Dairy’s Rollercoaster: Navigating 2025’s Peaks and Valleys

As February 2025 unfolds, dairy farmers face a perfect storm of challenges. With milk prices hovering around $23.05/cwt, replacement heifer numbers at a 47-year low, and H5N1 disrupting California’s production, the industry demands resilience and innovation to weather these turbulent times.

One month into 2025, dairy farmers face unprecedented market volatility that demands immediate attention. With milk prices swinging between $20.40 and $25.50 per hundredweight in recent months, replacement heifer numbers plummeting to a 47-year low, and H5N1 disrupting production across 75% of California’s dairies, the industry stands at a critical crossroads. These challenges, combined with new FDA labeling restrictions taking effect February 25th and shifting consumer preferences, create a perfect storm that requires urgent action. Understanding these market dynamics isn’t just important—it’s essential for survival in today’s dairy industry. 

Bumpy Market Ahead 

The dairy market is still hard to guess. Experts weren’t sure if milk would reach $25 per hundred pounds (cwt) in early February, as some had hoped. On January 10th, the USDA projected an average milk price of $23.05 per cwt for 2025, but they could change their minds again. Milk is more complex as growth in demand for skim-solids, nonfat dry milk, dry whey, and whey protein continues while supply becomes ever more restricted. Fluid milk sales in November 2024 have rebounded and are expected to exceed sales from 2023, marking a notable recovery not witnessed since 2009. 

What to do:  Getting advice tailored to your farm is essential. To locate agriculture extension officers who understand your farm’s needs, use USDA’s online directory or contact your state’s agriculture department. Manage risk using forward contracts or Dairy Revenue Protection (DRP) tools. No matter the price, DRP can cover up to 95% of your expected milk earnings. September 2024 had the highest DMC margin on record, at $15.57 per cwt. By the end of the year, those profit margins are expected to decrease to around $14.50. Review available financial tools and market insights through email and newsletters for more in-depth money management insights. 

While we’re selling a lot of cheese and butter, increasing our dry whey sales, and potentially seeing fluid milk come back as demand for dairy products increases, there’s less milk available. The USDA estimates that prices will increase by around 5% compared to last year. To remain competitive, such as developing artisanal cheeses or organic dairy products to differentiate themselves in the market. 

Not Enough Young Cows 

One big worry is that we don’t have enough young cows to replace the older ones. As of January 1, 2025, there were 3.91 million dairy replacement heifers in the US[4]. According to a USDA report released in February 2025, that’s down 0.9% from last year and the lowest since 1978. The trend started a decade ago with 31 heifers for every 100 cows. As of January 2025, this ratio has dropped to just 27. California dairies may be underrepresented due to disruptions caused by H5N1 and limited accessibility. 

What to Do: Acting now is essential to ensure those young cows can enter the milking string when they age. Help your cows live longer and produce more, improve the management of transition cows, and focus on what makes them healthy and good milkers. With the cost of good replacement animals so high (near $2,700), you’ll want to make each cow count. Focus on genetic traits that improve the production of milk components such as fat and protein, as you are typically paid on at the plant. Some traits to focus on include: Profitable Lifetime Index (PLI), Net Merit (NM$), Estimated Breeding Value (EBV), Expected Progeny Difference (EPD), Daughter Pregnancy Rate (DPR), Feed Conversion Efficiency (FCE), and Beta Casein Variants (A1/A2). 

Farms Moving Around, Getting Bigger 

Dairy farms are changing locations and consolidating. Looking back from late 2024, we see significant shifts. Many farms are grappling with uncertainty, both those increasing output and those decreasing. One report found that the loss in dairy farms increased by 1% since 2023 to 4.8% in 2024, but there was little change in dairy output, with the average farm generating 21,500 pounds of production. At the state level, 2024 witnessed the western region adding 78,000 more milk cows than the previous year, with California being an exception due to production factors. The East and Upper Midwest recorded a decline, collectively losing over 75,000 head year-over-year. Texas (+35,000) and Idaho (+17,000) saw the most significant increases. However, three of the top 24 milk production states fall under the ‘other states’ category and do not disclose cow and heifer numbers for proprietary reasons. 

