts: they reduce appetite, slow gastric emptying, improve insulin secretion, and lead to substantial weight loss in people with type 2 diabetes and obesity when used as prescribed.

What the clinical literature also shows—and this is where it becomes relevant for us—is that rapid weight loss can involve loss of lean mass if patients don’t maintain adequate protein intake and engage in some resistance activity. That’s why many clinicians now emphasize maintaining a solid protein intake, or even increasing it, when patients start GLP-1 therapies.

Dairy-focused outlets have begun connecting that clinical guidance to what’s happening in the dairy case. Analysis that combined polling and retail data showed that around 15.5 million U.S. adults were using GLP-1 injectables as of 2023, with adoption expected to reach roughly 9% of the adult population by 2030. Those users reported cutting daily calories by about 20 percent—roughly 800 kilocalories—while shifting away from high-sugar products toward lean proteins.

Registered dietitians explained that they often recommend Greek yogurt, dairy-based protein drinks, and cottage cheese to patients on GLP-1s because these foods deliver convenient, high-quality protein and align with satiety- and gut-friendly patterns supported by the clinical literature.

Now, it’s worth saying out loud that not every GLP-1 user suddenly becomes a model high-protein eater. Real-world adherence, side effects, out-of-pocket costs, and insurance coverage limits all affect how many people stay on these medications and how they actually use them.

But when you put tens of billions of dollars in current GLP-1 sales together with a well-publicized forecast that the market could more than double, and you pair that with a consistent medical message—”eat less overall, but don’t short yourself on protein”—it’s not surprising that food companies and retailers are re-examining their high-protein offerings.

If your cows are producing the milk that ends up in those products, that’s a signal worth keeping in mind the next time you’re standing in front of the semen tank.

Gut Health, Fermented Dairy, and the Slow Burn That’s Paying Off

At the same time, yogurt and fermented dairy have been building their own steady momentum, well before GLP-1 became a household word.

Large prospective nutrition cohorts, such as the Nurses’ Health Study and the Health Professionals Follow-up Study, have tracked people’s diets and health outcomes for decades. Analyses of those cohorts published in journals like the American Journal of Clinical Nutrition have repeatedly found that higher yogurt consumption is associated with a lower risk of type 2 diabetes, even after adjusting for body mass index, smoking, and physical activity.

Umbrella reviews that pool data from multiple observational studies have reached similar conclusions, reporting that yogurt intake tends to align with modestly lower diabetes risk and somewhat better cardiometabolic profiles overall.

On the intervention side, randomized controlled trials have tested yogurt enriched with prebiotic fibers, such as inulin and konjac glucomannan, in adults with type 2 diabetes. Over a few weeks to months, those enriched yogurts improved insulin sensitivity, fasting glucose levels, lipid profiles, and, sometimes, inflammatory markers compared with control products.

Reviews of fermented dairy and the gut microbiome describe how specific cultures and fermentation processes can shift gut bacteria toward profiles that appear beneficial for metabolic and digestive health.

So what do shoppers do with all that? Market research shows that consumers consistently rank yogurt, kefir, and other cultured dairy products among the foods they see as “good for their gut,” and sales data indicate these categories have grown into multi-billion-dollar markets with high single-digit or better growth in many recent years.

Put that together with the GLP-1 protein push, and you can see why there’s so much interest in milk that shows up with consistent protein and butterfat performance, not just volume.

What Jumps Out: The 11-Billion-Dollar Vote for Components

One of the clearest signals in all of this isn’t in survey data at all; it’s in concrete and stainless.

In October 2025, IDFA kicked off Manufacturing Month by highlighting that U.S. dairy processors are investing more than 11 billion dollars in new and expanded processing capacity across 19 states, spread across more than 50 individual building projects scheduled between 2025 and early 2028.

IDFA president and CEO Michael Dykes, D.V.M., has said this reflects a “growth mindset” among processors who expect U.S. milk production to rise by about 15 billion pounds by the end of the decade and want to be ready to turn that milk into higher-value products rather than dumping it into lower-value uses.

When you look at the breakdown, cheese facilities are attracting about $ 3.2 billion. Milk and cream operations account for nearly 3 billion, while yogurt and cultured products draw another 2.8 billion.

By state, New York is slated to receive about 2.8 billion in projects, Texas roughly 1.5 billion, Wisconsin around 1.1 billion, and Idaho and Iowa about 720 million each, making those states some of the biggest beneficiaries of this capex wave.

In New York, those projects layer onto a milk shed already producing roughly 16 billion pounds of milk per year, according to USDA NASS data. Texas has climbed into the top three milk-producing states, anchored by large dry lot systems in the Panhandle and High Plains. Wisconsin continues to deepen its role as a cheese and whey hub, while Idaho and Iowa are adding cheese and powder capacity that fits their existing dairy and feed bases.

You can see where this is going: when processors put that kind of money into cheese vats, separators, and dryers, they’re voting for solids. You don’t design a modern cheese plant or whey protein line around thin, low-component milk. You design it around protein and fat. That doesn’t mean volume suddenly doesn’t matter—but it does change what kind of volume they value most.

The Genetics: You Might Be Closer Than You Think

Now, at this point, somebody usually asks, “Okay, but how far behind am I really?”

Here’s where the data is a bit more encouraging than a lot of folks expect.

When the University of Minnesota genotyped its entire research herd in 2019, more than 50 percent of the Holstein cows turned out to be A2A2 for beta-casein, even though the herd hadn’t been selected for that trait. A separate 1964 Holstein genetic line in the same project had only 26 percent A2A2, showing how selection can shift things over time, and their crossbred cows and heifers ranged from 36 to 50 percent A2A2.

Herd Type / Population	Selection Pressure for A2?	A2A2 Frequency (%)	Key Insight
UMN Holstein Research Herd (2019)	None	50%	Half the herd was A2A2 without trying
UMN 1964 Genetic Line	None (frozen 1964 genetics)	26%	Shows effect of modern selection drift
General Holstein Population (est.)	Minimal to moderate	~33%	Roughly 1 in 3 Holsteins could be A2A2
Jersey / Guernsey / Brown Swiss	Low to moderate	70%+	Heritage breeds carry higher baseline
UMN Holstein-Jersey Crosses	None (F1 crosses)	36-50%	Crossbreeding can accelerate A2 shift

Broader genetic research published in peer-reviewed animal science journals suggests the A2 allele frequency in Holsteins runs somewhere in the 50 to 60 percent range, which mathematically implies that roughly a third of Holsteins in general might be A2A2, with the rest mostly A1/A2.

Jersey, Guernsey, Normande, and Brown Swiss populations tend to carry higher A2 frequencies—often 70 percent or more in Swiss breeds and even higher in some heritage populations.

Now, that doesn’t mean every commercial Holstein herd is sitting at UMN-level A2A2 percentages. Actual numbers vary with sire usage and the age of sire lines. But the university data and industry allele estimates suggest that many herds probably have more A2 genetics—and more favorable kappa-casein genotypes—walking around than you’d guess just by looking at cows in the freestalls.

Over the past 10 to 15 years, genomic testing has really changed how we can use that information. Modern genomic panels routinely report beta-casein type, kappa-casein genotype, predicted transmitting abilities for fat and protein yield and percentages, and indices for health, fertility, and even feed efficiency.

In practical terms, most commercial genomic panels used on heifers and cows today cost between $ 30 and $ 50 per head, depending on the panel and the volume of samples. Holstein Canada’s 2024 fee schedule shows base animal testing at $ 33, which aligns with what extension budgets and on-farm case studies report.

AI catalogs from major studs show that A2A2, high-component, favorable kappa-casein bulls often carry a small price premium over more “average” Holstein sires, but still sit within what most breeding programs can handle.

This suggests that for many herds, this isn’t a “start from scratch” situation. It’s more a case of figuring out what you already have and then nudging your breeding decisions in a direction that lines up with where the plants and the people seem to be going.

A Wisconsin Coffee Shop Scenario

Let’s ground this with a scenario that’ll feel familiar to a lot of Midwest producers.

Say you’re running 450 Holstein cows in south-central Wisconsin. You’re milking in a double-12. You’ve got sand-bedded freestalls, respectable butterfat performance, and good enough fresh-cow management in the transition period that you don’t dread opening the DHI packet. At the same time, your stall bases and manure system are over 20 years old, and every January you catch yourself wondering which piece of steel or concrete is going to cause trouble this year.

If you look at UW-Extension summaries and USDA cost-of-production data for similar-sized freestall herds in Wisconsin, total economic breakevens often fall in the mid- to high-teens per hundredweight, once you account for hired labor and realistic debt service. Let’s say your true breakeven is around 17 dollars. A lot of Wisconsin operations would recognize that as a believable number when they work through their own books.

You’re 48. Your daughter is finishing a dairy science degree and wants to come back, but she wants to see a path that looks like building a business for the next 15 to 20 years, not just hanging onto tired infrastructure.

In that position, here’s the kind of path I’ve seen work in real herds:

You decide to test all milking cows and heifers genomically. At roughly 40 dollars a head and 600 head total, that’s about 24,000 dollars—a noticeable check to write, but still a fraction of any major building project.
The results come back and, like UMN, you discover a decent chunk of your Holsteins are A2A2 and that a meaningful fraction carry kappa-casein genotypes that cheese makers like.
You sit down with your genetics advisor and draw up a simple plan: the top tier of heifers and cows on components and health get bred to A2A2, high-protein, favorable kappa-casein bulls; the bottom tier gets beef semen. Your overall semen bill goes up a bit—maybe a thousand or two a year—but you stop multiplying the genetics that hold back components and cow health.

Investment Item	Cost / Value	Timeline	Notes
Genomic Testing (600 head)	$24,000	One-time upfront	Tests all cows + heifers; identifies A2, kappa-casein, component PTAs
Premium A2/High-Component Semen	+$1,500-$2,000/year	Ongoing	Small incremental cost vs. standard Holstein semen
Total First-Year Investment	~$26,000	Year 1	One-time test + first year of premium semen
Milk Production (450-cow herd)	20-22 million lbs/year	Baseline	Typical for well-managed Midwest freestall herd
Component Value Improvement (conservative scenario)	+$0.15-$0.25 per cwt	Years 3-5+	Even modest protein % gains + favorable casein = higher pay
Annual Return (conservative)	$15,000-$30,000+/year	Ongoing after calves freshen	Based on 20M lbs at $0.15-0.25/cwt improvement
Simple Payback Period	<2 years	—	$26K investment / $15-30K annual return
10-Year Net Benefit (conservative)	$120,000-$270,000	Years 1-10	Assumes modest component gains hold across herd lifecycle

On the calendar, calves from those matings in 2026 are born through early 2027. Those heifers freshen in your parlor in 2028. By 2029-2030, a big slice of your herd is in second lactation with more consistent protein percentages and solid butterfat performance, as long as your nutrition and cow comfort keep pace.

