Archive for dairy processing capacity

GDT surged 6.7%, and U.S. powder output hit a 12-year low – but your DMC window closes in 17 days.

17 days to the DMC deadline. Class IV is $1.50/cwt above Class III. If your DRP is weighted heavily on III, you’re insuring a check that doesn’t exist.

Executive Summary: NDM hit $1.64/lb on Friday — its best week since 2007 — putting milk powder 16.75¢ above Cheddar blocks. That’s not a blip. U.S. dryers produced just 2.143 billion pounds of NDM/SMP in 2025, the weakest since 2013, while the industry poured $11 billion into cheese plants that need more milk but don’t make powder. GDT confirmed the global story on February 3: the index surged 6.7%, SMP jumped 10.6%, and all seven product categories gained. The Class III/IV spread now sits at roughly $1.50/cwt—and every month you don’t restructure your DRP or optimize components, you’re subsidizing that spread from your own check. DMC enrollment closes February 26. Below: 4 moves before the deadline, the three structural constraints keeping powder tight, and the single production number that tells you whether this rally is real.

Class III/IV Spread

Nonfat dry milk surged 18¢ in a single week to settle at $1.64/lb on Friday, February 6 — the highest CME spot price since August 2022 and the strongest weekly gain since May 2007. That puts milk powder a full 16.75¢ above Cheddar blocks and within pennies of butter. For the first time in years, the product that the U.S. processing sector largely ignored is outpricing the one the entire industry was built around.

 

By Friday, MAR26 Class III futures were trading above $17/cwt through year-end, while Class IV — emboldened by surging NDM — was in the high $18s/cwt. DMC enrollment closes February 26. Just 17 days from today. Spring flush is six to eight weeks out.

Kevin Krentz, president of the Wisconsin Farm Bureau and a roughly 600-cow operator near Berlin, WI, knows what pool disadvantage feels like. He testified at the USDA Federal Milk Marketing Order hearing on August 31, 2023, that negative PPDs reached $9/cwt, costing his operation nearly $200,000 during the PPD crisis. The current Class III/IV spread is opening a similar gap — and the decisions you make about DRP coverage, component targets, and handler alignment right now determine which side of it you land on. 

GDT Surges 6.7%: Powder and Mozzarella Lead a Clean Sweep

The Global Dairy Trade auction (TE397) on February 3 delivered a 6.7% jump in the price index — the third consecutive gain — with the average winning price firming to $3,830/MT across 24,034 tonnes sold and 175 bidders participating. SMP leapt 10.6% to $2,874/MT, and mozzarella matched it at +10.6% to $3,694/MT. Those two categories matter most for U.S. powder and cheese pricing.

Butter surged 8.8% to $5,773/MT, with Solarec’s Belgian C2 butter hitting $4,950 — up 9.6% from two weeks ago. AMF gained 5.0% to $6,524, WMP rose 5.3% to $3,614, cheddar added 3.8% to $4,772, and lactose ticked up 1.5% to $1,410. Trade commentary attributed part of the rally to Chinese restocking ahead of the Lunar New Year and seasonal MENA demand ahead of Ramadan, though GDT doesn’t disclose buyer-country data.

Phil Plourd, president of Ever.Ag Insights, framed the broader landscape bluntly in a report on industry consolidation trends: “It is a street fight, in terms of figuring out ways to stay relevant, to get more productive, to stay ahead of the curve, to manage risk better, because it’s never been an easy business. It’s not going to be an easy business anytime soon”. 

EEX and SGX Confirm the Bid: 16,631 Tonnes Traded

The rally wasn’t just a GDT event. On EEX, 5,365 tonnes (1,073 lots) traded last week, with butter futures firming 10.7% on the Feb26–Sep26 strip to an average of €4,730 and SMP jumping 9.4% to €2,605. Only whey pulled back — down 1.8% to €1,019.

SGX told the same story: 11,266 lots traded, with WMP up 8.6% to $3,791 and SMP up 11.0% to $3,298 on their Jan26–Aug26 curves. AMF settled at $6,281 (+6.3%) and butter at $5,664 (+7.3%). The NZX milk price futures contract moved 1,763 lots — 10,578,000 kgMS — suggesting New Zealand producers are actively pricing forward at these levels. Powders led the rally on both exchanges. That confirms the GDT signal isn’t isolated.

European Market Snapshot: Powder Rallies, Butter, and Cheese Correct

European spot and futures markets pulled in opposite directions last week — and that divergence is the story worth watching.

ProductCurrent IndexWeekly ChgY/Y Chg
Butter€3,933−0.9%−46.6%
SMP€2,247+4.4%−10.6%
Whey€999Flat+12.5%
WMP€3,065−0.3%−30.0%
Cheddar Curd€3,222−1.4%−33.1%
Mild Cheddar€3,248−0.1%−31.9%
Young Gouda€3,059+1.1%−29.0%
Mozzarella€3,098+2.6%−24.0%

EU Weekly Quotation, 4 February 2026. Country splits tell the story: German butter unchanged at €4,050; Dutch butter +€50 to €3,950; French butter −€160 to €3,800. SMP: German +€90 to €2,250; French +€70 to €2,200; Dutch +€120 to €2,290.

That 46.6% year-over-year drop in EU butter tells you how inflated 2025 prices were — not how weak 2026 prices are. SMP moving in the opposite direction, with all three country quotations gaining, mirrors the global powder bid.

Every cheese index sits 24% to 33% below year-ago levels. That’s a massive compression European processors are still absorbing — and it’s keeping EU cheese competitively priced on global markets.

Global Supply: Butter Growing, Powder Capacity Isn’t

European and Irish butter supplies are expanding. Powder capacity outside the U.S. isn’t growing fast enough to fill the gap that GDT just priced in.

Ireland’s provisional December collections came in at 267kt, down 3.0% y/y — the second consecutive monthly contraction. But full-year 2025 totalled 9.10 million tonnes, up 5.0% y/y, with milksolids up 5.5% on stronger fat (4.93%) and protein (3.85%). Irish butter production for 2025 hit 286kt, up 7.1%.

Spain posted a decent December at 624kt (+1.8% y/y), but the full-year picture is flat — down 0.2%. UK butter production jumped 6.6% in December to 15.4kt, and total cheese production rose 3.4% to 42.4kt. Full-year butter hit 199kt (+2.1%), and cheese reached 513kt (+2.9%).

China’s farmgate price edged to 3.04 Yuan/kg in late January — up just 0.2% month-over-month and still 2.8% below last year. The Ministry noted that collections growth was driven by per-cow productivity, not herd expansion, with less productive cows culled. With Lunar New Year stocking mostly behind us, the question now is whether post-holiday Chinese buying holds — or if TE397 was the peak.

$11 Billion Went to Cheese. Now, Powder Is Short.

Powder got scarce because the industry was built for cheese, not because the world suddenly needed more milk powder.

U.S. dairy processors have committed more than $11 billion in new and expanded capacity across more than 50 projects in 19 states between 2025 and early 2028 — overwhelmingly targeting cheese and whey protein, not drying, according to data released by the International Dairy Foods Association on October 2, 2025. UW Extension dairy economist Leonard Polzin described “more than eight billion dollars’ worth of stainless steel” being invested in new and expanded dairy processing in January 2025 — before several major announcements pushed the total higher. CoBank analyst Corey Geiger flagged the tension directly: those plants will need more milk and “many more dairy heifer calves in future years to bring the national herd back to historic levels.” 

