Editor’s Note: This is one article in a series that is included in the 2025 Farm Journal’s State of the Dairy Industry report. The full 16-page report will appear in the May/June issues of Dairy Herd Management and Milk Business Quarterly and will be published in this space over the next several weeks. To download the full report for free click here.
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Given a lot of new cheese capacity, solid chances for improving milk production and lethargic domestic demand, we figured exports would be critical for the U.S. dairy industry in 2025. Call it ironic, call it foreboding or call it tragicomic, but that’s the road we’re on as the year unfolds.
Global Dairy Dynamics
Strong pricing in Europe and New Zealand created openings for U.S. dairy products to move out of the country without requiring significant downward price movement. Cheese exports increased by 22 million pounds in January and February, up 16%. Meanwhile, in the first quarter, CME spot block cheddar prices averaged $1.81 per pound, up 20% from the same period last year. That’s a win. The butter story has similarities. Exports increased by more than 8 million pounds in January and February, an 84% increase. CME spot prices were lower in the first quarter but not in a devastating fashion.
Prevailing price gaps favor more movement in the months ahead, with U.S. cheese and butter trading at large enough discounts to keep the purchase orders rolling.
Potential Trade War Tensions
An unfolding trade war potentially complicates things, of course. We don’t know how the story will end. Mexico is the pivotal player for cheese and nonfat dry milk. If things don’t get ugly, that will go a long way toward steadying the price boat. South Korea and Japan are also important players in the cheese arena. China looks like it’s going to be a sore spot, with major implications for the U.S. whey complex. A significant portion of U.S. whey, permeate and lactose exports move into China. If tariffs remain high, market prices could struggle, dinging other solids values in U.S. producer milk checks.
A Cautious Approach to Heifer Demand
The other big story for 2025 (and beyond) also features many moving pieces and unknowns. When will we begin to see replacement heifer availability turnaround? Beef-on-dairy breeding has become so widespread that we’ve run down dairy heifer inventories. At face value, the incentives continue to point in that direction. High beef prices and low cattle numbers keep pushing up the value for day-old dairy cross beef calves. The bird in hand, a $900 check for a day-old animal, sure seems to be more appealing than the two in the bush.
Yet, we wonder if more producers are starting to zag while everyone else is zigging? Are they backing off beef on dairy to ensure their ability to grow their own operations? Are some shifting breeding even a little, betting the potential rewards for raising dairy heifers are worth the risks?
The conversation is as fascinating as it is consequential, but it will be some time before we know if, and how much, the trend is shifting.
This is the 2025 dairy industry. Short on certainty. Long on volatility. Sharp management is more crucial than ever.