A 450-cow herd milking well could easily be shipping on the order of 20 to 22 million pounds of milk a year. In some component pay systems used by cheese-oriented plants, even a small improvement in how protein is valued—a couple of cents per pound of protein, depending on the exact formula—can turn into tens of thousands of dollars a year for a herd that size when you run real solids and volume numbers through actual federal order and plant pay schedules.

Nobody can guarantee exactly what your protein line will look like in 2030. Pay formulas and markets change. But when the cost side of the strategy is a one-time genomic investment and a modest ongoing semen premium, and the upside sits in that “tens of thousands per year” range in a world that’s clearly leaning into protein-dense dairy, you can see why more producers are at least sharpening their pencils.

Western Dry Lot Systems: When Components Become “Exported Water”

Now, slide that coffee mug over to a friend running 3,000 cows in a dry lot system in the Texas Panhandle or eastern New Mexico, and the conversation sounds a little different. The underlying theme is the same, though.

In those systems, water and purchased feed are usually the top two headaches.

U.S. Geological Survey data on the Ogallala Aquifer shows that in heavily irrigated parts of western Kansas and the Texas High Plains, groundwater levels have dropped significantly over the past several decades—in some areas, declines of 50 to 70 feet or more in the most heavily pumped townships. USDA Climate Hubs data shows similar patterns in Texas and Oklahoma. That’s a long-term structural issue, not just a “bad year.”

Climate and hydrology work on the Colorado River basin tells a similar story. Multiple research studies and federal data confirm that since about 2000, average river flows have been roughly 20 percent below the 20th-century average. The Nature Conservancy, Colorado State University researchers, and coverage in High Country News all point to reduced snowpack and higher temperatures—a “hot drought” pattern that’s likely to persist under current climate projections.

At the same time, USDA hay market reports and Western extension bulletins regularly show Supreme and Premium alfalfa in states like California, Arizona, Idaho, and New Mexico, bringing noticeably higher prices per ton than comparable hay in Wisconsin or Minnesota, reflecting irrigation costs and freight.

Delivered costs for corn and other concentrates are also higher when you’re far from the Corn Belt, something our previous coverage has been highlighting in its pieces on regional profitability and the “processing gap” between where milk is produced and where it’s processed.

So in that context, when Western producers talk about components, they’re often thinking less about a formal protein premium line on the cheque and more in terms of “How many pounds of fat and protein can I ship for each unit of water I’m legally and affordably pumping and each ton of feed I’m buying?”

That’s what people really mean when they talk about components as a way of “exporting water.” You’re not literally putting your irrigation water in the tanker, but the more solids you produce per acre-inch of water and per ton of dry matter, the more value you’re effectively moving off the farm with each load of milk.

In practical terms, that’s where genomic selection for traits like protein percentage, feed efficiency, and health, paired with sharp ration work and solid fresh cow management during the transition period, becomes a survival tool rather than just a nice genetics project.

Why the Next 18 Months Matter More Than They Seem

If you lay all this out on a simple timeline, you can see why a lot of conversations keep circling around an “18-month window.”

From breeding to first calving is about nine months of gestation. Then you’ve got a couple of months for the heifer to get through the transition period and settle in, and at least one full lactation before you really know who she is in terms of components, health, and fertility. Realistically, it takes several years of consistently breeding in a chosen direction before that genetic shift really shows up in the bulk tank.

On the processing side, most of the projects in that 11-billion-dollar wave are slated to start up between now and the end of the decade. If they stay roughly on schedule, the new cheese, yogurt, and ingredient plants will be running full out right when the calves you breed in the next 18 months are in their first and second lactations.

GLP-1 use and gut health awareness aren’t expected to disappear over that same period, either, based on current clinical and market outlooks.

So, whether you think about it this way or not, every sire selection you make today is a kind of futures contract on your 2029 milk check. You’re deciding how much of your herd, three to five years from now, will be built mainly for volume, and how much will be built for components that match the products and markets your milk will flow into.

Talking With Your Processor: Three Questions Worth Asking

I’ve noticed that the farms that navigate this best aren’t just tweaking genetics in a vacuum; they’re also having better conversations with the folks who cut the checks.

If you pick up the phone or catch your field rep in the yard, three simple questions can open up a lot:

First: “Looking at the new plants we’re building into, how do you expect protein and butterfat to be valued over the next five to ten years compared to today?”
Second: “Are there specific quality or composition targets—like protein percentage, A2 status, or other specs—that you expect to reward more as these projects come online?”
Third: “Based on your data, where does my herd stand today on components and quality relative to your overall supplier base?”

Processors and co-ops often have more visibility into future product mix than we do from the farm side. Asking these questions doesn’t mean you’ll get a perfect forecast—nobody has that—but it can help you decide how aggressively to steer your genetics, nutrition, and fresh cow management toward components.

And honestly, that’s the kind of conversation that separates the farms steering the bus from the ones just along for the ride.

Different Farms, Different Plays—And That’s Okay

As many of us have seen over the years, there’s never just one “right” answer that fits every farm.

If you’re a younger operator—say under 45—with a competitive cost of production and a realistic plan to be milking for another 15 to 20 years, this protein-heavy future probably looks more like an opportunity than a threat. Genomic testing a meaningful share of your herd, tightening sire selection around protein, butterfat, and casein while still protecting fertility and cow health, and working with your nutritionist to support solids as well as volume, are all moves that research and extension work suggest can pay back over a longer time horizon.

If you’re in that mid-career zone—mid-40s to mid-50s—and staring at a parlor, freestalls, or manure setup that’s near the end of its useful life, your decisions get more complicated. Industry data shows robotic milking units typically ranging from 150,000 to 230,000 dollars per unit, and full conversions for 400- to 600-cow herds can easily clear a million dollars once buildings and support systems are included. Payback estimates often fall in the seven- to ten-year range, depending on actual labor savings, component shifts, and day-to-day management.

In that situation, what a lot of mid-career producers are doing is leaning first on lower-capital levers: improving genetics for components and health, tightening fresh cow management in the transition period, putting serious effort into forage quality and consistency, and, where appropriate, using tools like Dairy Margin Coverage or private revenue protection to soften some of the income swings while they make those improvements.

If you’re closer to retirement and there’s no clear successor ready to step in, the smartest move may be different again. USDA and land-grant land value reports show that farm real estate in good dairy regions—especially around the Great Lakes—has held value well and, in many cases, has increased substantially over the past 15 years. In some strong dairy counties, values have doubled or more.

In that context, it often makes sense for someone in their late 50s or 60s to focus on maintaining cow health and respectable components, avoid taking on major new debts that won’t realistically be paid off during their working years, and keep the place clean and marketable so they can sell or rent out on their own terms when the time feels right.

None of these paths is “better” in every situation. They’re just different ways of responding to the same set of signals, depending on where you and your family are in your own story.

A Note for Canadian Producers

For those of you milking under quota north of the border, the component picture plays out a little differently—but the underlying direction is similar.

Canadian Dairy Commission support prices and provincial board formulas have always valued butterfat heavily, and that hasn’t changed. But the rising importance of protein in cheese yields and in high-protein consumer products is shaping how milk classes are structured and valued.

If you’re considering A2 or kappa-casein genetics, the economics work a bit differently under quota than under U.S. federal orders, but the potential for premium marketing channels—particularly for fluid A2 milk and specialty cheese—is growing in Canada too.

Reports show that in early 2025 that Minnesota dairy farmers are increasingly interested in A2 milk, and that interest is mirrored across the border as Canadian processors explore differentiated product lines.

The strategic question is similar: know your herd’s genetic profile, understand where your processor is headed, and make breeding decisions that line up with both.

The Long Game: Water, Land, and Where Dairy Stands

Before we drain the coffee pot, it’s worth zooming out one last time and thinking about the long game.

Those water trends I mentioned earlier—the Ogallala declines, the Colorado “hot drought”—are already forcing Western agriculture, including dairies, to adjust cropping patterns, scale back irrigated acres, and in some cases rethink long-term viability.

Region	Primary Water Source	Status / Trend	Long-Term Outlook	Strategic Implication
Texas / Kansas / Oklahoma High Plains	Ogallala Aquifer	-50 to -70 feet in heavily pumped areas since 2000	Continued decline; fossil water	Risk: Rising costs, limited expansion, potential exit
Southwest / Colorado River Basin	Colorado River	-20% avg. flow since 2000; persistent “hot drought”	Likely permanent reduction per climate models	Risk: Competing demands, regulatory limits on ag water
Great Lakes Region (WI, MI, NY, PA, OH)	Great Lakes + groundwater	Stable; 20% of global fresh surface water; renewable	Secure; regulated but abundant	Opportunity: Water-secure base for high-component dairy
Northeast / Upper Midwest (MN, IA)	Surface + renewable groundwater	Generally stable; localized stress in some areas	Secure to moderately secure	Opportunity: Can support expansion near processing hubs
Idaho / Pacific Northwest	Snake River, Columbia Basin	Moderate stress; dependent on snowpack trends	Variable; snowpack declines a concern	Mixed: Secure short-term; watch long-term snowpack

Meanwhile, regions around the Great Lakes and much of the Northeast, while facing their own regulatory and environmental pressures, sit over comparatively robust and renewable water supplies.

In outlook meetings and trade coverage, economists from places like UW-Madison and the Food and Agricultural Policy Research Institute have pointed out that, over the long term, water-secure regions in the mid-section and upper Midwest are likely to remain very competitive bases for high-value, component-dense dairy production, especially as water limits and climate volatility tighten elsewhere.

So when you put all of this together—GLP-1 nudging people toward higher-protein diets, gut-health research backing fermented dairy, processors pouring billions into cheese and cultured capacity, herd genetics already carrying more A2 and kappa-casein variation than many of us realized, and export demand for high-protein powders and cheeses continuing to grow in markets like Asia and the Middle East—it’s not surprising that so many barn-office and meeting-hall conversations keep circling back to components.

Key Takeaways for Your Farm

If you like things boiled down, here are a few questions and actions worth mulling over in the next 18 months:

Know your genetics: Do you actually know your herd’s A2, kappa-casein, and component profile, or are you guessing? A targeted genomic test can answer that.
Align sires with where plants are going: Are you picking bulls that match the protein-heavy, cheese-and-cultured future your local plants are investing in?
Talk to your buyer: Have you asked your processor how they expect to value protein and fat over the next five to ten years, and how your herd stacks up today?
Match strategy to stage: Given your age, equity, and family plans, are you better off leaning into growth, tightening the current system, or focusing on a clean exit with strong land value?

The Bottom Line

If we were actually sitting at your kitchen table, I wouldn’t pretend there’s an easy, one-size-fits-all answer.

What I’ve seen, watching a lot of different farms, is that the ones that come through big shifts like this in the best shape aren’t always the biggest or the fanciest. They’re the ones that stay curious, pay attention to where the science and the money are pointing, and then make a handful of well-timed, thoughtful decisions instead of either doing nothing or trying to change everything at once.

When you lay the GLP-1 billions, the 11-billion-processor bet, and your own protein line side by side, it’s hard to argue that this is just another passing fad. The genetics are already in your pens, at least to some degree. The concrete is being poured at the plants. The health trends aren’t evaporating next week.