Ken Heiman knows the margins from the inside. The certified Master Cheesemaker runs Nasonville Dairy in Marshfield, WI, processing up to 1.8 million pounds of milk per day. He’s blunt about the economics: cheese alone just about breaks even — it’s the whey protein stream that makes the operation work. “We ought to be thanking people who are buying whey protein at Aldi’s,” Heiman told the New York Times on July 16, 2025. “It definitely enhances the bottom line”. That math explains why plants keep expanding cheese capacity even when cheese margins are thin. The whey subsidizes the vat. 

Meanwhile, USDA’s Dairy Products report (February 5, 2026) confirmed that combined U.S. NDM and SMP output in December totalled just 170.3 million pounds — down 6.2% year-over-year. Full-year 2025 powder production: 2.143 billion pounds. The weakest annual total since 2013.

U.S. Cheese Hits 1.28B Pounds in December — But Butter’s the Tighter Market

December cheese production hit 1.279 billion pounds, up 6.7% y/y, with Cheddar surging 9% and Italian varieties climbing 7.4%. Mozzarella grew 5.9%, even as foodservice channels continue pulling back. Hoard’s Dairyman reported in March 2025 that “food service has seen the biggest pullback in cheese demand” and that the pullback “shows little sign of any significant rebound”. Domino’s confirmed the trend firsthand, reporting a 0.5% decline in U.S. same-store sales in Q1 2025. 

Butter production expanded a more modest 2% to 203.8 million pounds. But the spot market doesn’t feel oversupplied — CME butter jumped 13¢ last week to $1.71/lb, including a 10.25¢ leap on Thursday alone, with dozens of unfilled bids remaining at Friday’s close. USDA’s Agricultural Prices report pinned the national average fat test at 4.51% in December, up 0.05 percentage points y/y. More fat entering the system, and buyers still can’t get enough.

Cheddar blocks rose 11¢ to $1.4725/lb on 51 loads — competitively priced for global buyers. Dry whey was the lone loser, dipping 2¢ to 73¢/lb. But the whey complex is structurally shifting: December whey protein isolate production surged 11.7% to 20.6 million pounds, and WPC (50–89.9% protein) rose 9%, while lower-protein WPC (25–49.9%) fell 12.8%. Ask Ken Heiman — plants keep making cheese because the whey stream pays the bills.

Three Constraints Stacking: Heifers, Dryers, and Feed

The powder squeeze has staying power because three structural constraints are converging—and none resolves quickly.

Heifers. USDA’s January 2025 estimate pegged dairy replacement heifers (500 lbs+) at 3.914 million head — the lowest since 1978. CoBank’s Abbi Prins projected the shortfall won’t begin recovering until 2027 at the earliest. With beef-on-dairy breeding running at elevated levels, the pipeline keeps shrinking even as processors need more cows. 

Dryers. The $11 billion investment wave went to cheese and whey protein, not powder. No major drying plant expansions have been announced. If Q1 2026 NDM/SMP production stays below 180 million pounds monthly despite record milk supply, drying capacity isn’t just tight — it’s structurally insufficient. 

Feed. MAR26 soybean meal settled at $303.60/ton on Thursday, with further gains on Friday. MAR26 corn hit $4.35/bu before giving back ground. On February 4, Trump stated that China was considering purchasing 20 million metric tons of U.S. soybeans this season, following what he called “very positive” talks with President Xi. On February 8, USDA confirmed an additional 264,000 MT of China soybean sale. This follows China’s completion in January of its initial 12 million MT commitment from the October 2025 Trump-Xi agreement, as confirmed by Treasury Secretary Scott Bessent at Davos. That buying pressure boosted soybean and soybean meal values heading into the week. Higher feed costs don’t make DMC optional. They make it essential. 

4 Moves Before February 26

1. Restructure your DRP to match actual pool exposure. If your co-op runs 60% cheese and 40% butter/powder, but your DRP is weighted 80% Class III, you’re insuring a milk check that doesn’t exist. High-component herds generally benefit from the Component Pricing option; average-component herds from Class Pricing with accurate III/IV weighting. Get a current quote — premiums fluctuate with volatility.

Your Pool MixYour DRP WeightingClass III/IV SpreadMonthly Exposure (500 cows)Risk Level
60% Cheese / 40% Powder80% Class III / 20% Class IV$1.50/cwt-$10,000 to -$15,000HIGH
60% Cheese / 40% Powder60% Class III / 40% Class IV$1.50/cwt-$3,000 to -$5,000MODERATE
40% Cheese / 60% Powder60% Class III / 40% IV$1.50/cwt+$4,000 to +$6,000LOW
70% Cheese / 30% Powder70% Class III / 30% Class IV$1.50/cwt-$5,000 to -$8,000MODERATE-HIGH

2. Stack DMC before the deadline. Tier 1 now covers up to 6 million pounds — up from 5 million — giving medium-sized operations an extra million pounds of protection. You must establish a new production history based on your highest marketings from 2021, 2022, or 2023. The six-year lock-in (2026–2031) saves 25% on premiums but surrenders annual flexibility. Run the math both ways. 

3. Audit your milk check. AFBF economist Danny Munch, speaking at ADC’s Dairy Hot Topics session during World Dairy Expo on October 2, 2025, urged producers to share milk check stubs with ADC, their state Farm Bureau, or their market administrator. He flagged instances — particularly in Wisconsin — where independent handlers weren’t meeting existing disclosure requirements. 

Foremost Farms patrons already know the pain: the cooperative announced a $0.90/cwt market adjustment deduction from member payments, citing “a significant difference between Class III milk costs and the revenue generated from cheese and whey product sales”. The FMMO pricing formula changes implemented on June 1 resulted in decreases “up to $0.90 per cwt” for producers in the Upper Midwest, Central, and Mideast FMMOs. Look for months where your PPD went sharply negative while Class IV traded at a premium. Cost: one uncomfortable phone call. Potential payback: significant. 

4. Run your component economics. As of January 2026, FMMO component prices ($1.4595/lb butterfat, $2.1768/lb protein): every tenth of a percent in butterfat translates to roughly $0.15–$0.35/cwt in additional revenue. A herd testing 4.3% fat and 3.3% protein versus one at 3.8% and 3.0% holds a cumulative advantage of roughly $1.00–$1.50/cwt. On 1,000 cows averaging 75 lbs/day, even the low end is approximately $22,000/month. Protected fat supplements typically run $0.30–$0.55/cow/day — University of Illinois dairy nutritionist Mike Hutjens has pegged rumen-protected choline alone at roughly 30¢/cow/day, with calcium salt fat supplements adding cost above that depending on inclusion rate. Genetic gains through sire selection take 6–24 months to hit the tank. Ask your nutritionist for the breakeven component test at current premiums. 

Herd ProfileButterfat %Protein %Premium Value ($/cwt)Monthly Revenue (1000 cows, 75 lb/day)Annual Advantage
High-Component Herd4.3%3.3%+$1.25+$28,125+$337,500
Average Herd3.8%3.0%BaselineBaselineBaseline
Gap+0.5%+0.3%$1.00-$1.50$22,500-$33,750$270,000-$405,000

What to Watch at TE398 on February 17

The next GDT auction will be the first real test of whether TE397’s 6.7% surge was panic buying or a structural repricing. Rabobank’s Q4 update (“Global Dairy Supply Surpasses Demand,” published January 7, 2026, via AHDB) estimated Big-7 milk production finished 2025 up 2.2% y/y, with 2026 growth moderating to 0.6%. If SMP holds above $2,800/MT at TE398, the floor is real. If it retreats below $2,600, the rally may have been seasonal restocking ahead of Ramadan and Lunar New Year.

On the domestic side, the March USDA Dairy Products report — covering January production — is the single most important data point. If NDM/SMP output stays below 180 million pounds, drying capacity is confirmed insufficient. Above 195 million, the system may be self-correcting.

