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December 11, 2024
Dairy updates
Milk production increases, creating opportunities for 2025.
Dairy margins have improved significantly throughout 2024. As margins have improved, national dairy cow numbers have slowly risen by more than 46,000 additional head since June and milk production has exceeded expectations. In October, U.S. milk production increased by 0.2% from the previous year, an unexpected feat given Highly Pathogenic Avian Influenza (HPAI) still limits milk production in affected herds. California, currently the hardest hit by HPAI in the fall, saw a 3.8% decrease in October milk output. Arizona also experienced significant declines of 3.6%. In contrast, Idaho saw the largest milk production increase in the West, with a 2.8% bump in October.
Milk production is expected to increase in 2025. Better margins support herd expansion trends, and consumer demand for dairy products is expected to remain strong. (Expensive meat will likely encourage people to eat more dairy-heavy cuisines.) Increases in cheese plant capacity, with an expected additional need for 19 million lbs of milk, will also support stronger prices while milk production increases. This is reflected in the All-Milk price for 2025, which is expected to average $22.85 per cwt. This is up $0.10 per cwt from the 2024 average. Price gains in 2025 are expected to come in the first half of the year, as increasing milk production weighs on prices later in the year.
USDA released their final ruling on updates to the Federal Milk Marketing Order (FMMO) on November 12. This decision includes updated make allowances (cost estimations for processing milk into dairy products), reverting to the higher of Class III and Class IV skim milk prices for Class I price calculations, and updating milk composition factors. These recommended changes will first go through a referendum. If producers vote to reject the referendum, the changes will not be made. Assuming the referendum is accepted, changes will most likely take effect in mid-2025.
Profitability
December 11, 2024
Dairy: Slightly profitable - Neutral 12-month outlook
While cheese plant capacity and strong consumer demand for dairy products support prices, global competition and potential market volatility pose headwinds to profitability. The ongoing pull of dairy and dairy-cross cattle to feedlots is slowing the expansion of dairy herds.