The real question is how you want to position your herd—and your milk check—for the chapter that’s already starting to unfold.

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 – Arms you with the hard math to stop chasing litres and start harvesting cheques. This operational breakdown reveals how a mere 0.1% protein gain delivers $38,000 in annual revenue for a typical 500-cow herd.
2025 Dairy Year in Review: Ten Forces That Redefined Who’s Positioned to Thrive Through 2028 – Exposes the structural shifts—from the $11 billion processing wave to the deepening heifer shortage—that are rewriting the industry’s playbook. Use these insights to secure your operation’s competitive footing over the next three critical years.
Genetic Correlations Upended: Why Sticking with Old Breeding Indices Could Cost Your Dairy $486 Per Cow– Breaks down the massive 2025 genetic reset that found a $486 profit gap hidden in modern breeding indices. It delivers the strategy to align your herd with the newest benchmarks for feed efficiency and component value.

Join the Revolution!

Categories : Dairy Markets

Tags : A2A2 genetics, Dairy Herd Management, dairy processing investment, dairy protein premiums, Genomic Testing, milk check profitability, milk component pricing

Where Did All That Cheese Go? What the USDA’s November Dairy Product Production Report Really Means for Your Milk Check

Tuesday, January 6th, 2026

More cheese, no price crash: did 44 million pounds of U.S. cheese really ‘disappear’ in November—and what does that do to your milk check?

Executive Summary: U.S. cheese production jumped 5.9% to 1.22 billion pounds in November 2025, and milk output rose 4.7%—yet Cold Storage stocks didn’t hit new records, and Class III held firmer than the old “more cheese = lower prices” rule would predict. The reason is structural: roughly 40 to 50 million pounds of cheese flowed through channels that bypass traditional inventory tracking—contract mozzarella for food service, record exports exceeding 1 billion pounds in 2024 (led by Mexico at 38% of volume), and fast-turn value-added products. CME cheddar and Class III now reflect a shrinking share of total U.S. cheese, which means producers relying on those signals alone are flying partially blind. Midwest cheddar-heavy farms still need Cold Storage and CME, but Western and export-linked operations should track USDEC export data and global demand just as closely. The playbook: diversify your indicators, hedge 30–50% of your milk when prices fit your cost structure, ask your buyer how much of their output is cheddar vs. mozzarella vs. exports, and invest in components and transition-cow management—the variables you actually control. The cheese didn’t vanish; the market just evolved faster than many mental models could keep up.

Forty‑four million pounds. That’s not a rounding error; that’s a pretty good sign that the way U.S. dairy moves is changing on us, and you can feel it in your milk check long before you sit down with the latest USDA report.

Looking at the hard numbers first keeps everyone honest. In its Dairy Products report released January 6, 2026, USDA’s National Agricultural Statistics Service says total natural cheese production, excluding cottage cheese, was 1.22 billion pounds in November 2025, 5.9% higher than in November 2024. At the same time, USDA Cold Storage data describe cheese inventories as substantial but still below the “record cheese in cold storage” mark set back in October 2023, when stocks hit about 1.46 billion pounds and made headlines as an all‑time high.

So the data suggests production moved up sharply, but stocks didn’t jump to fresh record levels alongside it. When you put that 5.9% year‑over‑year increase on a 1.22‑billion‑pound base next to “high but not record” storage language, you end up with a rough, implied gap on the order of tens of millions of pounds—somewhere in that 40‑ to 50‑million‑pound neighborhood of cheese that got made in November but didn’t show up as a big extra bulge in the Cold Storage number most of us still watch.

***Production climbed 6% year-over-year while Cold Storage stayed below 2023 records—the 40-to-50-million-pound monthly gap is real, and it’s structural***

And you know, this isn’t happening in a year when milk is just muddling along. USDA’s Milk Production report released December 22, 2025, puts November output in the 24 major dairy states at 18.1 billion pounds, up 4.7% from November 2024, with total U.S. production at 18.8 billion pounds, up 4.5% on the year. Recent media reports have all noted how quickly both cow numbers and production per cow rose in 2025 compared with 2023–24. On top of that, work on milk composition and efficiency, along with extension discussions from programs like Wisconsin, Cornell, and Penn State, continues to show gradual gains in butterfat performance and protein levels, tied to better fresh-cow management, tighter transition‑period protocols, and greater focus on cow comfort and ration design.

So the milk is there, and the components are there. But the old, simple pattern—more milk, more cheese, more cheese piling up in storage—just doesn’t jump out of the latest reports the way it used to, and that’s where the story really starts to matter for your milk check.

Looking at This Trend Without the Noise

What farmers are finding, when they actually sit down with a coffee and walk through the USDA reports, is that the November numbers make a lot more sense once you separate “how much we made” from “where it went.”

On the production side, the story is pretty straightforward. USDA’s November 2025 Dairy Products summary lays it out plainly: total cheese output (excluding cottage cheese) was 1.22 billion pounds, 5.9% above November 2024 and 3.4% below October 2025. Earlier Dairy Products releases in 2025, and coverage in Brownfield and Cheese Market News describe “more cheese and butter, less whey and powder” and solid year‑over‑year growth across much of the cheese complex, which lines up with what a lot of you have seen in plant‑level reports. Reports has also noted that as butterfat and protein levels in the milk pool have trended higher, more cheese can be produced from every 100 pounds of milk.

On the inventory side, USDA Cold Storage reports and late‑2023 commentary from Brownfield make it clear that October 2023 remains the record high for cheese in storage, at around 1.46 billion pounds. Later updates through 2024 and into 2025 talk about “heavy” or “ample” stocks but don’t flag new records, which fits with what we see in the market: plenty of cheese around, but not a repeat of that 2023 peak.

When you put those two pieces together, the math keeps pointing in the same direction. Production is up sharply. Inventories aren’t pushing into new record territory. The difference—again, roughly that 40‑ to 50‑million‑pound range in a month like November, when you ballpark it—is being absorbed somewhere other than long‑term storage. The real question is where it’s going, and that’s where things start to get interesting.

Channel	Estimated Monthly Volume (Million lbs)	% of Gap	Why It Bypasses Cold Storage
Export Programs	15–20	35–40%	Moves plant → port consolidator → container; not surveyed in NASS commercial stocks
Contract Mozzarella (Food Service)	12–18	25–35%	Tight delivery schedules for pizza chains; lean inventories, frequent shipments
Fast-Turn Value-Added Products	5–8	10–15%	Shredded blends, cheese ingredients, protein-fortified products sold B2B with short lead times
Direct Retail & Private Label	3–5	6–10%	Moves quickly through retailer DCs; minimal time in commercial cold storage
Other & Timing Differences	2–4	4–8%	Reporting lags, in-transit inventory, non-surveyed smaller warehouses
TOTAL GAP	40–50	100%	—

What’s Interesting About Mozzarella Right Now

Looking at this trend, what’s interesting is that the cheese telling the story isn’t cheddar; it’s mozzarella.

USDA’s breakdowns for Italian‑type and American‑type cheeses in the Dairy Products reports show multiple recent months when Italian‑type cheese—including mozzarella—grew faster than total cheese, while American‑type cheese, including cheddar, lagged behind or even slipped below year‑ago levels. September 2024 total cheese production was about 1.16 billion pounds, up slightly from 2023, with Italian‑type cheese up 1.5% year‑over‑year at 487 million pounds and American‑type cheese down 3.7% from a year earlier. That same USDA snapshot showed butter production at 159 million pounds, up 11.3% on the year; nonfat dry milk production up 14.3%; and skim milk powder down 21.4%, which suggests plants are actively shifting cream and skim between product streams as markets move.

From a technical angle, researchers at places like the University of Wisconsin’s Center for Dairy Research and other dairy science groups have explained that low‑moisture mozzarella for pizza is designed for fast movement rather than long aging. The functional shelf life and performance window for pizza mozz are shorter than those for many cheddar styles, and large food‑service buyers—national pizza chains, regional restaurant distributors—try to run lean inventories with regular, frequent deliveries rather than big piles of cheese sitting in a freezer somewhere.

Month	Italian-Type Cheese	American-Type Cheese
Sep 2024	+1.5%	-3.7%
Oct 2024	+3.2%	-1.2%
Nov 2024	+2.8%	+0.5%
Sep 2025	+4.1%	+1.0%
Oct 2025	+5.3%	+2.1%
Nov 2025	+6.2%	+3.4%

On the ground, what I’ve noticed—and it lines up with what you hear in risk‑management workshops and plant visits—is that mozzarella lines are often heavily tied to contracts. Plants usually have a pretty tight handle on what their core accounts need week to week and month to month, whether that’s a national chain program, a regional distributor, or a long‑term export deal, and they run those vats accordingly. They’re not churning out mozzarella “on spec” the way some cheddar used to move; they’re filling orders that are already on the books.

Cheddar’s role is shifting at the same time. USDA data shows American‑type cheese growing more slowly than “all cheese” in several months, and in some cases running below year‑earlier levels while Italian‑type keeps climbing. Analysis of cheese markets and export opportunities has also highlighted about $ 4 billion in new cheese plants slated to come online through 2027, with new facilities already taking milk in Kansas and Texas and more expansions underway in the Upper Midwest, along the East Coast, and in the West. Company announcements and industry reporting emphasize mozzarella, Hispanic cheeses, and other value‑added styles as key outputs from many of these investments, often alongside powders and concentrated fat and protein ingredients.

This development suggests a structural disconnect that a lot of you are feeling in your milk checks. The CME spot market and the Class III milk price formula still lean heavily on cheddar blocks and barrels plus dry whey, as research on U.S. dairy futures, price transmission, and market integration has documented. When a growing share of U.S. cheese production is mozzarella and other styles that are locked into contracts or export channels, and a smaller share is “loose” cheddar available to show up in CME trading and Cold Storage, total cheese production and CME‑visible cheddar supply just aren’t tied together like they used to be.

To put some numbers behind that feeling, think about a farm shipping around 80,000 pounds of milk in a month. Each one‑dollar move in Class III is roughly 800 dollars up or down in gross revenue for that month, because 80,000 pounds is 800 hundredweights. On a 500‑cow freestall in the Midwest, that’s a noticeable swing. On a 3,000‑cow dry lot system in the Southwest, you multiply that impact several times over. So the way cheese moves—cheddar versus mozzarella, domestic versus export—flows straight back to your bottom line.

Herd Size / Type	Monthly Milk Volume (lbs)	Impact of $1.00 Class III Move (Monthly)	Impact of $1.50 Range Over 12 Months (Annual)	% of Typical Net Margin
80-cow grazing (Northeast)	80,000	$800	$14,400	~12–15%
500-cow freestall (Midwest)	500,000	$5,000	$90,000	~10–13%
1,200-cow (Western/Midwest)	1,200,000	$12,000	$216,000	~9–12%
3,000-cow dry lot (West)	3,000,000	$30,000	$540,000	~8–11%

And if you zoom out a bit, a $1.50 per hundredweight range over a year on those same 80,000 pounds a month adds up to about $14,400 of gross revenue, swinging one way or the other. That’s real money when you start lining it up against feed bills, interest payments, or the cost of upgrading fresh cow facilities.