What This Means for Your Operation

  • If you ship to a cheese-heavy co-op like Foremost Farms and your DRP is weighted more than 60% Class III, you’re likely insuring the wrong revenue stream. Pull your current DRP parameters this week and request a requote before the February 17 GDT gives the market its next signal.
  • If you’re considering forward contracting at current NDM-driven Class IV levels, talk to your risk management advisor now. DRP covers revenue; DMC covers margin. Neither locks in today’s spot price, but structuring both before February 26 gives you the cheapest available hedge against the spread narrowing or feed costs widening.
  • If you’re in the Southwest — near Hilmar’s Dodge City plant or Leprino’s Lubbock facility — your handler’s plant mix may already capture more Class IV value. DFA is even seeing milk production growth in areas like southern Georgia and northern Florida. Know where your milk goes before you assume the spread hits you the same way it hits a Wisconsin cheese-pool shipper. 
  • If your herd averages below 4.0% butterfat and 3.1% protein, you’re leaving an estimated $1.00+/cwt on the table relative to component-optimized herds in the same pool. That’s roughly $22,000/month on 1,000 cows at the low end.
  • If your PPD went negative in any month since October 2025, ask your co-op directly whether Class IV milk was depooled. Danny Munch at AFBF has flagged handlers not following existing disclosure rules. 
  • Counter-signal: If Q1 NDM/SMP production rebounds above 195 million pounds monthly, the scarcity thesis weakens, and the Class III/IV spread narrows. The March Dairy Products report is the first real test.

Key Takeaways

  • The Gap: NDM at $1.64 sits 16.75¢ above Cheddar and within pennies of butter. For cheese-pool herds, that translates to a Class III/IV spread costing real money every month — The Bullvine’s October 2025 paired-herd analysis pegged it at $10,000–$15,000/month on 500 cows. 
  • Why It Lasts: 2025 powder output fell to 2.143 billion pounds — weakest since 2013 — while $11 billion in new capacity went to cheese and whey. Heifer replacements are at a generational low of 3.914 million head, constraining even the milk supply. 
  • Your Biggest Lever: Components plus DRP alignment. Moving from average to high components is worth $1.00–$1.50/cwt, but only if your DRP weighting and handler actually capture that value. Fix both before February 26.
  • The Cost of Waiting: Rolling into spring with a cheese-heavy pool, a Class III-heavy DRP, and average components is a bet that the Class IV premium disappears before your cash does.

The Bottom Line

The February 26 DMC deadline isn’t the end of the conversation — it’s the last clean entry point before spring flush reprices everything. Where does your breakeven sit if Class III stays in the low $17s through summer?

To enroll in the 2026 DMC, contact your local USDA Farm Service Agency office or visit farmers.gov/service-center-locator. The deadline is February 26, 2026.

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

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FMMO Pays $1.71/lb for Butterfat Worth $2.95: What USDA’s December Report Tells You About Your Milk Check in 2026

Processors are exporting your butterfat at roughly $2.95/lb while the FMMO pays you based on ~$1.71. Here’s how that gap formed — and what you need to lock in before spring flush closes the window.

EXECUTIVE SUMMARY: Your butterfat is worth $2.95/lb on the global market. The FMMO pays you based on $1.71. That $1.24/lb gap — exposed in USDA’s December 2025 report — flows to processors exporting record butter and AMF volumes, not to the producers making the components. June’s FMMO modernization widened the divide: raised make allowances cut Class III by $0.92/cwt handing plants a bigger slice while yours shrank. Supply pressure is building from the other direction — CoBank projects 438,844 fewer replacement heifers by 2026, with prices at $3,010–$4,000/head, just as $10 billion in new processing capacity needs milk. Component-focused operations in deficit regions have roughly 60 days before the spring flush to convert handshake deals into written terms. After that, the leverage shifts.

Cheese blew past expectations. Butter missed — again. NFDM production fell, but stocks climbed anyway. When USDA dropped the December 2025 Dairy Products report on February 5, 2026, futures barely flinched. Everything traded flat except powder, which caught immediate sell-side pressure.

The headline numbers look simple enough: total cheese at 1.28 billion pounds (+6.7% year over year), butter at 204 million pounds (+2.0%), nonfat dry milk at 127 million pounds (down 2.7%), per USDA NASS. But underneath those percentages sits a widening disconnect between the global value of your components and what actually shows up on your milk check — a gap that should be front-of-mind for every component-focused operation heading into spring 2026.

For the component-focused operations tracking their butterfat premium against the blend, December’s milk check told a familiar story: the premium was up, but not nearly as much as the export math suggested it should be. The rest of the value? It left the country.

Cheese: $10 Billion in Capacity, and the Export Machine Is Absorbing It

Cheddar alone hit 340,350 thousand pounds in December — up 9.0% from a year ago. Not a one-month blip. Full-year 2025 cheddar finished 5.3% above 2024, and total cheese came in 2.9% higher. Italian types weren’t far behind: mozzarella up 5.9%, Parmesan up a striking 22.9%.

Announced U.S. dairy processing investments total roughly $10 billion through 2027, according to CoBank. The industry braced for a glut that would crush the board.

It hasn’t happened — because export demand ate through the extra volume. USDEC’s January 2026 trade summary puts November 2025 cheese exports at 50,775 metric tons, up 28% year over year. That’s the seventh consecutive month above 50,000 MT — a threshold never breached before 2025. Volume rose significantly to Mexico and South Korea, which USDEC says is “poised to set an annual record for U.S. cheese purchasing.” Southeast Asia cheese exports surged 92%.

MonthU.S. Cheese Exports (MT)YoY Change (%)Status vs. 50k MT Threshold
May 202551,240+18%✓ Above
June 202552,890+22%✓ Above
July 202553,470+24%✓ Above
Aug 202551,920+21%✓ Above
Sept 202554,110+26%✓ Above
Oct 202552,650+23%✓ Above
Nov 202550,775+28%✓ Above

But 28% export growth isn’t a number you can bank on forever. Here’s the threshold worth watching: if monthly cheese exports drop below 45,000 MT for two consecutive months while new plants keep ramping, domestic inventories will build faster than the market can clear. That’s not a prediction. It’s a trip wire.

Butter: Your Fat Leaves the Country at ~$2.95. Your Check Reflects ~$1.71.

Butter production came in at 203,848 thousand pounds, just 2.0% above December 2024. Full-year 2025 butter was up 5.7% — not a collapse — but December fell well short of private forecasts for the second straight month. USDA’s January 23 Milk Production report showed December output in the 24 major states at 18.8 billion pounds, up 4.6%year over year, with 222,000 more cows and 42 more pounds per cow generating plenty of cream.

So where’d all the butter go? Overseas. Where the margins are.

Per the CME cash dairy trade the week of February 3 (prices as of February 5, 2026), spot butter closed at approximately $1.71/lb, up from around $1.58 earlier in the week. GDT futures for February 2026 delivery had butter at roughly $2.64/lb and anhydrous milk fat at roughly $2.95/lb, per the Daily Dairy Report. That’s a spread of about $0.93/lb between CME and GDT butter — and $1.24/lb between CME butter and GDT AMF.

USDEC confirms processors are leaning hard into that spread. November butter exports surged 245% year over year. AMF shipments jumped 184%. USDEC called it the highest single month on a milk-fat basis for U.S. dairy exports — total butterfat exports reached 15,308 metric tons.

Now stack FMMO math on top. The June 2025 Federal Order modernization raised the butter make allowance from $0.1715/lb to $0.2272/lb — a 32.5% increase, per the USDA final rule published January 17, 2025. The changes “lowered the value of producer milk,” with the new cheese make allowances alone reducing the Class III price by $0.92/cwt.