These significant shifts affect local communities that rely on dairy. We’re seeing supply chain problems like trucking delays, rising prices for shoppers, and less money for local governments. These numbers highlight a significant shift, showing that 65% of milk production 2022 came from regions with 2,500 or more cows. It reflects stark losses when we consider the 648,000 dairy farms that existed in the 1970s and that by 2022, the number dwindled to a mere 24,470 operational farms. Smaller farms are working around this by going direct to consumers so products are fresh and don’t require as much additional transportation efforts. 

What to Do:  If you find yourself in an area where farms are retreating, it’s crucial to consider alternative strategies—smaller farms can benefit from aligning with local businesses and producing distinct products. Establishing systems to generate revenue from sustainability efforts is vital, as consumers increasingly value “sustainable dairy” offerings. 

New Rules and What They Mean 

Dairy farmers are facing some significant changes coming from Washington: 

1. Dietary Guidelines are Pushing Plants: The dietary guidelines advisory committee (DGAC) advocates for the 2025-2030 Dietary Guidelines to include more nutrient-dense meal options and prioritize plant-based protein over animal protein. Despite acknowledging the nutritional benefits of whole and 2% milk for kids and older adults, DGAC wants to maintain restrictions on higher-fat milk in schools and daycares.
2. FDA Says Whole Milk Isn’t “Healthy”: The FDA’s new classification for “healthy” foods excludes whole milk and full-fat cheese. To achieve the “healthy” label, dairy products must meet stringent low-fat, sugar, and salt criteria. The International Dairy Foods Association (IDFA) argues that these rules do not recognize dairy’s nutritional benefits.
3. Laws to Help Farmers are Stuck: Key legislation such as the Whole Milk for Healthy Kids Act and the new Farm Bill remain stalled in Congress. Although the House passed the Whole Milk for Healthy Kids Act, it has yet to clear the Senate. Progress is still anticipated through continued advocacy efforts by agriculture committee leaders.

What to do: Join advocacy groups that champion dairy farmers’ interests and lobby for balanced regulations, especially as lab-created foods become more prevalent. 

New Tech on the Farm 

Dairy farmers are leveraging technology to enhance efficiency and sustainability: 

• Robots that Milk Cows: Robotic Milking Systems (RMS) are revolutionizing the industry by allowing cows to be milked up to four times daily, reducing labor, and letting cows choose milking times. Studies indicate RMS can increase milk production by five pounds per cow daily. These systems also provide data on production and feed intake.
• Computer Programs to Manage Cows: Dairy Herd Management Software (DHMS) aids in breeding decisions and health tracking, thus improving yield and welfare. Tools like DairyComp integrate with farm systems to manage data on production, health, genetics, and more.
• Sensors that Watch the Farm: IoT sensors provide precision water and feed management monitoring, enhancing resource efficiency and herd health. These systems monitor cattle 24/7 and alert farmers to issues like lameness or calving difficulties.

Taking Care of the Earth 

Canadian dairy farmers are leading the way with sustainable practices, including renewable energy adoption, as part of the industry’s commitment to reaching net-zero emissions by 2050.

Dairy farmers need to take care of the earth and conserve resources now more than ever:

• Save Water: Due to increasing scarcity and cost of water, particularly in the West, farmers are exploring methods to reduce usage. Recycled water systems can treat wastewater from cleaning and cooling so it can be used again for irrigation or flushing. Also, growing drought-resistant crops like particular alfalfa or alternative forages can help.
• Cut Down on Pollution: The dairy industry has a goal to reach net-zero greenhouse gas emissions by 2050, and farmers can take steps to help. Manure digesters, which capture methane from manure and turn it into energy, are becoming more popular. Other options include precision feeding, improving nitrogen use efficiency, and reduced tillage farming.
• Follow the Rules: Dairy farms must follow state and federal rules about water quality, air emissions, and manure management. For instance, in Wisconsin, farmers are striving to comply with the state’s nitrogen reduction strategy, which targets the reduction of phosphorus runoff. Know what is required for your farm and then adjust manure management practices to meet regulatory standards.

