Dairy prices crash, but farmers aren’t culling—what’s keeping supply inflated?
EXECUTIVE SUMMARY: Here’s what we discovered: butter prices plunged 40% to $1.86 per pound, and milk futures hit historic lows, but dairy farmers are sticking with their herds. The culprit? Beef-on-dairy calf prices are hitting $1,600 in auctions, cushioning losses and disrupting traditional supply pressures. U.S. milk production surged 3.5% through July, mirrored by growth in the EU and New Zealand, creating a global surplus that dwarfs export gains. Scientific data and USDA reports reveal this simultaneous production boom is unprecedented in recent history, baffling markets and dragging down prices. This broken feedback loop means prices may remain depressed for longer, forcing farmers to reassess their risk and herd management strategies. Independent producers need to understand these dynamics now to adapt and survive—waiting for a market correction could mean bleeding margins for months.
KEY TAKEAWAYS:
- Farmers can buffer revenue losses with beef-on-dairy calves selling between $900-$1,600, easing pressure from falling milk prices.
- Lock in futures contracts near $17-$17.50 for risk protection amid volatile price trends.
- Focus on maximizing butterfat and protein components as premium payments shift away from volume in 2025.
- Recognize that global simultaneous milk supply growth from the U.S., EU, and New Zealand is unprecedented and pressuring prices lower.
- Monitor beef market shifts closely, as calf price drops will trigger the necessary herd contraction for market balance.
Look, I’ve been tracking dairy fundamentals long enough to recognize when something’s fundamentally shifted. September 15 brought us CME butter at $1.86 per pound—lowest since October 2021—yet half the producers I’m talking to aren’t in crisis mode. Here’s the uncomfortable truth nobody’s discussing: this market’s traditional feedback mechanisms are completely broken.
When the Numbers Tell a Different Story
The headline numbers are brutal, no question. CME spot butter crashed to $1.86 per pound on September 15, down more than 40% from mid-summer highs and hitting levels we haven’t seen in nearly four years. Class III futures dropped to life-of-contract lows at $16.31 per hundredweight, with Class IV even uglier at $15.90.
But here’s what’s got me scratching my head… walking through farm offices across Pennsylvania and upstate New York last week, the conversations weren’t what you’d expect. Sure, everyone’s feeling the milk price pain, but there’s this underlying confidence that wasn’t there in previous downturns.
The reason? Beef-on-dairy has become a game-changer nobody fully anticipated.
The Calf Market That’s Rewriting Farm Economics
At recent Premier and Empire auctions across Pennsylvania and New York, beef-on-dairy crossbred calves are routinely commanding $900 to $1,600 per head. That’s not hyperbole—Empire Livestock’s September reports show “Beef Type Calves” trading between $8.00-$17.50 per pound, which translates to these per-head values for 100-120 pound calves.
One producer near Lancaster told me his September calf sales covered three months of feed bills. When your day-old crossbred is worth more than most people’s monthly mortgage payment, it changes how you think about culling decisions entirely.
This isn’t just Northeast pricing either. Similar premiums are showing up across the Midwest wherever beef-on-dairy genetics are being marketed through organized sales.
Global Supply Dynamics: Everyone’s Producing More
What makes this situation particularly concerning is the production data coming out of all major dairy regions. U.S. milk production surged 3.5% in July compared to the same month last year, building on the 3.4% increase we saw in June. USDA raised their 2025 production forecast to 228.3 billion pounds, citing increased cow inventories and higher milk per cow yields.
The growth isn’t evenly distributed, though—it’s concentrated in regions like Kansas, Texas, and South Dakota where new processing capacity has come online. Industry reports suggest this additional processing infrastructure may be encouraging regional herd expansion, though formal analysis of this relationship is still pending.
New Zealand posted similarly strong numbers, with milk solids climbing 2.2% in July. Fonterra’s reporting record production for the third consecutive month, driven by favorable weather conditions and strategic supplemental feeding programs, including increased palm kernel imports.
The European situation is more complex. While some regions show growth, overall EU production for January-July 2025 was actually down 0.3% compared to 2024, with significant regional variation due to disease outbreaks in France and weather impacts across different member states. The UK bucked this trend with a stronger performance, but the continental picture remains mixed.
According to USDA data, this represents significant simultaneous growth across major dairy regions—a pattern that’s putting unprecedented pressure on global absorption capacity.
Export Numbers Hide the Real Problem
The export headlines sound encouraging at first glance. U.S. dairy exports jumped 7.1% in July, with butter exports soaring 206% year-over-year. USDEC confirms cheese reached 52,105 MT, up 29% and setting new monthly records driven by demand from Central America, the Caribbean, South Korea, and Japan.