The formula changes gave plants a bigger slice of the value pie. Your slice got smaller.

You produce the butterfat. Your plant converts it to 82% butter or AMF and sells it into an export channel, priced off GDT. Your milk check stays anchored to CME butter minus a bigger make allowance. The FMMO has no mechanism to pass that export premium back to you. Not through your blend price. Not through your component premium.

Product / MetricCME Price ($/lb)GDT Price ($/lb)Spread ($/lb)Value Gap per Tanker
Butter (82% fat)$1.71$2.64+$0.93~$5,580
Anhydrous Milk Fat$1.71*$2.95+$1.24~$7,440
Your Butterfat (3.7% test)Based on $1.71 CMEActual export value $2.95+$1.24~$7,440
Per Cwt Impact (80 lb/cwt @ 3.7% BF)Paid ~$5.06/cwt BFWorth ~$8.74/cwt BF-$3.68/cwt-$221/tanker

One partial exception worth investigating: if you’re a co-op member, your cooperative may return a share of export value through patronage dividends or retained earnings. Pull your co-op’s annual financial statement. Ask the question directly at your next member meeting. You might not like the answer — but you deserve to know it.

NFDM: Production Down, Stocks Up — Powder Took the Only Futures Hit

This is where the December report sent its clearest signal, and the one place futures actually listened.

December NFDM production came in at 127,190 thousand pounds, down 2.7% year over year. Skim milk powder dropped even harder — down 15.2%. If you only saw the production side, you’d assume a tightening powder complex.

CategoryDec 2024Dec 2025Change
Production130,700127,190-2.7% ↓
End-Month Stocks202,548213,981+5.6% ↑
Shipments115,004115,119+0.1% →

End-of-month manufacturer stocks told a different story: 213,981 thousand pounds, up 5.6% from 202,548 a year ago. NFDM shipments were essentially flat at 115,119 thousand pounds (+0.1%). USDEC’s trade data through three quarters showed total export volume up only 1.7% through September, while powder shipments to Mexico and Southeast Asia posted year-over-year declines. USDEC directly noted that “a decline in exportable supplies of milk powder from the U.S., combined with tepid demand from SEA, has caused volumes into the region to fall.”

November did bring a rebound in Southeast Asian powder shipments — NFDM/SMP to the region jumped 23%, driven almost entirely by Indonesia — but year-to-date milk powder exports to Southeast Asia were still down 20% through November.

Falling production. Rising stocks. Flat-to-weak exports. That’s a demand problem, not a supply story.

The Quiet Whey Shift: Putting a Floor Under Class III

One number buried in this report deserves your attention. Whey protein isolate production jumped 11.7% year over year to 20,644 thousand pounds, while WPI stocks fell 5.4%. Consumer demand for high-protein products is pulling whey streams into higher-value WPI — human dry whey was up only 4.0% despite 6.7% more cheese generating more liquid whey.

Because dry whey feeds the Class III formula, that structural pull is quietly supporting one of the inputs that determines your Class III price. If you’re on Class III, your dry whey component isn’t eroding the way the powder side is. Small bright spot in a complicated picture.

438,000 Fewer Heifers vs. $10 Billion in Hungry Plants

Every capacity story runs into the same wall. Biology doesn’t move at the speed of capital.

CoBank’s Corey Geiger projected in August 2025 that U.S. dairy heifer inventories would shrink by 438,844 head between 2025 and 2026, driven by beef-on-dairy breeding decisions that sent skyrocketing volumes of beef semen into dairy herds — 7.9 million units in 2024 alone, per NAAB data. Over two years, CoBank estimates the total decline could reach roughly 800,000 fewer replacement heifers, with a rebound starting in 2027. USDA’s January 2025 Cattle report showed 3.914 million dairy replacements — 18% fewer than in 2018.

YearHeifer Inventory (million)Cumulative Capacity Investment ($B)
20243.91$2.5
20253.69$5.8
20263.47$8.5
20273.58 (projected rebound starts)$10.0

December 2025 milk production still looked strong — up 4.6% in the 24 major states with 222,000 more cows and 42 more pounds per cow. But USDA’s January 2026 WASDE pegs 2026 production at 234.3 billion pounds, up roughly 1.4% from 2025, as a thinning replacement pipeline starts to constrain herd expansion.

Geiger didn’t sugarcoat it: “The short answer is that it will be tight. Those dairy plants will require more annual milk and component production, largely butterfat and protein. And it will take many more dairy heifer calves in future years to bring the national herd back to historic levels.”

Heifer prices already reflect the squeeze, from $1,720/head in April 2023 to roughly $3,010 by mid-2025 per the USDA’s July 2025 Agricultural Prices report. Top dairy heifers in California and Minnesota auction barns were bringing upwards of $4,000 per head by mid-year 2025, according to CoBank.

Why Flat Futures Don’t Mean the Fundamentals Are Wrong

If all this tension is real, why did cheese and butter futures trade flat on report day?

Near-term data wasn’t wildly off expectations. Cheese was already strong in November. Butter’s miss fit the ongoing “tight but not panicked” narrative. NFDM was the exception because rising stocks directly contradicted the bullish price story—a signal even a thin market could quickly process.

The deeper issue is structural. Dairy futures trade at a fraction of the open interest depth seen in cattle or hog contracts. That’s not a market that can efficiently price a two-year heifer decline or a multi-year butterfat export arbitrage. The flat response isn’t the market disagreeing with the fundamentals. It’s the market admitting it can’t fully express them.

And that gap between what futures say and what the fundamentals show? That’s where the opportunity sits for producers paying close attention.

What This Means for Your Operation

  • Your butterfat is underpriced relative to global value. As of February 5, 2026: GDT AMF at roughly $2.95/lb; CME butter at approximately $1.71/lb. Your Class IV price is anchored to CME plus a bigger make allowance. Component optimization still pays inside the system, but the extra export margin sits on the processor’s ledger. The spread to watch: if CME stays below $1.80 while GDT holds above $2.50, processors have no incentive to redirect cream to domestic channels, and your Class IV component value stays compressed. Pull your last three milk checks. Compare your butterfat premium per hundredweight to the CME butter price on those settlement dates. The gap between what you’re getting and what GDT says your fat is worth — that’s the number this article is about.
  • If you’re in a deficit region, your leverage is real — but it has a shelf life. Processors in short areas are paying to secure a supply right now. That urgency fades as cooperatives formalize long-haul logistics and spring flush arrives in April–May. The most important move in the next 60 days isn’t a hedge — it’s getting written terms on component premiums, hauling, and volume commitments while plants still feel short. Twelve-to eighteen-month agreements balance security with flexibility. The trade-off: if spot premiums spike higher than your locked rate during peak shortage, you’ll watch neighbors on handshake deals get paid more. But you’ll also sleep through the months when premiums collapse post-flush.
  • Watch NFDM stocks, not price. If manufacturer stocks hold above 210 million pounds through the March report while exports stay flat, that’s your signal to layer in Class IV put protection before spring flush. DRP Q2 2026 endorsements (April–June milk) are mostly written in the late-January to March window, outside of USDA report release days when sales are suspended. You want protection in place before April, not after.
  • Run the heifer math before you bid. At $3,500/head (midpoint of the $3,010–$4,000 range CoBank reported) and current carrying costs — Penn State Extension’s most recent data puts total rearing costs at roughly $1.60–$2.82 per head per day depending on operation type and region — a heifer needs to enter your string within about 24 months to break even against buying a fresh cow. But retaining heifers ties up capital and bunk space for 22+ months before they generate a dollar of milk revenue. Buying springers costs more per head but puts milk in the tank within weeks. Your cash flow position — not just the per-head price — should drive this call.
  • Check your Federal Order’s Class IV exposure. If you’re in Order 5 (Appalachian) running high Class I utilization, the differential increases from the June 2025 reforms may partially offset the make allowance pain — analysis found Orders 1, 5, 7, and 33 gained value under the new structure, while Order 30 (Upper Midwest) lost value. Run your margin-over-feed calculation against current component values to see where your breakeven actually sits under the new formulas.
Federal Milk Marketing OrderOrder #Value ImpactPrimary Driver
Northeast1Gained ValueHigher Class I differentials offset make allowance increases
Appalachian5Gained ValueHigh Class I utilization + differential increases
Southeast7Gained ValueClass I differential structure favorable
Upper Midwest30Lost ValueHeavy Class III/IV exposure + make allowance cuts hit hard
Mideast33Gained ValueClass I differential gains exceeded component losses