Exports: The Other Big Piece of the Puzzle

What farmers are finding, when they look beyond domestic reports, is that exports are quietly soaking up a lot of that “extra” cheese.

Media reports in early 2025 that U.S. cheese exports through November 2024 reached 1.028 billion pounds, the first time they’d crossed the billion‑pound mark. Mexico alone accounted for 392 million pounds of that total, roughly 38% of all U.S. cheese exports, and increased its cheese imports from the U.S. by 32% compared with the same period in 2023. The Bullvine’s own coverage of that milestone drew on USDEC and USDA Foreign Agricultural Service data and noted that South Korea, Japan, Central America, and several Middle Eastern buyers also increased their cheese purchases from the U.S., helping push exports over that threshold.

Year	Mexico	All Other Destinations	Total
2022	280 million lbs	420 million lbs	700 million lbs
2023	298 million lbs	482 million lbs	780 million lbs
2024	392 million lbs	636 million lbs	1,028 million lbs

A 2024 export review in Progressive Dairy and Dairy Processing reported that total U.S. dairy export value reached about 8.2 billion dollars in 2024, with cheese exports totaling roughly 508,808 metric tons—about 1.12 billion pounds—an improvement of around 17% over 2023. That same coverage highlighted Mexico and Canada together taking more than 40% of U.S. dairy export value, with Mexico importing about 2.47 billion dollars’ worth of U.S. dairy products and Canada around 1.14 billion. USDEC’s own summaries reinforce that cheese has become a leading export item by volume and value for the U.S. in recent years, especially into North American and Asian markets.

In plain language, those buyers are acting like a second home market for U.S. cheese. That’s the kind of demand that can absorb a lot of “extra” product before it ever shows up as a big stock build in Cold Storage.

So if you step back from the individual line items, it’s pretty clear where a big chunk of that “missing” 40‑ to 50‑million‑pound gap in a month like November can go. It doesn’t stick around in domestic Cold Storage because much of it simply leaves the country through export channels.

Physically, export cheese tends to follow a different path than domestic retail cheese. It often moves from the plant to a specialized consolidator or a warehouse near a port, then into refrigerated containers bound for overseas destinations, spending relatively little time in the broad commercial cold‑storage facilities that NASS surveys for its stock reports. The same pattern holds for concentrated butterfat products—anhydrous milk fat and high‑fat blends—produced for export or industrial customers, which are usually sold under contract and don’t always show up neatly in the familiar “butter in cold storage” figures.

Fast‑Moving Channels and Value‑Added Products

What’s interesting here is that exports aren’t the only thing changing how cheese and components move. Domestic distribution has been evolving right alongside the global story.

Industry reporting has highlighted the growing share of cheese and dairy ingredients moving through food‑service and business‑to‑business channels, supported by regular, frequent shipments and lean inventory strategies. Major restaurant chains and broadline distributors often prefer multiple smaller deliveries rather than big, infrequent loads, especially when they’re dealing with shredded mozzarella, custom blends, or ingredient cheeses tailored to specific food manufacturers.

At the same time, research reviews and applied nutrition work are documenting steady growth in value‑added fluid and high‑protein dairy products—filtered milks, protein‑fortified beverages, and specialty dairy drinks—that build on higher butterfat and protein levels in the milk supply. Several recent and planned processing projects in states like Kansas and Texas, highlighted by regional agribusiness outlets, are designed to produce both cheese and higher‑value components, capturing more value from butterfat and protein rather than simply pushing volume into commodity powder and bulk butter.

All of this lines up with what many of us have seen on the ground over the last decade: that old “production minus stocks” rule of thumb used to capture a big chunk of what was happening in the market. Today, it describes a smaller slice. The milk still gets turned into product, and the product still gets sold, but more of it is moving through channels—export programs, contract‑driven mozzarella lines, food‑service and ingredient streams, and value‑added beverages—that don’t create large, slow‑moving inventories in the specific warehouses USDA tracks as “cheese in cold storage.”

How This Feels in Different Milksheds

The national data might be the same on paper, but it sure doesn’t feel that way on every farm. Regional context matters a lot, and it’s worth talking about that openly.

In Wisconsin operations and across much of the Upper Midwest, a large share of milk still goes into plants with substantial American‑type cheese capacity, even though many of those plants have added Italian‑type and specialty cheese lines in recent years. Many Midwest producers will tell you they still watch Cold Storage reports and CME cheddar prices almost like a weather forecast, because historically those numbers have been tightly linked to local basis and premiums—a relationship regional market updates and extension economists in that area often highlight. As more capacity in the Midwest shifts toward mozzarella and specialty cheeses, though, that one‑to‑one connection gets noisier. The indicators still matter; they just don’t explain everything the way they used to.

In California and the broader West, a lot of major plants built or expanded over the last decade were designed from day one with exports and value‑added production in mind. These facilities commonly produce mozzarella, Hispanic cheeses, milk powders, and concentrated fat and protein ingredients for both domestic and international customers, a pattern that shows up repeatedly in Western market updates and company announcements. Western producers shipping to those plants are often just as focused on export program health, port congestion, and global demand as they are on Cold Storage or the latest Dairy Products report, because their milk checks are heavily influenced by what’s happening outside U.S. borders.

In the Northeast, quite a few smaller and grazing‑based family farms still ship to fluid bottlers, regional brands, or specialty cheesemakers. Their daily reality revolves around local retail demand, co‑op policies, and regional brand strength, which is a story you see in provincial and state‑level dairy board and market reports. Even so, their blend prices and over‑order premiums still flow out of a federal order system tied back to national Class I, III, and IV values, which respond to the same production, inventory, and export trends we’ve been walking through.

For Canadian readers operating under supply management, it’s worth noting that while quota systems and Canadian Dairy Commission programs do buffer day‑to‑day volatility at the farm gate, the same global trends in cheese exports, product mix, and component emphasis still influence processor investment decisions and trade pressures that show up in national board discussions and long‑term policy debates.

So, as many of us have seen, one size doesn’t fit all. The November numbers are the same across the country—and, in many ways, across the border too—but the way they land in your mailbox depends heavily on who’s buying your milk, what they’re making with it, and how much of their business leans on cheddar, mozzarella, Class III versus Class IV, exports, or value‑added products.

Region / Milkshed	Dominant Cheese Types	Primary Price Signals to Watch	Export Exposure	Hedging Priority	What Keeps You Up at Night
Midwest (WI, MN, IA)	Cheddar, some mozzarella	CME blocks/barrels, Cold Storage, Class III futures	Moderate (15–25% of volume)	CME Class III options, DRP	Cold Storage builds, cheddar oversupply
West (CA, ID, NM, TX)	Mozzarella, Hispanic cheeses, powders	USDEC exports, global powder prices, Class III & IV	High (30–45% of volume)	Class III/IV combo, export contract hedges	Mexico demand swings, port delays, trade disputes
Northeast (PA, NY, VT)	Regional brands, specialty, fluid	Class I differentials, regional blend price, over-order premiums	Low (5–15% of volume)	Basis contracts, limited futures	Fluid demand decline, retail brand strength, local co-op health

What Farmers Are Finding Helps in This Environment

So, sitting here over coffee, the real question is: what do you actually do with all this?

One thing I’ve noticed, and it matches what land‑grant risk‑management programs are teaching, is that relying on a single gauge doesn’t work very well anymore. Watching only cheese production, or only Cold Storage, or only the Class III board is a good way to be surprised. The producers who seem most comfortable navigating this changing landscape tend to watch a mix of signals—USDA Milk Production and Dairy Products reports, Cold Storage updates, USDEC and USDA export statistics, plus the information they get from their buyers and co‑ops.

That’s why much of the extension work focuses on partial hedging strategies rather than “all in” or “all out” approaches. The idea isn’t to guess the exact top or bottom; it’s to lock in a portion of your milk—often something in that 30% to 50% range—for a few months ahead when futures or Dairy Revenue Protection coverage levels line up with your cost structure, and leave the rest open to the market. That way, a nasty price surprise doesn’t hit 100% of your volume, but you’re not completely locked into a price that might look too low if markets rally later. For a 500‑cow herd shipping around 80,000 pounds a month, covering even a third of that volume means several hundred hundredweights are insulated if Class III falls apart for a few weeks, which can be the difference between a bad month and a really rough one.

Of course, none of those tools are free. Hedging carries costs and margin requirements, and stepping up your risk‑management program means investing more time in tracking markets and working with advisors. Improving fresh cow management and the transition period requires investing time, training, and often capital in facilities, rations, or monitoring, as on-farm case studies and extension bulletins regularly point out. But when you line those costs up next to the revenue swings that come with a volatile Class III and the kind of structural shifts we’re seeing in cheese markets, a lot of farms are deciding it’s worth putting at least some of those tools to work.

On top of price tools, butterfat performance and protein yield are still right at the center of most advisory conversations, and for good reason. Research and on‑farm work from programs such as Penn State, Cornell, and Wisconsin consistently show that better transition‑period management, less stress on fresh cows, and careful ration balancing are among the most reliable levers you’ve got for improving components and overall milk value. You can’t control where CME cheddar settles next week. You absolutely can influence how your cows come through calving, what their transition period looks like, and how efficiently they convert feed into fat and protein.

It’s also worth talking directly with your buyer or co‑op. Producers who ask questions such as, “Roughly what share of your cheese output is cheddar versus mozzarella or other styles?” and “How much of your volume is tied to export programs or food‑service contracts?” usually walk away with a much clearer picture of what drives their basis and premiums. You’re not asking them to hand over their business plan; you’re trying to understand whether your milk check is more exposed to CME cheddar swings, changing export demand, or shifts in domestic retail and food‑service patterns.

If you want to get even more practical, here are a few simple starting points producers are using:

If you’re a Midwest farm heavily tied to cheddar:
Keep a close eye on CME block and barrel prices, USDA Cold Storage cheese stocks, and Class III futures, and ask your co‑op how much of their output is still commodity cheddar versus mozzarella or specialty styles. That helps you judge how quickly a cheddar price break could hit your basis compared with a neighbor shipping to a plant with a more mixed product portfolio.
If you’re shipping to a Western plant focused on mozzarella and exports:
Add USDEC export summaries, global cheese price comparisons, and port or logistics updates to your watch list, and ask how much of your milk ends up in export programs under long‑term contracts. That gives you a better handle on how trade disputes, freight issues, or foreign demand swings might show up in your mailbox, even when domestic stocks look comfortable.
If you’re a smaller Northeast or grazing‑based operation:
Track Class I, III, and IV prices plus regional blend prices, and talk with your buyer or co‑op about how their product mix—fluid, regional brands, or specialty cheese—feeds back into your over‑order premiums. That helps you see whether your check is more sensitive to local fluid demand or to the same cheese and export forces driving the national conversation.

