U.S. dairy herds keep growing-but China’s 150% tariffs and plunging milk prices threaten profits. Can farmers adapt?
EXECUTIVE SUMMARY: Let’s face it-America’s dairy sector is defying logic. Herd sizes and milk output keep rising despite China slapping 150% tariffs on U.S. whey, collapsing export demand, and USDA slashing 2025 milk price forecasts by $1.50/cwt. While feed costs stay stable, plunging Class III/IV prices and new FMMO reforms squeeze margins further. The kicker? Farmers are doubling down on beef-on-dairy calves at $1,100/head to survive. This high-stakes paradox demands aggressive risk management and market diversification-fast.
KEY TAKEAWAYS
- Production vs. Profit: Herds grew 72k head year-over-year, but milk prices hit 3-year lows under $18/cwt.
- China Crisis: 150% tariffs obliterated whey exports, forcing global trade reroutes and domestic price crashes.
- Risk Radar: USDA forecasts warn of $21.10/cwt average milk prices-use DMC, DRP, and futures to hedge.
- Beef Saves: Crossbred calves now deliver $1,100+/head, propping up dairy revenues amid chaos.
- Regulatory Roulette: June’s FMMO changes will cut milk checks via higher processor “make allowances.”
Let’s face it: The U.S. dairy industry is living in a paradox. Farmers keep adding cows and pumping out more milk even as prices plummet, exports crash, and Chinese tariffs slam shut our biggest whey market. It’s like watching someone build a bigger boat while the harbor drains. What’s driving this disconnect between production and economic reality?
The USDA’s latest numbers tell an impressive and concerning story. Milk production in the 24 major dairy states jumped 1.0 percent in March 2025 compared to last year, while the national dairy herd grew by 72,000 head. That’s right- we’re adding cows when prices are headed south.
This growth continues even as April’s Class III milk price dropped to .48 per hundredweight and Class IV to $ 17.92- the first time both prices have fallen below since October 2021. Haven’t we seen this movie before?
Trade War Throws Dairy into Chaos
China isn’t playing nice anymore. They’ve slapped retaliatory tariffs of 135% to 150% on U.S. dairy products, slamming the door to one of our most critical export markets. Remember when we thought a 25% tariff was bad back in 2019? Those were the good old days.
Industry insiders aren’t mincing words, calling the situation “market destruction” and forcing a “global recalibration of dairy trade flows.” While China shops around Europe and Oceania for new suppliers, our exporters scramble to find homes for products that suddenly have nowhere to go.
Why is this hitting whey markets so hard? Simple-China has historically swallowed over 50% of U.S. production for specific whey components. The last time we faced Chinese tariffs in 2019, a modest 25% charge caused whey exports to China to plummet by 55% and domestic prices to tank by 35%. And today’s tariffs make those look like a gentle nudge.
Milk Prices Under the Gun
The USDA isn’t sugarcoating things. Since February, they’ve slashed their milk price forecasts for 2025 by about $1.50 per hundredweight. They now project an all-milk price of just $ 21.10- a painful drop from earlier expectations.
Class III and Class IV projections took similar hits. The latest outlook knocked the projected average Class III price down to $17.60 and Class IV to $18.20. How much lower can these prices go before we see a production response?
These falling prices hit producer margins directly. The milk margin over feed cost reported by the Dairy Margin Coverage (DMC) program fell to $11.55 per hundredweight in March, dropping $1.57 from February and more than $4 below last September’s peak. That’s a lot of money vanishing from dairy farmers’ pockets in six months.
Spot Markets Send Mixed Signals
Curiously, spot markets for dairy commodities showed surprising strength in early May, swimming against bad news. The CME spot cheese market rallied for multiple days, with Cheddar blocks reaching $1.76 per pound and barrels hitting $1.755 per pound by May 2.
Butter prices firmed to $2.33 per pound despite cream flowing like water, and nonfat dry milk rose to $1.195 per pound- its highest price since early March. Even dry whey climbed to 52¢ per pound, which seems counterintuitive given the trade tensions.
But don’t be fooled by this temporary bump. The spot market rally provides a momentary bright spot but contradicts longer-term indicators and futures markets that align with USDA’s lower price forecasts. Is this just a dead cat bounce, or could it signal something more positive?
Feed Costs Offer Little Comfort
One silver lining in this storm cloud: feed costs remain relatively stable. The DMC program reported feed costs held nearly unchanged in March at $10.45 per hundredweight, just 3¢ lower than in February. That’s something, right?
Crop planting has made encouraging progress, which might keep feed costs reasonable throughout 2025. Farmers planted approximately 24% of their corn by April 27, slightly ahead of the five-year average, and 18% of soybeans, beating the five-year average of 12%.
This planting progress has helped keep feed prices in check, with July 2025 corn futures settling at $4.72 per bushel and December corn at $4.47 per bushel. But let’s be honest- these modest feed savings can’t offset the massive milk revenue losses hitting dairy farms nationwide.
Alternative Revenue Becomes Critical
Thank goodness for beef prices! They’re still hitting record highs, and crossbred calves headed for feedlots regularly fetch upwards of $1,100 per head. That’s not chump change.
These strong values have become an essential income source and are pushing more producers toward beef-on-dairy breeding strategies, which also helps limit heifer supplies. Who thought your cull cows might save your dairy during challenging times?
The robust cull cow market provides a financial buffer during lower milk prices and now represents a crucial piece of dairy farm revenue. Are you maximizing this opportunity on your farm?
FMMO Reforms Add More Complications
As if things weren’t challenging enough, the Federal Milk Marketing Order system changes are coming down the pike. Most of these changes kick in on June 1, 2025, with adjustments to milk component factors taking effect on December 1.
Key amendments include updated manufacturing allowances (“make allowances”), which will increase from current levels. For example, the cheese make allowance will jump from $0.2003 to $0.2519 per pound. Talk about bad timing!
These higher allowances get subtracted from wholesale product prices when calculating milk component values, effectively lowering the minimum prices paid to producers. Did we need another downward force on milk prices right now?
The Bottom Line: What You Need to Do Now
You can’t afford a passive approach if you’re running a dairy operation in this environment. Aggressive risk management needs to top your priority list. Consider DMC participation, Dairy Revenue Protection, and potentially using futures and options markets to hedge price risk. When was the last time you reviewed your risk management strategy?
Don’t just chase volume-focus on efficiency and high-value milk components. With butterfat and protein maintaining relatively stronger values, adjusting your feeding and breeding programs accordingly could make the difference between profit and loss this year.
For processors and exporters, market diversification beyond China isn’t just lovely- it’s necessary. How quickly can you develop alternative international markets to reduce your vulnerability to future trade disruptions?
The U.S. dairy industry faces a severe test as production growth collides with significant market headwinds. Future markets hint at modest price improvement later in 2025, but let’s face it- the coming months will demand strategic adaptation and careful financial management as the market struggles to balance supply with accessible demand. Is your operation prepared to weather this storm?
Learn more:
- Tariff Tightrope: Dairy Farmers Face Tough Choices as Trump’s Trade War Hammers Export Markets
Breaks down how 125% Chinese tariffs are reshaping global dairy trade and crushing U.S. whey exports. - The Dairy Apocalypse of 2025: Why Your Milk Check Is Disappearing and Who’s Profiting from It
Exposes how June’s FMMO reforms will slash producer payouts through controversial “make allowance” increases. - Dairy Farms Face Tightening Profits as Milk Prices Tumble
Details the $1.57/cwt March margin crash and why DMC enrollment is critical for surviving price volatility.
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