Key Takeaways

  • Cheese is running hot but roughly in balance thanks to record exports — November was the seventh straight month above 50,000 MT. The risk trigger: monthly exports below 45,000 MT for 2 consecutive months while new plants keep coming online.
  • Butterfat is where the value gap is widest. CME butter at ~$1.71/lb vs. GDT AMF at ~$2.95/lb as of February 5, 2026, represents a $1.24/lb spread that FMMO pricing doesn’t capture for producers. Co-op members: ask what share, if any, flows back through patronage.
  • NFDM sent the clearest warning in this report. Stocks up 5.6% while production fell 2.7%, and year-to-date powder exports to Southeast Asia were down 20% through November — that’s the pattern that precedes price weakness, not strength.
  • The heifer shortage is real and has come at a bad time. It won’t choke production in 2026, but by 2027 — when new plants need to run full — the math stops working without more replacements than the pipeline can deliver.
  • Check your DRP windows. Q2 2026 endorsements are mostly written in the late-January to March window. If NFDM stocks stay elevated and spring flush hits Class IV values, you want coverage locked before April.

The Bottom Line

The next two months aren’t about whether exports stay strong or heifers tick up another $200. They’re about whether you’ll have written terms — or still be on a handshake — when your plant decides who to lock in for the next cycle. And whether the terms you’re milking under today reflect even a fraction of what your components are actually worth on the global market.

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

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$1.6B to Texas and Kansas, 76% of Wisconsin Farms Gone: Scale Up, Go Premium, or Get Out

Hilmar, Leprino, and Valley Queen are pulling milk toward new regions. For producers in traditional dairy states, the math has changed—and so have the breeding goals.

Executive Summary: Since 2020, Hilmar, Leprino, and Valley Queen have committed $1.6 billion to cheese plants in Texas, Kansas, and the I-29 corridor—not chasing existing milk, but creating the conditions that pull production toward them. Wisconsin has lost 76% of its dairy farms since the mid-2010s, from over 15,900 operations to fewer than 6,000. You now face a three-path decision: scale to 1,000+ cows with a processor contract and debt-to-asset below 40%; pivot to premium markets (A2A2, organic, grass-fed) at under 300 cows with a buyer secured before transition; or execute a strategic exit while equity holds. The structural risks driving this migration—70% of the Texas Panhandle’s Ogallala aquifer potentially unusable by 2045, 51% of U.S. dairy workers foreign-born—are risks processors can diversify away from but you cannot. As Rabobank analyst Ben Laine notes: “Everything we know about dairy consolidation says it hasn’t shown any signs of slowing down.” Your genetics program must match your market destination: component sires for cheese contracts, A2A2 and grazing genetics for premium paths.

dairy processing gravity wells

When Hilmar Cheese Company broke ground in Dalhart, Texas, in 2006, dairy consolidation was already reshaping American milk production. But nobody expected what came next. The surrounding region had a modest dairy presence. By 2014, the area’s herd had grown more than tenfold—not because producers chose Texas first, but because Hilmar created the conditions that pulled them in.

That pattern is repeating at scale. Since 2020, major processors have announced billions in new capacity across Texas, Kansas, and South Dakota—including Hilmar’s $600 million Dodge City facility and Leprino Foods’ $1 billion Lubbock complex.

If you’re weighing expansion in a growth state—or wondering how long to hold on where you are—the economics have shifted. Here’s the decision framework.

76% of Wisconsin’s dairy farms have disappeared since the mid-2010s—from over 15,900 operations to fewer than 6,000 today.

Processors Chose First. Producers Followed.

The conventional narrative frames this geographic shift as producer-driven: families chasing lower costs and friendlier regulations. The timeline tells a different story.

Hilmar’s CEO, John Jeter, explained the Dalhart decision by citing “a growing milk supply and a stable regulatory environment.” Note the word “growing”—not “large.” The company bet on the future supply it planned to create, betting that it would create the market for it.

When Hilmar announced the Dodge City plant in 2021, Kansas Dairy CEO Janet Bailey said it would “help the state’s industry expand” and “create incentives for producers to be innovative.” That’s future tense. The plant pulls production into existence rather than chasing milk that’s already there.

Leprino’s Lubbock facility follows the same script, with phases coming online through 2026. Industry analysts estimate the company targets $10.6 billion in economic impact for Texas over the next decade.

Processors aren’t following milk. They’re building gravity wells—and milk is flowing toward them.

The I-29 Corridor: A Third Path

Not all dairy expansion is heading to the Southwest. The I-29 corridor—running through South Dakota, Minnesota, and Iowa—has quietly become the fastest-growing dairy region in the country on a percentage basis.

“So that is Iowa, South Dakota, and Minnesota—there they are growing milk production, and they are growing processing capacity,” notes Sarina Sharp in the Daily Dairy Report. “New dairies are coming in, and it’s not just cows moving across state lines, it’s truly growth.”

Valley Queen’s expansion project expects approximately 25,000 additional cows in 2025 and 2026 alone. Evan Grong, Valley Queen’s sales manager, identifies three key drivers: “We attribute the current and projected growth in the I-29 region primarily to access to feed production, abundant groundwater, and dairy processing investments.”

Unlike the Ogallala-dependent Panhandle, the I-29 corridor offers better long-term water security. Unlike Wisconsin, it has processor capacity actively seeking milk. It’s a middle path—if you can get in.

The Growth-State Assumption Is Cracking

Here’s the story everyone tells: growth states offer competitive advantages that traditional regions can’t match. Lower costs, friendlier regulations, room to expand.

Here’s the problem: the two pillars holding up that story—water and labor—are shakier than most people realize.

The water math is brutal. The Ogallala Aquifer underlies the Texas Panhandle and western Kansas dairy expansion zones. According to USGS and Texas Water Development Board data, Texas accounts for 62% of total Ogallala depletion despite covering a fraction of the aquifer’s footprint.

A University of Texas Bureau of Economic Geology projection suggests up to 70% of the Texas Panhandle’s section could become unusable within 20 years at current pumping rates. That’s potentially mid-2040s—well within the debt horizon of a dairy built today.

The labor math is worse. According to NMPF research:

  • 51% of all hired U.S. dairy workers are immigrants
  • Farms employing immigrant labor produce 79% of the national milk supply
  • When NMPF surveyed 1,223 dairy farms, 80% reported “low or medium” confidence in employment documents

In Wisconsin alone, a UW-Madison School for Workers survey found more than 10,000 undocumented workers perform about 70% of the state’s dairy labor.

Wisconsin’s Governor Tony Evers put it plainly: “If suddenly those people disappear, I don’t know who the hell is going to milk the cows.”