For co‑ops and processors, the same November data push in a similar direction. Channel mix is now a strategic decision, not just an operational detail. Knowing how much of your product mix goes into retail grocery, food‑service, industrial ingredients, and export programs helps you decide which data streams you absolutely need on your dashboard—Cold Storage, Dairy Market News, Global Dairy Trade auctions, USDEC export statistics, scanner data for retail cheese and butter, and even global futures where appropriate. It’s why more co‑ops and plants are building simple internal dashboards that put USDA production and inventory reports next to export volumes and global price indices, something extension economists and industry consultants have been encouraging in board‑room and planning sessions.

The Bottom Line

What’s encouraging in all this is that the system isn’t broken; it’s evolving.

We’ve got more milk and more cheese than we did a year ago, according to the USDA’s Milk Production and Dairy Products reports for November 2025. Butterfat performance and protein levels have improved on many farms after years of work on genetics, fresh-cow management, and the transition period, a trend reflected in both research and industry commentary. U.S. cheese exports have pushed past the billion‑pound mark for the first time, with Mexico and a growing list of other countries playing major roles, as documented by USDEC‑linked trade summaries. New plants worth billions of dollars are coming online, many of them designed to make mozzarella and other value‑added cheeses along with powders and concentrated components for both domestic and global markets.

So when someone says, “Forty‑four million pounds of cheese disappeared in November,” you know the cheese didn’t vanish. It moved through channels that our old mental shortcuts don’t always capture very well—contract‑driven mozzarella destined for pizza ovens, record‑level export programs, fast‑turn food‑service and ingredient sales, and value‑added dairy products that don’t pile up in the Cold Storage bins we all grew up watching.

If you keep that bigger picture in mind while you’re checking USDA reports, talking with your buyer, and planning your own risk and herd management, you’ll be in a better spot to decide what to lock in, what to leave open, and where to invest your time and dollars—whether that’s tightening transition‑cow protocols, tweaking rations to support stronger butterfat performance, or asking a few more pointed questions at your next co‑op meeting about where your milk really goes once it leaves the yard.

Key Takeaways:

Production up, stocks flat: November 2025 cheese hit 1.22 billion pounds (+5.9% YoY), yet Cold Storage didn’t set new records—roughly 40-50 million pounds moved through exports, contract mozzarella, and fast-turn channels that bypass traditional tracking.
Exports are a second-home market: U.S. cheese exports topped 1 billion pounds in 2024 for the first time; Mexico took 38% of the volume, absorbing supply before it piles up in storage.
CME cheddar no longer tells the whole story: Class III reflects a shrinking slice of total U.S. cheese—if Cold Storage and block prices are your only signals, you’re flying partially blind.
Regional exposure varies: Midwest cheddar-heavy farms still need CME and Cold Storage; Western and export-linked operations should weight USDEC data and global demand equally.
Control what you can: butterfat performance, transition-cow protocols, partial hedging (30-50%), and knowing where your milk actually goes matter more than guessing where cheddar will settle next week.

Learn More

Why Milk Components Are Your Best Friend Now (and Why Chasing Volume is Yesterday’s News) – Arms you with the math to pivot from volume to value. This breakdown reveals how hitting 4.2% butterfat targets delivers an immediate $2,200 daily revenue boost for mid-sized herds, turning your bulk tank into a high-margin cash machine.
2025’s Dairy Dilemma: Record Exports, Falling Checks, and What Every Producer Must Decide Next – Exposes the structural shift behind the “Asian processing pivot” and record exports. This analysis prepares you for a market where global demand is evolving, ensuring your operation isn’t blindsided by the disconnect between warehouse stocks and pricing.
Genetic Revolution: How Record-Breaking Milk Components Are Reshaping Dairy’s Future – Delivers the blueprint for the 2025 genetic reset that is redefining herd profitability. This deep dive into shifting Net Merit weights reveals how to breed the high-component, feed-efficient cow required to dominate the next decade’s market.

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

Learn More

Why Milk Components Are Your Best Friend Now (and Why Chasing Volume is Yesterday’s News) – Arms you with the math to pivot from volume to value. This breakdown reveals how hitting 4.2% butterfat targets delivers an immediate $2,200 daily revenue boost for mid-sized herds, turning your bulk tank into a high-margin cash machine.
2025’s Dairy Dilemma: Record Exports, Falling Checks, and What Every Producer Must Decide Next – Exposes the structural shift behind the “Asian processing pivot” and record exports. This analysis prepares you for a market where global demand is evolving, ensuring your operation isn’t blindsided by the disconnect between warehouse stocks and pricing.
Genetic Revolution: How Record-Breaking Milk Components Are Reshaping Dairy’s Future – Delivers the blueprint for the 2025 genetic reset that is redefining herd profitability. This deep dive into shifting Net Merit weights reveals how to breed the high-component, feed-efficient cow required to dominate the next decade’s market.

Join the Revolution!

Categories : Dairy Markets

Tags : cheese export markets, Class III milk pricing, dairy cold storage, dairy risk management, milk components, U.S. cheese production

$80 Per Cow Vanishing Monthly: 5 Moves Dairy Producers Must Make Before Spring

Monday, January 5th, 2026

You’re bleeding $80/cow every month, and the industry just added 211,000 more cows to make it worse. 5 moves to make before spring.

Executive Summary: Every month you wait, you’re losing $80 per cow. Class III has crashed from $20 to $15.86 since spring—and the industry just added 211,000 cows to make sure it stays there. California’s rapid H5N1 recovery, surging EU production, and strong New Zealand output have created a global oversupply that isn’t easing anytime soon. Need replacements? Quality springers now cost $4,000-plus amid the tightest heifer pipeline in 20 years. Add $4.40 corn to the equation, and margins are getting crushed from every angle. Here’s what’s actually driving the squeeze—and five specific moves to protect your operation before spring.

The U.S. dairy industry just added 211,000 cows in 12 months—the largest herd since 1993, according to USDA NASS—at the exact moment Class III prices dropped from $20 to $15.86 per hundredweight. Meanwhile, anyone trying to expand is staring at $4,000 springers and the tightest heifer supply in two decades. That collision of forces is going to define 2026 economics for operations of every size, whether you’re milking 80 cows in Vermont or 8,000 in the Central Valley.

Let me walk through what the numbers actually show and what the producers who are navigating this successfully are doing differently.

The Production Surge Nobody Can Ignore

USDA NASS confirmed that November 2025 milk production in the 24 major states hit 18.1 billion pounds—a 4.7% jump from the prior year. Nationwide, we’re looking at 18.8 billion pounds, up 4.5% year-over-year. For context, that’s the kind of production growth that typically takes two to three years to accumulate. We got it in twelve months.

And California’s recovery has accelerated the math. After H5N1 hammered the state through late 2024 and into 2025—federal livestock program records indicate roughly 75% of commercial herds experienced infections at some point—production is now running more than 10% above year-ago levels. November 2024 represented a 20-year production low for California. The turnaround has happened faster than most analysts expected, and all that milk is flowing back into national markets.

***Class III milk prices have collapsed from $20.50 to $15.30 per hundredweight in just 12 months—a 25% decline that’s costing dairy producers $80-90 per cow monthly across all operation sizes***

Here’s what this means for your check: at $15.86 Class III versus $18.50 three months ago, that’s roughly $80-90 per cow per month in lost revenue for a typical Holstein operation. On a 200-cow herd, you’re looking at $16,000-18,000 less coming in between now and spring—assuming prices don’t drop further.

Herd Size	Monthly Loss ($80/cow)	Spring Loss (3 months)	Annual Impact
50 cows	$4,000	$12,000	$48,000
100 cows	$8,000	$24,000	$96,000
200 cows	$16,000	$48,000	$192,000
500 cows	$40,000	$120,000	$480,000
1,000 cows	$80,000	$240,000	$960,000
2,500 cows	$200,000	$600,000	$2,400,000

The Heifer Bottleneck Is Real

This is the constraint that will shape expansion decisions over the next three years, so let’s dig into it.

USDA data shows approximately 26.7 heifers expected to calve per 100 milk cows—the lowest ratio in at least two decades. Total dairy heifers expected to calve in 2025? Just under 2.5 million head, the lowest since USDA began tracking this metric.

The heifer-to-cow ratio has declined to a 20-year low of 26.7 per 100 cows, creating a replacement crisis that explains why quality springers now cost $4,000+ and why expansion-minded producers need to source animals immediately

The economics driving this aren’t mysterious. Ag Proud market reports show beef-cross calves bringing $1,100-1,400 at many auctions, sometimes higher for well-bred Angus or Limousin crosses. Straight dairy heifers? Often $300-500 unless they come from high-genomic programs with strong marketing. When beef-on-dairy creates that much value differential, producers make rational decisions about their breeding programs.

I was talking with a Wisconsin producer last month who’s running about 70% beef semen across his herd. His logic is straightforward: the premium on those crossbred calves more than offsets the cost of purchasing replacements when he needs them. For his operation and cash flow, that math works.

Metric	Beef-Cross Calf	Raise Own Dairy Heifer	Buy Springer
Calf Sale Value	$1,250	$400	N/A
Heifer Raising Cost (to calving)	$0 (sold)	$2,200	$0
Purchase Price (springer)	N/A	N/A	$4,000
Net Economics per Head	+$1,250	-$1,800	-$4,000
Value Differential	Baseline	-$3,050 vs beef	-$5,250 vs beef

A Northeast producer I know takes the opposite approach—she’s kept her replacement program intact because she doesn’t want to be buying springers at $4,000 when she needs them. Her calculation: the heifer she raises for $2,200 all-in is worth $1,800 more than the one she’d have to buy.

Both strategies can pencil out. The question is which matches your operation’s cash flow, facilities, and expansion timeline.

The practical implication: quality springer replacements now command $3,500-4,000 or more in many markets. If you’re planning any expansion over the next 18-24 months, heifer sourcing needs to be part of your planning conversation this month. The animals aren’t available in the numbers we’ve historically seen.

Global Oversupply Compounds the Problem

Four major dairy-producing regions are simultaneously flooding global markets with increased production—California up 10%, EU up 6%, U.S. overall up 4.7%, and New Zealand up 2.9%—creating synchronized oversupply that’s crushing milk prices worldwide

It’s not just U.S. production running hot. The latest AHDB market review shows EU milk deliveries jumped around 6% in September after the bloc worked through its bluetongue challenges. DairyNZ and LIC statistics show that New Zealand’s 2024/25 season finished with total milk solids production up 2.9% to 1.94 billion kilograms.

The Global Dairy Trade auctions have posted nine consecutive declines now, reflecting strong global supply meeting softer demand from key importing regions. If you’re shipping to a plant with export exposure—and that includes many operations in Wisconsin, Idaho, and the Southwest—those GDT results eventually flow back into your mailbox price.

For Canadian producers watching from across the border, the U.S. production surge creates its own dynamics. American oversupply tends to intensify pressure on USMCA access negotiations and affects cross-border pricing signals, even within the quota system.

California’s role amplifies these dynamics domestically. The state produces roughly 18% of U.S. milk, but here’s what really matters for price discovery: California Dairies Inc. alone churns over 480 million pounds of butter annually (about 23% of U.S. production), and the state manufactures the largest share of nonfat dry milk powder in the country. When California production swings, commodity pricing moves for everyone.