But here’s the thing that’s got me concerned… much of this “growth” is being bought with margin destruction. We’re offering aggressive discounts to move oversupplied product faster than domestic markets can absorb it. Meanwhile, nonfat dry milk and skim powder exports collapsed 16% as we’re getting priced out by European and New Zealand competitors.
At the Global Dairy Trade auctions, European supplier Arla was moving SMP at prices equivalent to $2,575, down 4.8% from previous sessions and undercutting U.S. offerings significantly.
The Feed Cost Buffer
USDA’s September crop report projects 16.8 billion bushels of corn production for 2025—one of the largest harvests on record. This abundance is keeping feed costs historically low, providing producers with a critical buffer that’s preventing the usual financial pressure that forces herd reductions.
What’s interesting is how this interacts with the beef-on-dairy phenomenon. Cheap feed means lower breakeven costs, while premium calf values provide additional revenue streams. Together, they’re eliminating the economic incentives that typically force supply contraction during price downturns.
Why Traditional Market Cycles Are Broken
Here’s where it gets really concerning from a market structure perspective… The traditional dairy cycle relied on economic pressure forcing tough culling decisions when milk prices dropped. But when beef-on-dairy calves are worth $1,200-$1,600 per head, producers can actually profit from keeping cows that aren’t covering their milk production costs.
This creates a perverse incentive structure where low milk prices don’t trigger the supply response the market needs. Instead of reducing cow numbers, producers are maintaining or even expanding herds because the beef side of the equation is so profitable.
It’s a fundamental break from historical market dynamics, and honestly… I’m not sure how long it can persist without causing more serious structural problems.
Regional Variations and Seasonal Impacts
The impact isn’t uniform across all production regions. Midwest operations with strong relationships to beef buyers are weathering this much better than single-buyer situations in more isolated areas. Fresh cow markets in Pennsylvania and New York are showing more resilience than I’d expected, partly due to the proximity to premium auction facilities.
Seasonal factors are also playing a role. The September-October calving peak means higher volumes of crossbred calves hitting premium markets just as beef prices remain elevated. This timing is providing crucial cash flow support during what would normally be a financially stressful period for many operations.
What Smart Operators Are Doing Now
The producers who are positioning themselves best in this environment aren’t waiting for “normal” markets to return. December Class III futures near $17.00-$17.50 might be your last reasonable hedge opportunity before this situation potentially gets worse.
Component focus has become absolutely critical. Milk buyers are increasingly paying for butterfat and protein content rather than volume, and the producers who’ve optimized their component production are seeing significantly better returns than those still focused on total pounds.
Whey protein concentrate demand remains strong despite the broader commodity weakness, which suggests there are still opportunities in value-added products for operations positioned to capture them.
The Uncomfortable Truth About Market Timing
Look, what we’re seeing here—this combination of crashing milk prices alongside sustained farm profitability—isn’t a temporary market quirk. It’s a structural shift that could persist for months or even years until external factors finally force the supply contraction this market desperately needs.
The moment beef-on-dairy calf prices start sliding back toward historical norms, that’s when you’ll see the real market correction begin. But until then? We’re in uncharted territory where traditional market analysis doesn’t provide the usual roadmap.
The operations that thrive through this period will be the ones that adapt their business models now, rather than waiting for markets to return to patterns that may not exist anymore.
Complete references and supporting documentation are available upon request by contacting the editorial team at editor@thebullvine.com.
Learn More:
- US Dairy Market in 2025: Butterfat Boom & Price Volatility – How Farmers Can Protect Profits – This strategic article provides a market overview and a clear “checklist for survival,” with tactical steps for hedging against price volatility, optimizing your herd’s components, and locking in lower feed costs. It offers actionable strategies to protect your bottom line in a challenging year.
- Discover How Beef-on-Dairy Could Skyrocket Your Farm’s Profits – This piece delves into the innovative and financial aspects of beef-on-dairy genetics. It explains how this strategy generates new revenue streams and provides essential business diversification, detailing the benefits of hybrid vigor and market premiums that are fundamentally reshaping farm economics.
- The Butter Revolution That’s Rewriting Dairy Economics: Why Smart Farmers Are Laughing All the Way to the Bank – Read this article to understand the tactical shift toward component pricing. It highlights how optimizing for higher butterfat and protein content can significantly boost your revenue, providing a critical perspective on how producers can thrive by adapting to new payment systems.
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