The Risk Sits Differently for You Than for Them

Leprino runs facilities across Colorado, California, Michigan, New Mexico, and now Texas. Hilmar has operations in California and Texas, with Kansas coming online. If water constraints or labor enforcement hits one region hard, they can shift volume elsewhere or exit with a write-down that stings but doesn’t kill the company.

A 4,000-cow dairy built in the Panhandle to supply a processor contract? Those wells, those barns, that debt—they’re all fixed in place.

Risk FactorTexas PanhandleKansas (Western)I-29 Corridor (SD/MN/IA)
Ogallala Depletion70% potentially unusable by 2045 (red)Moderate-to-high stress, caps tightening (red)Not Ogallala-dependent (better water security)
Labor Dependency51% immigrant workers nationally (red)51% immigrant workers nationally51% immigrant workers nationally
Processor DiversificationHilmar (CA, TX, KS), Leprino (CO, CA, MI, NM, TX)Hilmar, Leprino multi-stateValley Queen, regional processors
Producer Risk ExitFixed assets, debt horizon 15-25 yearsFixed assets, debt horizon 15-25 yearsFixed assets, debt horizon 15-25 years

NMPF modeling shows what a full labor disruption would mean nationally:

  • Over 7,000 dairy farms closed
  • 2.1 million cows culled
  • 48.4 billion pounds of milk lost
  • Retail prices are nearly doubling

For a 500-cow operation that loses 40% of its crew during a 30-day enforcement surge, the hit could run $20,000 or more in lost milk alone.

The Genetics Angle: Components Are King

Here’s what most geographic-shift analyses miss: where you farm increasingly determines what genetics you need.

These “gravity well” dairies feeding Hilmar and Leprino cheese plants are breeding hard for components—not volume. According to a March 2025 CoBank report, U.S. butterfat reached a record 4.23% nationwide in 2024, while protein reached 3.29%.

The April 2025 Holstein genetic evaluations saw the largest base change in history—a 45-pound rollback on butterfatand a 30-pound rollback on protein. Corey Geiger with CoBank explains: “That butterfat number’s almost double any number that’s taken place in the past.”

Why the shift? In cheese-focused markets, component pricing programs can place 80-90% of the milk check value on butterfat and protein—though this varies by Federal Order and utilization. Cheese plants pay for solids, not water.

For Wisconsin’s “premium path” operations, the genetics conversation looks different. A2A2 genetics, grass-fed programs, and high-type show cattle can command premiums in specialty markets. MilkHaus Dairy in Fennimore, Wisconsin, tests about 100 of their 360-head Holstein herd for A2 genetics, housing them separately to produce 12 cheese varieties sold nationwide.

The bottom line: Your sire selection should match your market destination.

Three Paths: Scale, Premium, or Exit

If you’re in a traditional region—or evaluating whether to build in a growth state—your decision comes down to three paths.

StrategyBest ForKey TriggerPrimary Risk
Scale Up1,000+ cow potentialDebt-to-asset < 40%, signed processor agreement$24+ breakeven, no successor
Premium< 300 cowsSigned specialty contract before transitionLimited market capacity
Strategic ExitNo successorEquity eroding 3+ yearsForced liquidation timing

Path 1: Scale Up

Decision triggers:

  • You’re at 500+ cows with a realistic path to 1,000+
  • Debt-to-asset sits below 40%
  • You’re under 55 with a committed successor
  • You have a signed processor agreement—not a handshake

It requires significant balance-sheet capacity—often $15 million or more — for a 500-to-1,000-cow build-out. Plan for 24-36 months of tight margins during ramp-up.

Genetics focus: High-component sires. The cheese plants driving this expansion reward butterfat and protein, not volume. While butterfat has driven the recent surge, CoBank’s September 2025 report noted excessive butterfat levels can impact cheese quality – keep an eye on protein-focused sires as processors adjust.

Where it breaks: Your expansion needs $24+ milk to pencil out. You don’t have a written processor commitment. No one’s willing to run the expanded operation after you.

Path 2: Premium Positioning

Decision triggers:

  • Your herd is under 300 cows—ideally under 200
  • You’ve got pasture access at 2+ acres per cow
  • You can secure a processor contract before starting the transition
  • Someone in your operation wants to do the marketing work

It demands 36+ months of operating capital for organic transition. Maple Hill was moving to $40.86/cwt base by July 2025, with quality premiums pushing total pay toward $45/cwt for qualifying producers.

Genetics focus: A2A2 testing and segregation, Jerseys or crossbreeding for components, grass-efficient genetics. Most Holsteins run 50-60% A2 naturally—testing your herd first tells you how much work the transition requires.

Where it breaks: Premium markets absorb perhaps a few hundred operations annually at most. Wisconsin alone loses 400-500 farms per year, according to USDA data.

Path 3: Strategic Exit

Decision triggers:

  • You’re past 55 with no committed successor
  • Breakeven sits above $24/cwt with no clear path down
  • Equity has eroded three years running
  • Debt-to-asset has crossed 60% and keeps climbing

The gap between a well-planned exit and a forced sale can be substantial—potentially several hundred thousand dollars in recovered equity. Cull cow prices have been running strong in recent months.

One DFA executive put it this way: “For farms without succession plans, strong calf and cull prices offer a timely opportunity to exit the industry without incurring losses from prolonged milk prices.”

Signals Worth Watching

  • Immigration reform is moving. The Farm Workforce Modernization Act was reintroduced in May 2025 with bipartisan support. Senate Ag Chair John Boozman recently said: “We said we could not do reform because the border was not secure… it is secure now, then through visa programs you control the flow, but it’s time to do that.” If year-round ag visas open up by 2027-2028, the labor advantage in growth states shrinks.
  • Groundwater districts are tightening. Texas and Kansas conservation districts can implement pumping caps faster than the aquifer models update. Watch Dallam, Hartley, and Moore Counties in Texas, plus western Kansas districts.
  • Watch the processor contract terms. Are supply agreements getting shorter? Quality specs tightening? Water-efficiency clauses appearing? That tells you how processors are pricing in structural risk.
  • Component premiums may shift. CoBank’s September 2025 report noted that butterfat growth has significantly outpaced protein growth and that excessive butterfat levels can impact cheese quality. Protein may command higher premiums than fat.

What This Means for Your Operation

  • Know your real breakeven. Include unpaid family labor at $18-22/hour, depreciation at replacement cost, and management compensation. For most 300-500 cow herds, that number lands between $22-26/cwt.
  • If you’re looking at growth states: Run your water scenario for 2040, not today. What happens if pumping gets cut by 30-40%? Consider the I-29 corridor as an alternative with better water security.
  • If you’re eyeing premium markets, don’t start an organic transition without a signed contract. Test your herd’s A2A2 genetics first.
  • Audit your genetics program. Are you still breeding for volume while processors pay for components? The April 2025 base change proves the industry has moved.
  • If exit makes sense: Strategic beats reactive by a wide margin. That’s the difference between selling genetics as genetics versus a fire sale.
  • Red flag: Your 18-month cash flow shows cumulative losses exceeding 15% of equity.
  • Green light: You’re under 250 cows, have pasture, and a processor has put interest in writing at premium terms.
Herd SizeReal Breakeven (incl. unpaid labor)Current Milk Price RangeDecision Trigger
100-200 cows$25-28/cwt (red)$20-22/cwtConsider premium pivot or strategic exit (red)
300-500 cows$22-26/cwt (red)$20-22/cwtMarginal viability; efficiency gains or exit (red)
500-1,000 cows$20-23/cwt$20-22/cwtViable if debt-to-asset < 50%; consider scale-up
1,000+ cows$18-21/cwt$20-22/cwtProfitable; focus on component optimization

The Bottom Line

Processor confidence doesn’t validate producer expansion. Their bets pay off under scenarios where yours might not—they have optionality you don’t.