The Butter Paradox

Here’s something that looks like good news until you understand what’s actually happening.

USDEC data shows butter exports surged in 2025. January alone was up 41% year-over-year, and through the first nine months, total butterfat exports soared 149%.

Sounds great, right? Here’s the catch: U.S. prices had dropped enough to compete in markets we typically can’t reach. Brownfield Ag News reports CME spot butter trading around $1.375 to $1.40 per pound as we moved into January—a long way from the $3.00-plus prices we saw during the supply squeeze.

We were essentially selling butter globally because domestic prices made us competitive, not because we’d developed new market access. That’s fundamentally different from export growth driven by structural demand improvement. When global prices strengthen, that business disappears.

Cheese Exports: The Genuine Bright Spot

If you’re looking for actual strength in the dairy complex, cheese exports tell a legitimately positive story.

USDEC confirmed that August 2025 reached 54,110 metric tons—the highest monthly volume in the history of U.S. cheese exports. That’s 28% above year-ago levels, and the growth has come from multiple markets rather than depending on any single buyer.

Mexico remains our foundation, accounting for roughly a third of total U.S. cheese exports, according to USDEC trade data. But South Korea, Japan, and Australia all posted strong growth in the first half of 2025. The fundamentals here—growing global demand, improved U.S. product quality, established market relationships—look durable.

One constraint worth watching: USTR data shows USMCA quota utilization is still around 42%, suggesting meaningful upside if Canadian market access improves. That’s a trade policy question beyond any individual producer’s control, but it represents real unrealized potential.

The GLP-1 Demand Question

GLP-1 drugs have some dairy economists predicting significant demand shifts. The actual data tells a more nuanced story, concerning in specific categories but not the catastrophe some suggest.

Kaiser Family Foundation polling indicates about 12% of American adults have used a GLP-1 medication at some point, with roughly 6% currently taking one. That’s real market penetration.

Cornell University and Numerator recently published detailed grocery purchasing data on this population. Households with GLP-1 users reduced cheese purchases by 7.2% and butter by 5.8%. They cut sweet bakery items and cookies by 6-11% across categories.

Here’s how I’d frame this practically: it matters, but it’s not an existential threat—yet. The protein density of dairy actually positions products like Greek yogurt and cottage cheese favorably for consumers who are eating less but prioritizing nutrient-dense foods.

Where I’d watch more carefully is high-fat categories. If GLP-1 adoption reaches the 15-24% levels Morgan Stanley projects for the early 2030s, premium ice cream and butter-heavy applications could face meaningful headwinds. Worth factoring into long-term product mix thinking, but not a reason to panic about 2026.

Current Price Reality

Let’s be direct about where we are.

According to USDA’s official Class and Component Price announcements, December Class III came in at $15.86/cwt—January futures point to the low-to-mid $15 range. That’s the math when production expands as quickly as it has.

The Class III to Class IV spread has been particularly notable. December showed Class III at $15.86 versus Class IV at $13.64—a $2.22 gap favoring cheese markets over butter and powder. If you’re a Class IV shipper, you’ve felt that spread directly in your check. Geography and market assignment matter more than usual right now.

On the feed side, corn has been trading around $4.40 per bushel according to Trading Economics futures data. USDA projects an average farm price around $4.00 for the 2025/26 marketing year, which would provide some relief—but that’s not guaranteed.

What to Do Before Q2

Based on the data and the producer conversations I’ve been having, here are five moves worth considering before spring:

Run your break-even calculation this week. Know exactly what Class III price puts you underwater. If you haven’t updated this math since prices were $20, you’re operating blind. Have contingency triggers ready—what do you cut first at $15? At $14?
Audit your heifer pipeline now. Calculate your replacement availability for the 2027-2028 calving. If you’re below 28 heifers per 100 cows, start sourcing conversations immediately. Set a price ceiling before you need animals urgently—desperation buying at $4,500 in twelve months is a lot more expensive than planned purchasing at $3,800 today.
Evaluate your beef-on-dairy math quarterly. The premium calculation shifts with calf prices and heifer availability. A 70% beef semen strategy that worked at $1,400 crossbred calves might need adjustment if those prices soften. Don’t set-and-forget your breeding program.
Review feed cost protection. With corn at $4.40 and possible relief toward $4.00, evaluate whether forward contracts make sense for Q1-Q2 before spring planting volatility. Locking in $4.25 corn looks smart if prices spike; it looks expensive if they fall to $3.80. Know your risk tolerance.
Examine your processor relationship. If you’re Class IV-dependent and watching checks come in $2.20 below Class III equivalents, it’s worth exploring whether component shipping options or processor alternatives exist in your region. Not every operation has flexibility here, but some do and aren’t using it.

The Bottom Line

The operations that navigate the next 12-18 months successfully won’t be the ones waiting for prices to recover on their own. They’ll be the ones who used this window to lock in replacement animals before the shortage intensifies, controlled feed costs where possible, and knew their break-even to the penny.

Dairy has always been cyclical. Strong production, recovering global supply, and moderating prices—we’ve been through this pattern before. What’s different this time is the heifer constraint underneath it all. The industry can’t simply expand out of tight margins when replacement animals don’t exist.

That constraint will eventually support prices. But “eventually” might be 2027 or 2028. The question is whether your operation’s financial position lets you wait that long—and whether you’re taking the steps now that position you to expand when the cycle turns.

The fundamentals of dairy demand remain constructive. Protein consumption is growing. Convenience continues driving category growth. Despite years of plant-based competition, real dairy holds its market share.

Those realities matter. But so does the math of $15.86 Class III with $4.40 corn and $4,000 springers. The producers who acknowledge both—the long-term demand strength and the short-term margin pressure—are the ones making decisions right now that they won’t regret in 2027.

Key Takeaways

You’re bleeding $80/cow monthly — Class III crashed to $15.86; that’s $16,000 vanishing from a 200-cow herd before spring
211,000 cows added in 12 months — Largest U.S. herd since 1993; prices won’t recover until supply corrects
Springers hit $4,000+ — Tightest heifer pipeline in 20 years; replacement economics have flipped
Global milk keeps flooding in — California +10%, EU +6%, New Zealand +3%; no relief coming in 2026
5 moves to make now — Know your break-even, source heifers before desperation, reassess beef-on-dairy, lock feed, review your processor

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

Learn More

Beef-on-Dairy’s $6,215 Secret: Why 72% of Herds Are Playing It Wrong – Master the precise breeding ratiostop-tier herds use to thrive and secure an immediate cash flow advantage. This breakdown arms you with the math to capture $700 premiums per calf without sacrificing your future replacement pipeline.
The 90-Day Dairy Pivot: Converting Beef Windfalls into Next Year’s Survival – Convert fleeting beef premiums into long-term resilience before the 2026 market shift hits your balance sheet. This analysis delivers the component-focused economic strategy and processor relationship audit required for survival in a $17 milk environment.
Revolutionizing Dairy Farming: How AI, Robotics, and Blockchain Are Shaping the Future of Agriculture in 2025 – Future-proof your operation’s legacy by weaponizing AI and robotics to slash labor costs by 70%. This roadmap reveals how 99.8% precision in genetic monitoring can accelerate your herd’s genetic progress by 300% starting today.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy, Class III Milk prices, Dairy Farm Profitability, dairy markets, dairy risk management, heifer supply, Milk Production

211,000 More Dairy Cows. Bleeding Margins. The 2026 Math That Won’t Wait.

Saturday, January 3rd, 2026

$17.40 cash break-even. $19.80 real break-even. That $2.40/cwt you’re ignoring? It’s the whole ballgame in 2026.

EXECUTIVE SUMMARY: Something’s broken in dairy economics. The U.S. herd grew by 211,000 cows in 2025—while margins collapsed. The culprit: beef-on-dairy premiums ($900-$1,400/calf) are keeping genetically weaker cows in barns that should be empty, starving the replacement pipeline to a 20-year low of just 27 heifers per 100 cows. Add $11 billion in new processing capacity hungry for volume, a component shift from fat toward protein, and producers underestimating their true break-even by $2-4/cwt—and this stops looking like a cycle. It’s a structural reset. With $17-18 milk projected through 2026 and heifer supplies not recovering until 2027, the next six months are a decision window, not a waiting period. The playbook: know your real costs, deploy beef-on-dairy only on your bottom 20-30% of genetics, and lock risk coverage before spring. Producers who act on this will shape their future. The rest will have it shaped for them.

Think about what that means for a moment. Milk prices are sliding. Margins compressing. Every traditional economic signal is screaming that producers should be culling hard and contracting supply. That’s what happened in 2015. That’s what happened in 2018. It’s what the textbooks say should happen when prices drop.

Instead, the national herd keeps expanding.

USDA’s November milk production report confirmed what many of us already sensed: production in the 24 major dairy states is running 4.7 percent above year-ago levels, with total U.S. milk up about 4.5 percent.

I’ve been watching dairy markets for over a decade now, and what’s unfolding feels meaningfully different from the cyclical downturns we’ve navigated before. The mechanisms that usually bring supply and demand back into balance… they’re just not functioning the way they used to, understanding why that’s happening matters to anyone trying to figure out their path forward.

The Numbers That Matter

Before diving deeper, here’s the data that should frame every strategic conversation you’re having right now:

Metric	Figure	Source
Dairy cow increase (YoY)	+211,000 head	USDA November 2025
Fewer replacement heifers (2025 vs 2024)	-357,490 head	CoBank modeling
Replacement ratio	27 heifers per 100 cows	USDA January 2025 Cattle Inventory
Cash break-even vs. true break-even gap	$2.00–$4.00/cwt	Cornell DFBS analysis
Butter price decline (May–December)	~35%	Global Dairy Trade
Heifer inventory recovery expected	2027 at the earliest	CoBank forecast

The Beef-on-Dairy Equation Changed the Calculus

Let’s start with what’s driving that herd expansion, because it explains a lot about the current situation—and raises some serious questions about where we’re headed genetically.

Beef-cross calves are commanding strong premiums right now. Reports from Purina, and various auction summaries show day-old beef-on-dairy calves commonly bringing $900 to $1,400, depending on genetics and region. Laurence Williams, over at Purina’s dairy-beef cross program, has been tracking averages right around $1,400 for quality calves.

Compare that to straight Holstein bull calves, which in many sale barns are still bringing only a few hundred dollars—often in the $200 to $400 range. The math is just too compelling to ignore.

Industry breeding data and semen sales trends show that beef-on-dairy has gone from a niche to the mainstream. Many herds are now using beef semen on a sizable share of lower-index cows. A 500-cow operation breeding a quarter of its herd to beef generates somewhere around $150,000 to $175,000 in additional annual revenue from calf sales alone.

But here’s what’s keeping me up at night: we’re creating a crisis of replacement heifers.

CoBank’s analysis is sobering. Their model predicted 357,490 fewer dairy heifers for 2025 compared to the prior year—driven by more beef-on-dairy calves, fewer conventional dairy semen sales, and only modest gains from sexed semen. Replacement heifer inventories are at a 20-year low and aren’t expected to rebound until 2027 at the earliest.

