Everyone chased China’s export gold rush. Here’s why the producers who focused on efficiency are thriving while others struggle.
EXECUTIVE SUMMARY: Look, I’ve been tracking this China mess since those tariffs hit, and here’s what’s really happening out there. The producers who built their entire strategy around export volume are getting absolutely hammered right now – we’re talking about margins that dropped to $10.42 per cwt in April, the lowest all year. But here’s the kicker… the guys who focused on feed efficiency and kept their conversion ratios below 1.35 pounds of dry matter per pound of milk? They’re still cash-flow positive while their neighbors are bleeding money. Mexico stepped up huge, buying $1.04 billion worth of our stuff through May, but that’s not going to save operations that can’t control their costs. The spring flush hit 1.5% production growth right when demand collapsed – perfect timing, right? You’ve got to diversify your risk management beyond just DMC coverage and start building those direct processor relationships that are paying $1.50-2.00 per cwt premiums over Class III.
KEY TAKEAWAYS
- Feed efficiency is your lifeline – Operations hitting below 1.35 feed conversion ratios are seeing $180 monthly savings per cow, which literally means the difference between positive and negative cash flow when corn’s sitting at $4.10-$4.50 per bushel. Start obsessing over your TMR protocols now.
- Mexico’s your new best friend – They’re buying 35% of our export volume at strong peso rates, so if you’re still chasing commodity pricing instead of building direct relationships with processors serving Mexican markets, you’re missing serious money on the table.
- Risk management needs an overhaul – DMC at $9.50 per cwt plus DRP coverage isn’t enough when trade wars hit this hard. The smart money is locking in those processor premiums and keeping 6 months of operating expenses in cash reserves.
- Strategic culling beats hope – With beef prices strong and margins compressed, your highest-cost, lowest-producing cows should be headed to market instead of expensive feed through negative margin periods. This isn’t temporary – it’s the new normal.
- Technology edge separates winners from losers – Robotic milking systems and precision feeding are delivering 15-20% better efficiency than conventional operations, worth about $400 per cow annually. That’s not luxury anymore, that’s survival equipment.
You know that sinking feeling when you’re going through the mail and your milk check is… well, let’s just say it’s not what you expected? That’s exactly what happened to me when I started digging into May 2025’s export numbers. Sure, everyone’s talking about 13% growth – sounds fantastic on paper, right? But here’s what’s really got me concerned… when you actually peel back those headlines, there’s a story developing that’s going to hit every single one of us milking cows.
The China Situation – And Why This Changes Everything
Let me just lay this out straight. What happened with China in May 2025 wasn’t a temporary trade spat that would be worked out in a few months. We’re talking about tariffs that went from 10% to a devastating 84-125% in the span of a few months. That’s not negotiation – that’s economic warfare.
The numbers are honestly brutal when you break them down. Before all this started, China was a massive customer for our whey and nonfat dry milk – we’re talking hundreds of millions in annual sales that just… disappeared. Think about that for a second. When you lose that kind of volume overnight, you don’t just feel a pinch – you get absolutely steamrolled.
And boy, did we ever. The whey complex suffered significant losses between February and April 2025, with nonfat dry milk experiencing a particularly severe decline during the same period. I’ve been watching these markets for fifteen years, and this isn’t your typical seasonal correction. This is what happens when the bottom falls out.
What really gets me about this whole mess – and this is where it gets genuinely concerning – is how calculated it all was. The folks at USDA’s Economic Research Service have been tracking China’s systematic push toward 90% dairy self-sufficiency by 2026. Those crushing tariffs? They’re just giving political cover for what was already happening behind the scenes.
When Spring Flush Meets Perfect Storm Conditions
Here’s where things get really interesting – and not in a good way. Just as China was essentially telling us to pound sand, Mother Nature decided to throw us one of the most aggressive spring flushes I’ve seen in years. April 2025 production jumped 1.5% year-over-year – the biggest monthly increase since August 2022.
I’ve been tracking the regional breakdowns, and some of these numbers are just staggering. Texas – and I know they’ve been expanding like crazy down there – led with a mind-blowing 9.4% increase. The Upper Midwest states weren’t far behind either. Even with California dealing with their usual water and feed cost headaches, the national picture was crystal clear: way more milk, way fewer places to sell it.