The three-path decision isn’t optional. Scale, premium, or exit. Staying the same size, doing the same things, hoping prices improve—that’s not a strategy. It’s a slow exit with worse terms.

Water, labor, and genetics are structural, not cyclical. These aren’t problems that fix themselves in the next price rally. Build them into your 10-year planning.

Chad Vincent of Dairy Farmers of Wisconsin captured the human weight of all this: “I think Wisconsin dairy is as strong today as it’s ever been, although it is sad to see the next generation not come back.”

Rabobank analyst Ben Laine summed up the trajectory: “Everything that we know about dairy consolidation says it hasn’t shown any signs of slowing down… I don’t see that changing.”

Wisconsin’s farm count peaked above 100,000 in the mid-20th century. Today, fewer than 6,000 remain—and production has nearly doubled. The milk keeps flowing. The communities that make it look nothing like they used to.

Where does your operation sit on that curve? And who’s making the call—you, or the next milk check?

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

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Join over 30,000 successful dairy professionals who rely on Bullvine Weekly for their competitive edge. Delivered directly to your inbox each week, our exclusive industry insights help you make smarter decisions while saving precious hours every week. Never miss critical updates on milk production trends, breakthrough technologies, and profit-boosting strategies that top producers are already implementing. Subscribe now to transform your dairy operation’s efficiency and profitability—your future success is just one click away.

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211,000 More Dairy Cows. Bleeding Margins. The 2026 Math That Won’t Wait.

$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:

MetricFigureSource
Dairy cow increase (YoY)+211,000 headUSDA November 2025
Fewer replacement heifers (2025 vs 2024)-357,490 headCoBank modeling
Replacement ratio27 heifers per 100 cowsUSDA January 2025 Cattle Inventory
Cash break-even vs. true break-even gap$2.00–$4.00/cwtCornell DFBS analysis
Butter price decline (May–December)~35%Global Dairy Trade
Heifer inventory recovery expected2027 at the earliestCoBank 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 CategoryCash 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

ToolCoverage Level / StrikePremium CostBest ForKey Limitation2026 Action Timing
Dairy Margin Coverage (DMC)Top tier: Margin above feed costLow(~$0.15/cwt after subsidy for 5M lbs)Catastrophic protection; tight-margin operationsUnlikely to trigger unless corn >$5.50 with $17 milk; covers margin, not priceEnroll late Feb-early Mar (check local FSA)
Dairy Revenue Protection (DRP)~5% below current marketModerate(federally subsidized)Operations within 10-15% of break-evenCoverage starts 5% below market—$17 milk = $16.15 floorEarly Feb for Q2 (Apr-Jun coverage)
CME Put OptionsCustom strike at/above break-evenHigher (full premium, not subsidized)Operations with break-even >$19; need specific floorUpfront cost; requires market knowledgeQ1 2026before volatility increases
Feed Forward ContractsLock corn/soybean pricesVaries by basis, timingSecuring input costs when forwards favorableLose flexibility if cash market drops; typically lock 40-60%Q1 2026 for growing season
LGM-DairyGross margin protectionModerate-High (some subsidy)Comprehensive margin coverageComplex; 27-hour weekly enrollment windowsWeekly 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.

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June Milk Numbers Tell a Story Markets Don’t Want to Hear

5% component-adjusted growth while markets tanked? Something’s broken in how we’re thinking about milk production.

EXECUTIVE SUMMARY: You know that feeling when good news hits like bad news? That’s exactly what happened with June’s milk production report. We hit 19.23 billion pounds nationally—up 3.3% year-over-year—but markets sold off hard anyway. The real story isn’t the volume; it’s that component-adjusted production surged 5% while geographic production is completely reshuffling. Kansas jumped 19.1% thanks to new processing capacity while Wisconsin barely moved at 0.3%. Meanwhile, butterfat climbed to 4.18% and protein hit 3.25%—those improvements alone are worth serious money per hundredweight. European competitors are struggling with environmental constraints, creating export opportunities, but domestic demand challenges aren’t going away. Here’s the thing: if you’re still thinking volume-first instead of components-plus-location strategy, you’re already behind where this industry’s heading.

KEY TAKEAWAYS

  • Component premiums are the new profit center – With butterfat up 2% and protein up 1.5% year-over-year, focus on genetics and nutrition programs that boost components rather than just volume. That 5% component-adjusted growth versus 3.3% base growth represents real dollars on every milk check.
  • Geography is destiny in 2025 – Plains states with new processing capacity are seeing explosive growth (Kansas +19.1%, Texas +9.5%) while traditional regions stagnate. If you’re planning expansion, secure processing agreements first—capacity constraints are creating 18-24 month margin pressure cycles.
  • Feed cost advantages won’t last forever – Current milk-to-feed ratios around 1.8 are workable, but smart producers are locking grain prices now. Weather, trade issues, or energy costs could flip the equation overnight, so build flexibility into your feed program.
  • Export opportunities exist but don’t count on them – U.S. cheese exports are strong while Europe struggles with environmental limits, but building your whole strategy around international demand is risky. Domestic foodservice demand remains weak, so diversify revenue streams through beef-on-dairy programs.
  • Strategic thinking beats volume obsession – Cornell analysis suggests 75-85% probability of continued margin pressure through early 2026. Winners will be operations that read market signals, optimize for components over volume, and adapt quickly when conditions change.

You know that pit-in-your-stomach feeling when production reports should make you smile, but instead your phone starts buzzing with panicked calls from concerned producers? That’s exactly where we landed when June’s milk numbers dropped. The raw data—19.23 billion pounds nationally, up a whopping 3.3% from last year—should’ve had us popping champagne. Instead, markets sold off sharply, and honestly, that disconnect is telling us everything we need to know about where this industry’s headed.

Monthly U.S. Milk Production Trend for January–June, 2023–2025

When Crushing Expectations Becomes the Market’s Nightmare

What strikes me about June’s numbers is how they caught absolutely everyone off guard. According to the latest StoneX analysis¹, the report was “bearish compared to expectations”—and that’s coming from analysts who eat, sleep, and breathe these numbers.

We didn’t just meet projections… we obliterated them. Most folks were penciling in maybe 2% growth, but here we are staring at production that jumped 3.3% year-over-year. What really gets my attention, though, is how the component story amplifies everything. Our butterfat content increased to 4.18% (up from 4.10% last year), while protein levels rose to 3.25%(up from 3.20%). When you factor in those improvements—and this is crucial for understanding the real market impact—we’re looking at component-adjusted production that surged 5% year-over-year.

Five percent! The last time we saw growth like that? May 2021, right when everything was still bouncing back from pandemic disruptions.

What really caught my attention was the 2,031 pounds per head in June, up 1.7% from the previous year. Now, before anyone gets too carried away, remember that we’re comparing this to a brutal June 2024 when H5N1 absolutely hammered production numbers across key regions. The StoneX folks note we were “lapping over a 1.7% drop last year due to bird flu,” so there’s definitely some recovery built into that figure.

However, here’s the thing that should make everyone pause—we’ve added 114,000 head since December (that’s equivalent to adding several good-sized dairies every month), and we’re still seeing these kinds of individual animal improvements. Mark Stephenson from Wisconsin’s dairy markets program has been tracking these patterns for decades, and as he pointed out in his recent university brief, “when you see both scale and efficiency gains happening together, producers are clearly responding to sustained positive signals… but markets don’t always interpret additional supply as welcome news.”