According to analysis of USDA’s January 2025 Cattle Inventory Report, the dairy herd’s replacement ratio has dropped to just 27 dairy heifers expected to calve for every 100 cows—down from 31 heifers per 100 cows just five years ago. That’s a dangerously thin pipeline.

And there’s a genetic dimension here that doesn’t get enough attention. When we keep older, less efficient cows in the herd because they’re carrying a valuable beef calf, we’re slowing genetic progress for milk production. Every lactation we add to a genetically inferior cow is a lactation we’re not getting from her higher-merit replacement. Research published in the Journal of Dairy Science has documented that herds with high availability of potential replacement heifers have substantially better longevity management options—and faster genetic turnover.

Industry geneticists estimate that every year of delayed genetic turnover costs dairy operations approximately $50 to $75 per cow, due to foregone production improvements, health trait gains, and feed efficiency advances. That’s not nothing—especially compounded across a herd over multiple years.

One Wisconsin producer I spoke with recently—running about 280 cows in the central part of the state—put the dilemma this way:

“I’ve got cows that aren’t really paying their way on milk. Maybe they’re giving me 55 pounds a day, but the components are just okay. Three years ago, she’s on the truck without question. But now she’s carrying a beef calf worth $1,300. How do I justify selling her?”

— Central Wisconsin dairy producer, 280 cows

He’s asking a reasonable question. But multiply that decision across thousands of operations, and you get a national herd that keeps growing even when milk economics alone would suggest contraction—while simultaneously starving the replacement pipeline and slowing genetic progress.

Traditional culling response to low milk prices has been significantly muted. Beef-on-dairy revenue is keeping cows in the herd that would otherwise have been on the truck months ago.

The strategic takeaway: Use beef-on-dairy on your verified bottom 20-30 percent of genetic performers—not random animals, and definitely not your genetic core. Genomic testing matters more than ever when you’re making these decisions.

A Global Situation Worth Understanding

What makes the current environment particularly complex is that this isn’t just a U.S. story.

USDA and international analysts expect global milk production to edge higher in 2025, led by strong U.S. growth and recovering production in Oceania, even as EU output slips slightly. The European Union is actually forecasting a small decline due to environmental and cost pressures, but that’s being more than offset by what’s happening elsewhere.

Normally, when one region overproduces, somewhere else contracts. That’s been the pattern for decades. Research published in the Journal of Dairy Science has documented these offsetting regional cycles going back years—they’ve been a defining feature of how global dairy trade finds equilibrium.

This season looks different.

The Global Dairy Trade auction platform—where about $3 billion worth of dairy products trade annually—has seen prices decline for nine consecutive sessions as of mid-December. That 4.4 percent drop in the most recent auction marked the ninth straight decline in the index. Whole milk powder, butter, cheese… all softening as supply growth outpaces demand.

What this suggests for U.S. producers is that we may not be able to count on export markets to absorb domestic oversupply the way they have in past cycles. International buyers have more options now. Multiple suppliers competing for their business means everyone’s offering competitive prices.

For Canadian producers operating under supply management, the dynamics play out differently—but they’re not immune. P5 quota holders watching U.S. oversupply should recognize that cross-border price pressure affects ingredient markets, and the component value shifts happening south of the border tend to ripple through eventually. The fundamentals around protein versus fat valuation are worth watching regardless of which side of the border you’re milking on.

That said—and I want to be fair here—trade dynamics can shift quickly. Strong demand from Southeast Asia or supply disruptions elsewhere could change the picture. But for planning purposes, it’s worth understanding the current global context.

The Processing Paradox

Here’s something that seems counterintuitive at first but makes more sense once you understand the underlying economics: all the new processing capacity coming online might actually be contributing to the challenge rather than solving it.

The International Dairy Foods Association released some eye-opening numbers back in October. Between 2025 and early 2028, more than $11 billion is being invested in over 50 new or expanded dairy processing facilities across 19 states. We’re talking major expansions by companies like Leprino Foods in Texas, Valley Queen in South Dakota, and Darigold out in Washington—substantial capacity additions for cheese, butter, and powder.

On the surface, more processing capacity should help absorb milk supply and support prices. In practice, it’s a bit more complicated than that.

These plants were planned and financed three to five years ago, when milk was running $20 to $24 per hundredweight, and the outlook was considerably more optimistic. The facilities incur substantial fixed costs—debt service, equipment depreciation, utilities, staffing—that don’t change much whether they’re operating at 50 percent capacity or at full utilization.

To cover those fixed costs, the plants need to operate at 70 to 80 percent utilization or better. That means they need milk. Consistently. Regardless of what’s happening in end markets.

Here’s the uncomfortable truth: volume is the processor’s friend, but it’s the producer’s enemy.

When processors compete for milk to fill their vats, it’s helpful to nearby producers. But all that processing creates output—cheese, butter, powder—that still needs buyers. So while a Wisconsin producer might see premiums from regional processor competition, they’re also seeing more cheese hitting markets that were already well-supplied. USDA Economic Research Service data shows domestic cheese consumption growing by maybe 1 to 2 percent annually. New capacity is adding somewhat more to production. Without proportional growth in exports or domestic demand, inventories build, and prices stay under pressure.

Mike North, who leads dairy market intelligence at Ever.ag, addressed this at the 2025 Dairy Strong Conference in Madison. What he said kind of surprised me: “We don’t have enough animals to make all the milk to supply all the plants in the U.S.”

That sounds puzzling, given everything about herd expansion, right?

The explanation lies in geography. The new capacity isn’t always located where the milk is. So you get regional competition for supply, with processors paying premiums to secure the milk they need to run efficiently.

“With all of this cheese potentially coming online, we have a real need for exports,” North noted. “Because we are going to be creating a lot of additional products.”

What’s Happening With Component Values

For nearly a decade, the consistent message to producers was straightforward: push butterfat. And you know what? Producers delivered impressively.

CoBank’s analysis shows U.S. butterfat levels grew from the mid-3.7s in 2015 to just above 4.2 percent by 2024, with some months hitting 4.26 percent according to University of Wisconsin Extension data. That’s remarkable progress driven by Jersey crossbreeding, thoughtful genetic selection, and nutrition programs. Processors rewarded high-component milk with meaningful premiums.

That dynamic appears to be shifting.

USDA Cold Storage data shows butter inventories running above prior-year levels for much of 2025. And spot butter values have trended lower from earlier highs—GDT butter prices dropped from about $3.59 per pound back in May down to roughly $2.31 at December auctions. That’s around a 35 percent decline.

Here’s what I think is really driving the shift: while fat was the “golden child” of the 2010s, these new processing plants—mostly cheese and powder-focused—are hungry for protein and solids-non-fat.

Analysis from earlier this year really drove this home. Cheese yields have climbed to historic highs—100 pounds of milk now yields 11.41 pounds of cheese, up a whopping 12.5 percent from 2010, when yields sat at 10.14 pounds. And what’s driving that improvement? Butterfat and protein together. The processors I’ve talked with are increasingly focused on total solids capture, not just fat percentage.

The Federal Milk Marketing Order pricing adjustments taking effect are affecting how component values translate into producer checks, and the effects are still sorting themselves out.

Practical suggestion: If you’re not already looking at your Lifetime Cheese Merit $ (CM$)—published by the Council on Dairy Cattle Breeding—alongside or even instead of straight fat percentage, now’s the time to start. CM$ places more weight on traits valued in herds selling milk into cheese markets, including greater emphasis on protein. For operations shipping to cheese plants, it may be a more relevant selection tool than traditional indexes.

This really comes back to the breeding decisions you’re making right now. Operations that built genetic programs around butterfat maximization may want to evaluate whether some shift toward protein emphasis makes sense for their situation. That kind of genetic transition, as you probably know, takes three to five years to implement fully.

Of course, component values will keep fluctuating, and every operation’s situation is different. The point isn’t that fat is suddenly worthless—it’s that the economics have become more nuanced than the simple “more fat equals more money” equation that held for most of the past decade.

The Cost Calculation That Deserves Your Attention

This might be the most practically important topic to address, because it directly affects how you evaluate your situation and think through strategic decisions.

Most operations track what I’d call “cash costs”—feed, hired labor, vet bills, utilities, supplies. When producers mention their break-even point, they’re usually referencing this number.

But cash costs don’t capture the complete picture. Not by a long shot.

When you add in unpaid family labor—and Cornell’s Dairy Farm Business Summary work values this at meaningful dollar amounts per full-time equivalent—the numbers shift noticeably. A farm with the operator and spouse both working full-time represents substantial labor value that may not appear in your break-even calculation.

Then there’s the gap between tax depreciation and actual principal payments on debt. Your tax return might show $75,000 in depreciation on facilities. But if you’re actually paying $180,000 in principal annually on those loans, your real cost is quite different. Cornell’s DFBS work shows that when you factor in actual principal payments instead of just tax depreciation, total cost can easily rise by $1 to $2 per hundredweight compared to cash-cost estimates.

Add family living expenses that come from farm income but don’t show up on Schedule F. Add what economists call the opportunity cost of having capital tied up in the dairy rather than invested elsewhere.

Recent Cornell Dairy Farm Business Summary reports show operating costs for many New York farms in the high teens per hundredweight, with total economic costs—including unpaid labor, capital costs, and family living—often running into the low twenties.

“I ran the numbers three times because I couldn’t believe them. My cash break-even was around $17.40. But when I added our labor, real principal payments, and what we actually spend to live? It came out to $19.80. That was a hard conversation to have with my wife.”

— Pennsylvania dairy producer, 340 cows

Cost Category	Cash Break-Even ($/cwt)	Real Break-Even ($/cwt)
Feed & Purchased Inputs	$8.50	$8.50
Hired Labor	$2.80	$2.80
Veterinary & Breeding	$1.20	$1.20
Utilities & Fuel	$1.10	$1.10
Supplies & Maintenance	$1.50	$1.50
Interest Paid	$1.20	$1.20
Tax Depreciation	$1.10	—
Unpaid Family Labor	—	$1.85
Actual Principal Payments	—	$2.40
Family Living Expenses	—	$1.05
Opportunity Cost of Capital	—	$0.20
TOTAL BREAK-EVEN	$17.40	$19.80
Hidden Cost You’re Ignoring	—	+$2.40/cwt

That gap matters when you’re looking at USDA projections suggesting extended periods of $17 to $18 milk in 2026. Operations that believe they’re “close to break-even” based on cash costs may actually be losing $2 to $4 per hundredweight when everything is honestly accounted for.

This isn’t meant to be discouraging—it’s meant to help you see clearly. You can’t make good strategic decisions without understanding your real numbers.

Risk Management Tools Worth Your Consideration

For producers who’ve worked through their cost calculation and recognize potential exposure, several risk management tools deserve a closer look. Each has strengths and limitations worth understanding.