What strikes me about this timing is how perfectly wrong it was. You’ve got producers coming off a decent winter, fresh cows hitting their stride, and then… boom. Your biggest export customer decides they no longer need you.
The Feed Cost Paradox That’s Driving Everyone Nuts
Here’s what’s particularly maddening about this whole situation – falling feed costs actually became part of the problem instead of the solution. Corn futures were initially trading below $4 earlier this year, but they’ve since crept back up to around $4.10-$4.50. Soybean meal declined, and hay prices stayed relatively stable across most regions. Usually, that’s like Christmas morning for dairy producers.
Except it didn’t work that way this time.
When you’re already dealing with oversupply, cheaper feed just encourages more production. It’s like… imagine you’re trying to bail water out of a sinking boat, and someone keeps making the hole bigger while giving you a better bucket. That’s essentially what we experienced this spring.
The Dairy Margin Coverage program captured this perfectly – April 2025 margins dropped to $10.42 per cwt, the lowest we’ve seen all year. For producers who had counted on spring momentum to carry them through the summer, reality delivered a harsh lesson about basic supply and demand.
Mexico Becomes Our Unexpected Lifeline
While China was building trade walls, Mexico stepped up in a big way. They’re now handling 35% of our export volume and have purchased $1.04 billion worth of our products through May 2025. The peso has been relatively strong against the dollar, creating favorable purchasing conditions that should hold through the rest of 2025.
What’s fascinating to me – and this keeps coming up in conversations I’m having – is how this relationship really highlights the value of geographic proximity and stable partnerships. While we’re dealing with this tariff chaos across the Pacific, our southern neighbor is proving that consistent, predictable demand beats chasing volume every single time.
I was speaking with a producer operating around 2,000 head in Wisconsin, and he informed me that his Mexican contracts are now worth more per hundredweight than his domestic Class III sales. Five years ago, that would’ve been unthinkable.
Risk Management – What Actually Held Up (And What Got Hammered)
The thing about this crisis is how it really exposed the gaps in our traditional risk management playbook. Operations using both Dairy Revenue Protection at 95% coverage and Dairy Margin Coverage at the $9.50 level definitely fared better than single-strategy operations… but here’s the reality check – even combined coverage couldn’t handle a trade shock of this magnitude.
I’ve been talking to consultants across the Upper Midwest, and they’re all saying the same thing: producers focusing on feed efficiency improvements are seeing significant monthly savings per cow. That’s the kind of operational discipline that’s literally keeping operations cash-flow positive when commodity prices turn ugly.
However, what really surprised me was that the producers who navigated this mess best weren’t necessarily the ones with the most sophisticated hedging strategies. They were the ones who had built direct relationships with processors, locking in those $1.50-$ 2.00 per cwt premiums over Class III pricing.
What’s Actually Working in This Mess
Here’s what I’m seeing from operations that are successfully navigating this chaos: they’re not sitting around waiting for export markets to bounce back magically. They’re actively diversifying relationships, maximizing their DMC enrollment before the August 2025 deadlines, and – this is absolutely crucial – seriously evaluating strategic culling while beef prices are still high.
The feed efficiency piece has become absolutely critical. I mean, it’s literally make-or-break time. Operations hitting feed conversion ratios below 1.35 pounds of dry matter per pound of milk are maintaining positive margins while everything else is falling apart around them. With corn hanging around $4.10-$4.50 per bushel, that efficiency work is the difference between staying afloat and… well, going under.
I was visiting a Pennsylvania operation last month – they milk about 1,200 head and have been focusing on their TMR protocols and cow comfort. They’re averaging around 1.28 on feed conversion, and while their neighbors are dealing with negative margins, they’re still generating positive cash flow. That’s not luck, that’s good management.
The Regional Reality Check Nobody’s Talking About
What’s happening across different regions is really telling the story of where this industry is headed. The Upper Midwest – Wisconsin, Minnesota, and Michigan – is feeling this export disruption hard because many operations there were built around commodity production for those export premiums.