The Geographic Revolution That’s Rewriting Our Industry Map

What’s happening regionally is what really gets my blood pumping about this data. Producers are “culling fewer dairy cows” because margins have been workable, but that’s just scratching the surface.

Year-over-Year Milk Production Change by State, June 2024-2025

Look at these Plains states numbers and tell me we’re not watching a fundamental restructuring:

  • Texas: jumped 9.5% to 1.503 billion pounds
  • Kansas: posted a jaw-dropping 19.1% increase to 400 million pounds
  • South Dakota: surged 11.5% to 255 million pounds

Meanwhile, traditional regions are struggling:

  • Washington: dropped 9.3% to 475 million pounds
  • California: managed only 2.7% growth despite adding cows
  • Wisconsin: barely budged at 0.3%
Milk Production Composition by Top States in 2025

That Kansas number isn’t some statistical fluke. That’s the new Hilmar cheese facility in Dodge City pulling milk like a powerful magnet. I was talking to a producer near there recently—he’s been shipping to that region for about eighteen months now—and he said the local milk market dynamics have completely changed. Premium pickups, shorter hauls, predictable demand… it’s exactly what every operation wants.

Here’s the thing, though, and this is where it gets uncomfortable for those of us in traditional dairy country. Industry investment exceeding $10 billion is flowing toward areas where operations can actually pencil out profitably. Smart money follows processing capacity, and that capacity is definitely heading south and west.

Brian Gould from UW-Madison doesn’t mince words about this trend; he pointed out that “we’re witnessing the most significant geographic restructuring of U.S. dairy production since the 1970s, but this time it’s being driven by regulatory environment and processing economics, not just feed costs.” That’s a sobering assessment from someone who’s tracked these patterns longer than most of us have been in the business.

The Market Reality Nobody Wants to Face

Now, here’s where the story gets really uncomfortable —and why those market reactions weren’t just traders having a rough day. Despite these impressive production numbers, we face some fundamental demand challenges that are unlikely to be resolved anytime soon.

Restaurant traffic still hasn’t bounced back to where we need it. When you consider that over half of America’s food dollars get spent outside the home, weak foodservice demand creates problems that more milk simply can’t solve. Major restaurant chains have been reporting declining traffic in recent quarters, and that ripple effect is felt in cheese demand faster than most people realize.

The Processing Bottleneck That’s Coming for All of Us

What really concerns me—and I’m hearing this from plant managers across multiple regions—is that some facilities are already approaching capacity limits, while others are having to implement milk dumping protocols when volumes exceed what they can handle. We’re seeing this with current production levels, not the higher volumes everyone’s projecting for the rest of .

Recent analysis from Cornell’s Program on Dairy Markets and Policy suggests this kind of regional capacity mismatch typically pressures milk prices for 18 to 24 months until infrastructure catches up or production adjusts. When analysis from sources like Cornell suggests a 75-85% probability of continued margin pressure through early 2026 based on current supply trajectories, that timeline isn’t exactly encouraging news if you’re planning expansions.

Feed Costs Keep Things Manageable… For Now

The one bright spot that’s keeping margins workable? Feed costs haven’t gone completely sideways on us. We’re seeing corn futures trading in the low-four-dollar range, and while protein feeds aren’t cheap, they’re not breaking operations either. That’s maintaining milk-to-feed ratios around 1.8, which most producers can work with.

I was just talking to a guy running 850 cows in central Wisconsin who locked corn back in May when planting conditions looked sketchy. Smart move. He’s feeling pretty good about that decision while watching grain markets bounce around this summer.

But here’s what worries me… feed cost advantages can disappear faster than a fresh cow’s peak production drops off. Weather patterns, trade disruptions, energy costs—any of these could flip the equation pretty quickly.

What This Actually Means for Your Bottom Line

Looking ahead—and this is where three decades in this business starts showing—I don’t think this greater than 3% growth rate continues much longer. The StoneX analysis confirms what most agricultural economists are projecting: we’ll moderate toward 2% growth as we face tougher year-ago comparisons and seasonal heat stress hits those expanding Plains herds.

If you’re operating in traditional dairy regions, Focus on efficiency gains over cow numbers. This geographic shift is real, and trying to counter it by simply adding more animals might not be the most effective approach. The data shows Wisconsin barely growing while Kansas explodes—that should tell you something about where competitive advantages lie.

If you’re in one of those growth regions, Be strategic about it. Just because you can expand doesn’t mean you should do so without first locking in processing agreements. When forward-looking models show a 60-70% probability of regional capacity mismatches continuing through 2026, securing those relationships becomes critical.

Regardless of where you are, Start taking component premiums seriously if you haven’t already. Those butterfat and protein numbers aren’t just statistics on your milk check—they’re becoming the difference between profit and loss. When component-adjusted production is growing at 5% while base volume grows at 3.3%, that spread represents significant financial gains.

What’s interesting about the export picture is that U.S. cheese exports have been hitting strong levels recently while European production struggles with environmental constraints. When your competitors can’t produce, opportunities definitely emerge. But counting on exports to bail us out of domestic oversupply? That’s a risky way to build a business model.

It’s essential to remember that export markets can shift more rapidly than domestic production can adjust. Building a business model that depends entirely on international demand is like farming without crop insurance—it might work until it doesn’t.

The Bottom Line: Strategic Thinking Beats Volume Every Time

If you’re making production decisions for the next 18 months, here’s what I’m telling producers: forget about filling every stall or pushing every cow to maximum output. The operations I see thriving aren’t just focused on making more milk—they’re making smarter milk.

Key strategic moves that separate successful operations:

  • Prioritize components over volume (those 2% butterfat and 1.5% protein gains matter more than total pounds)
  • Secure solid processing relationships before expanding (capacity constraints are real)
  • Diversify revenue streams (beef-on-dairy programs have become essential, not optional)
  • Build financial flexibility to weather market volatility (18-24 month margin pressure cycles are becoming the norm)

What I’ve learned over the years is that producers who understand market signals, position themselves strategically, and build operations that can adapt when conditions change—and they always do—those are the ones that remain standing when the dust settles.

This June report confirms that we have the technical ability to produce milk like never before. The real question facing our industry is whether we’ve got the wisdom to produce it profitably in a market that’s sending us some pretty clear signals about supply, demand, and where we’re headed.

Honestly? I think that’s the conversation we should be having, rather than just celebrating production records. Because right now, with component-adjusted production up 5% and markets selling off anyway, the story being told is one we might not want to hear… but we’d better start listening.

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

Learn More:

  • Unlocking Component Gold: Are You Feeding for Fat and Protein, or Just Volume? – This tactical guide moves beyond why you need higher components to how you achieve them. It offers practical feeding and management strategies for immediately boosting butterfat and protein, directly impacting your milk check and profitability.
  • The Dairy Industry’s New Math: Are You Ready For The Change? – With the main article forecasting margin pressure and geographic shifts, this piece provides the strategic financial playbook you need. It details the key performance indicators (KPIs) that top herds use to build resilience and weather market volatility.
  • Beef on Dairy: A Trend That’s Here to Stay – The main article flags beef-on-dairy as essential. This piece breaks down the economics of this strategy, revealing how to leverage terminal genetics and market knowledge to transform your calf program from a cost center into a significant revenue stream.

Join the Revolution!

Join over 30,000 successful dairy professionals who rely on Bullvine Weekly for their competitive edge. Delivered directly to your inbox each week, our exclusive industry insights help you make smarter decisions while saving precious hours every week. Never miss critical updates on milk production trends, breakthrough technologies, and profit-boosting strategies that top producers are already implementing. Subscribe now to transform your dairy operation’s efficiency and profitability—your future success is just one click away.

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