Dairy Margin Coverage enrollment typically runs from late winter to early spring—check with your local FSA office for exact dates, as they can vary year to year. Historically, the top coverage level has come with a relatively low per-hundredweight premium after federal subsidy, making it inexpensive catastrophic protection for the first 5 million pounds. Here’s a consideration worth noting: with feed costs currently moderate—corn projected in the $ 4 range—DMC margins may stay above trigger levels even with softer milk prices. Generally speaking, corn would need to push above $5.50 before DMC payments become likely under current milk price projections. It’s probably not wise to count on meaningful payments, but the coverage is cheap enough that enrollment makes sense for most operations.
Dairy Revenue Protection offers quarterly revenue coverage with federally subsidized premiums. One detail that catches some producers off guard: coverage typically starts about 5 percent below current market prices. On $17 milk, that means your floor is around $16.15 before protection kicks in. Robin Schmahl has noted this limitation in his market commentary—put options may offer better protection for producers whose break-evens sit meaningfully above projected prices.
Put options through the CME require a higher upfront premium but allow you to select strike prices based on your actual situation rather than accepting a built-in discount. For operations facing real exposure, the math sometimes favors options despite the higher initial cost.
Feed forward contracts represent an opportunity worth evaluating this season. Many risk-management advisers suggest locking in a portion—often 40 to 60 percent—of projected feed needs when forward prices look favorable, while leaving some flexibility to take advantage of future dips.

Key Risk Management Considerations for 2026

Tool	Coverage Level / Strike	Premium Cost	Best For	Key Limitation	2026 Action Timing
Dairy Margin Coverage (DMC)	Top tier: Margin above feed cost	Low(~$0.15/cwt after subsidy for 5M lbs)	Catastrophic protection; tight-margin operations	Unlikely to trigger unless corn >$5.50 with $17 milk; covers margin, not price	Enroll late Feb-early Mar (check local FSA)
Dairy Revenue Protection (DRP)	~5% below current market	Moderate(federally subsidized)	Operations within 10-15% of break-even	Coverage starts 5% below market—$17 milk = $16.15 floor	Early Feb for Q2 (Apr-Jun coverage)
CME Put Options	Custom strike at/above break-even	Higher (full premium, not subsidized)	Operations with break-even >$19; need specific floor	Upfront cost; requires market knowledge	Q1 2026before volatility increases
Feed Forward Contracts	Lock corn/soybean prices	Varies by basis, timing	Securing input costs when forwards favorable	Lose flexibility if cash market drops; typically lock 40-60%	Q1 2026 for growing season
LGM-Dairy	Gross margin protection	Moderate-High (some subsidy)	Comprehensive margin coverage	Complex; 27-hour weekly enrollment windows	Weekly Fri-Sat windows

The timing element matters here. Options and insurance products tend to become more expensive as market volatility increases. Producers who secure protection earlier—before first-quarter results confirm or deny margin pressure—typically access better pricing than those who wait until the situation becomes clearer.

Strategic Considerations for Different Operations

The segment facing perhaps the most complex decisions right now is the 200- to 400-cow operation. Large enough to have meaningful capital at risk. But potentially facing questions about whether the scale economics work if milk settles into the $19 to $20 range that many analysts suggest as a reasonable baseline.

Looking at the options realistically, there are three general paths producers are considering:

Scaling up to 700 to 1,000-plus cows can achieve cost structures that work better at projected price levels. The requirements are substantial, though—$3 to $5 million for facilities, equipment, and livestock based on current costs. And then there’s labor. Finding and retaining quality employees has become increasingly challenging across dairy regions, and larger operations require more sophisticated workforce management. This path tends to make sense for operations with strong balance sheets, favorable regional positioning, clear next-generation commitment, and confidence in building a reliable team.
Optimizing at the current size while managing costs aggressively remains viable for operations that can get their numbers to work. University of Wisconsin Extension analysis suggests realistic reductions of $0.75 to $1.20 per hundredweight are achievable through improved feed efficiency, labor optimization, and purchasing improvements. Whether that’s sufficient depends entirely on where your true break-even point sits relative to projected prices—and on your broader goals for the operation.
Strategic transition while equity remains strong represents a financially rational consideration for some, particularly producers approaching retirement age without clear succession or those in regions where cost structures have become especially challenging. The reality—uncomfortable as it may be to discuss—is that producers who make this decision while they’re choosing rather than being forced generally achieve better outcomes than those who wait.

Now, I want to be fair here. There’s a different perspective worth acknowledging. Not everyone sees the outlook the same way. Some analysts point to potential supply response as beef-on-dairy calf values moderate, or unexpected demand growth from food service channels. Keith Woodford, an agricultural economist who’s studied dairy markets extensively, has cautioned against assuming current trends continue in a straight line. Markets have surprised observers before, and they’ll do it again.

Even the more optimistic scenarios, though, tend to suggest $19 to $20 milk as a reasonable baseline—not the $22 to $24 levels of 2022. The question isn’t really whether an adjustment is happening; it’s how significant and how prolonged it is.

Regional Factors That Shape Your Decision

Geography matters considerably in how these dynamics play out for individual operations.

In Wisconsin, Michigan, Idaho, South Dakota, and parts of Texas, producers often benefit from proximity to new processing capacity, relatively moderate cost structures, and continued infrastructure investment. Expansion strategies tend to pencil out more favorably in these regions, and break-evens generally run lower due to feed costs and regulatory environments.

The Northeast faces different arithmetic. Higher land costs, higher labor costs, and limited expansion opportunities make large-scale operations harder to justify economically. Many of the successful operations I’ve encountered in New York, Pennsylvania, and Vermont have differentiated themselves through organic certification, grass-fed programs, or direct-to-consumer relationships rather than competing primarily on volume.

California still leads the nation in total milk production, but its share of U.S. output has slipped as growth has shifted inland to states like Texas, Idaho, South Dakota, and Kansas. Higher labor and compliance costs, along with water constraints, are part of that story—and the trend seems likely to continue, though California will certainly remain a major dairy state.

Practical Considerations for the Year Ahead

After working through all of this, what actually matters for producers making decisions right now?

Understanding your real numbers. The true cost of production—including unpaid labor, actual principal payments, family living, and capital costs—often runs several dollars per hundredweight above cash costs alone. Strategic decisions work better when they’re based on complete information.
Recognizing this environment may be different. The mechanisms that normally bring markets back into balance—culling in response to low prices, regional production adjustments, export market absorption—don’t appear to be functioning quite the way they have historically. Planning for eventual recovery to $22-$24 milk may be optimistic.
Using beef-on-dairy strategically, not reflexively. Genomically test everything. Target your verified bottom 20-30 percent of genetic performers for beef crosses—not random animals, and definitely not your genetic core. The calf premium matters, but having quality replacements available in 2027-2028 matters more.
Rethinking component selection. Look at the Lifetime Cheese Merit $ (CM$) if you’re shipping to cheese markets. Protein is gaining importance relative to fat as new cheese capacity comes online.
Considering risk management earlier rather than later. Check with your local FSA office about the timing of DMC enrollment. Feed contracts secured in the first quarter protect against potential price increases. Protection tools are generally most cost-effective before volatility increases.
Making decisions proactively. The first half of 2026 is a window during which most producers still have options. Waiting to see how things develop sometimes means accepting whatever options remain.

The Bottom Line

Over the next few years, the U.S. dairy industry will likely produce roughly the same total milk volume—but with fewer operations, greater geographic concentration in lower-cost regions, and generally larger scale.

The adjustment period won’t be comfortable for everyone. But it also creates opportunity for those who recognize what’s happening and position accordingly—whether that means building an operation optimized for current market realities, or thoughtfully transitioning capital and energy elsewhere.

The producers who navigate this period successfully won’t necessarily be those who love dairy the most—though that passion certainly helps sustain the effort through difficult stretches. They’ll tend to be the ones who understood their numbers, made decisions based on realistic assumptions, and built for the emerging market rather than the one that existed five years ago.

I don’t pretend to know exactly how the next few years will unfold. Markets have surprised me before, and they’ll do it again. But the patterns in the data—herd expansion despite margin pressure, a replacement heifer crisis building in the background, global supply dynamics, processing capacity hungry for volume, component value shifts—suggest this is a period that rewards clear thinking and early action rather than hopeful waiting.

Based on CoBank’s modeling, we likely won’t see heifer inventories stabilize until 2027 at the earliest—which means the decisions you make in the next six months will determine your position when that inflection point arrives.

For those of you reading this, the first part of 2026 offers a window for decisions that will shape outcomes for years to come. They’re not easy decisions. They’re not comfortable. But they’re worth making deliberately rather than letting circumstances make them for you.

KEY TAKEAWAYS

211,000 more cows while margins collapse — Beef-on-dairy premiums ($900-$1,400/calf) are keeping genetically weaker cows in herds, breaking the culling math that normally corrects oversupply
27 heifers per 100 cows — Down from 31 five years ago. A 20-year low that won’t recover until 2027. Secure your replacements now or bid $3,000+ for them later
$17.40 cash break-even vs. $19.80 real — That $2-4/cwt gap you’re ignoring? It’s the difference between steering your operation and watching it drift
$11B in new plants need your milk — Processors cover fixed costs with volume. Your oversupply is their leverage. They’re not losing sleep over your margins
The 2026 playbook — Beef-on-dairy on the bottom 20-30% of genetics only. Breed for protein (CM$), not just fat. Lock risk coverage before spring. Decide now or react later

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 – Stop bleeding cash by identifying five immediate revenue drivers that transcend the milk check. This breakdown delivers a 90-day roadmap for strategic culling and feed efficiency gains, arming you with a $300,000 competitive advantage.
The Heifer Crisis Hiding in Plain Sight: Why Your Next 90 Days Determine Your 2028 Herd – Secure your operation’s future by navigating the biological trap of the current heifer shortage. This analysis exposes the 30-month lag in breeding decisions, revealing how your next 90 days dictate who’s milking in 2028.
Genetic Correlations Upended: Why Sticking with Old Breeding Indices Could Cost Your Dairy $486 Per Cow – And What the Data Really Proves – Outperform the competition by adopting the 2025 genetic reset that favors real-world profit over outdated showring standards. This guide reveals how the new Net Merit weights deliver $486 more lifetime profit through superior feed efficiency.

Join the Revolution!

Categories : Dairy Markets

Tags : beef-on-dairy premiums, dairy cow inventory, dairy market volatility, dairy processing capacity, replacement heifer shortage, true break-even cost

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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Squeezed Out? A 12-Month Decision Guide for 300-1,000 Cow Dairies – Delivers a high-stakes roadmap for mid-size operations navigating the current structural squeeze. You’ll gain a clear framework for evaluating whether to scale, pivot to organic, or exit, helping you protect your family’s equity before market options narrow.
From -43% to +0.8%: The Genetic Shift Powering Dairy’s First Fluid Milk Growth Since 2009 – Exposes how a massive shift in consumer demand and genetic selection is finally reviving fluid milk sales. It breaks down the 2025 Net Merit changes, showing you how to retool your breeding program to capture premiums from the high-protein, lactose-free market.

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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

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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.
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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.

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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.

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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.”

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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.

Join the Revolution!

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.