Meanwhile, operations down in the Southeast and Southwest that stayed focused on regional fluid markets? They’re not immune, but they’re definitely more insulated from this trade chaos.
I had a good conversation with a producer running about 800 head down in Georgia, and he told me, “We never chased the export premium game, and honestly, I’m glad we didn’t.” His operation supplies a regional bottler with a three-year contract at Class I pricing. Not exciting, but stable as a rock.
The Technology Edge That’s Making All the Difference
Here’s something that’s really fascinating – and I think this is going to be huge moving forward. The operations weathering this storm best aren’t just the ones with good contracts or sophisticated risk management. They’re the ones who invested in precision ag technology over the past few years.
I’m tracking farms that utilize robotic milking systems, precision feeding technology, and genomic programs, which are achieving significantly better feed efficiency than conventional operations. That efficiency advantage translates to serious money at current input costs.
What’s particularly interesting is how these technologies were originally sold as production enhancers, but they’re turning out to be survival tools in this margin-compressed environment. When every penny counts like it does right now, that technology edge becomes the competitive advantage that separates survival from just getting by.
Looking Ahead – Because This Isn’t Going Away
What keeps me up at night – and I think this is what should concern all of us – is that the export landscape emerging from this disruption will permanently favor operations with diversified market exposure, superior feed efficiency, and flexible cost structures.
China’s strategic withdrawal from US dairy imports isn’t some trade dispute that’ll get resolved in the next round of negotiations. This represents a permanent shift in the global dairy trade.
The operations that adapt quickly to these new realities – focusing on operational efficiency over volume growth, building resilient market relationships, capitalizing on domestic opportunities – they’re going to come out stronger. Those hanging onto the old export-dependent growth model? They’re facing pressure that’s only going to get worse.
Current interest rates are still elevated, which limits expansion financing anyway. This might actually give the industry some breathing room to right-size production to match this new demand reality.
The Bottom Line – Because Someone Has to Say It
Look, I’ve been covering this industry for over a decade, and I can tell you straight up: the China dairy relationship that drove growth for the past decade is over. Finished. Over.
Here’s what you need to be doing right now, not next month:
Get your risk management sorted out. If you haven’t maxed out your DMC coverage at $9.50 per cwt, do it before the August 2025 deadline. Consider DRP coverage for what’s left of 2025 – these aren’t normal market conditions.
Become obsessed with feed efficiency. Target conversion ratios below 1.35 pounds of dry matter per pound of milk. This is no longer optional – it’s a matter of survival. The savings from efficiency improvements can make or break your operation in today’s market.
Diversify your buyer relationships. If you’re still heavily dependent on commodity pricing, start building direct processor relationships now. Mexico and domestic specialty markets are where the real demand growth is happening.
Think strategically about culling. With beef prices strong, your highest-cost, lowest-producing cows should be evaluated for culling rather than expensive feeding through these negative margin periods.
Build cash reserves like your life depends on it. This volatility isn’t temporary – it’s the new normal. Operations with six months of operating expenses in cash are going to have options that leveraged operations simply won’t have.
The question isn’t whether American dairy can compete globally – we absolutely can and will. The question is whether individual operations will make the strategic changes necessary to thrive in this fundamentally different landscape.
The producers who see this shift for what it is and act accordingly? They’re going to be the ones still milking cows in 2030. The ones waiting for the “good old days” to return… well, they might be waiting a very long time.
Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.
Learn More
- Protecting Your Dairy’s Bottom Line: Essential Risk Management Approaches for 2025 – Reveals practical strategies for layering DMC, DRP, and forward contracts to hedge against price collapses, cut labor costs with automation, and secure profitability in today’s volatile markets—essential for every operation.
- Weekly U.S. Dairy Market Report: June 6th, 2025 – Cheese Surge Rewrites Global Trade Rules – Delivers actionable market intelligence on product-specific export strategies, beef-on-dairy margin insurance, and how to capitalize on cheese and butter demand while avoiding milk powder pitfalls.
- How IoT and Analytics Are Transforming Farms in 2025 – Demonstrates how IoT, robotic milkers, and data analytics are boosting productivity by 15-20%, slashing health costs, and future-proofing farms for the digital revolution.
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