New Ways to Make Money 

Dairy farmers are finding new ways to increase their income and stay competitive in the changing market:

• High-Protein Products: There’s a growing demand for dairy products with extra protein, from athletes to people just trying to eat healthier. By the end of 2025, the high-protein industry is expected to increase by 9.3% to be a 5-billion-dollar industry. You can make milk and yogurt with more protein by adding whey protein or using special processing techniques. Market these products to health-conscious consumers with attractive labels indicating protein content. The milk beverage market is projected to increase from 385.8 billion in 2024 to 493 billion by 2029.
• Organic and Special Products: More and more people want organic and sustainable foods. You can switch to organic farming practices or focus on niche markets like A2 milk, which is easier for some people to digest, to get better product prices. Organic milk is projected to increase by 5.28% by 2033. Promote these products with labels highlighting their unique qualities and benefits, and look for local and community opportunities to improve your sales volume.
• Farm Tours: Agritourism isn’t just fun; it creates a relationship with the community while you host special events and educate and promote your operations to visitors. You can offer tours, hayrides, pumpkin patches, corn mazes, or farm-to-table dinners. These operations also create opportunities for sponsored content campaigns.

Finding Workers 

It’s hard to find good workers, and dairy farmers are working hard to overcome this gap for both the short and long term, as you can’t milk cows without people: 

• H-2A Visa Program: This program lets farmers temporarily hire workers legally from other countries. It involves a lot of paperwork and has specific rules about wages and housing, but it can be a reliable way to find help. To utilize this program correctly, you must work alongside legal experts, immigration attorneys, and local law enforcement. If workers are coming from Mexico, there are concerns about their families being affected by organized crime.
• Automation: Investing in robots and other machines can help reduce the need for manual labor and lower labor costs over time. While technology and automation can help generate more income and sustainable business practices in the interim, there is concern among the farming community about the long-term impact.
• Treat Workers Well: The best way to keep good workers is to treat them well with the labor practices used at your organization. Offer competitive pay, health insurance, housing, and training opportunities. Also, create a positive work environment where employees feel valued and respected, which can help keep your farm running smoothly. Staying aware of how the younger generation works and treats relationships is essential.

What Shoppers Want 

It’s important to know what shoppers are looking for in 2025 because they have more choices than ever: 

• Tell Them You’re Sustainable: More than ever, consumers are making shopping choices that combine health and sustainability. They want to support farms that are taking care of the earth. By integrating climate-forward messaging, dairy producers can build stronger consumer trust and loyalty and are more likely to purchase dairy products. You can emphasize your dedication to protecting the environment by highlighting practices like water conservation, reduced emissions, and responsible land management. Farmers can also use third-party resources like Certified Humane to achieve marketing recognition. Around 55% of consumers are more likely to buy from dairy farms that promote environmental sustainability.
• Use Social Media: Social media for your marketing campaigns is essential in 2025. Many young consumers use social media more than ever and are likelier to trust what influencers say about your practices. Share stories about your farm, introduce your cows, and show how you make your products on platforms like Facebook and Instagram. Also, focus on video content, which is more engaging for younger audiences. By utilizing digital marketing strategies, dairy farmers can potentially increase social media engagement by up to 40%.
• Team Up with Local Businesses: Collaborating with local restaurants, cheese makers, and stores can help you reach new customers and build community support. Team up with local chefs and food retailers to promote your dairy products in the community. New for 2025 is participation with local communities in implementing the Free Nutritious Meal Program (MBG), implemented by the government and officially started on January 6, 2025. The MBG program relies on local production in each region as raw materials for food processed into food menus, providing a key opportunity for sustainable revenue and increased visibility in the community.

Bird Flu 

Bird flu has been a new and challenging problem for dairy farmers, especially in California. While the numbers of infected herds have declined in recent months, the impacts of H5N1 can range from mild to substantial. The USDA has confirmed two different genotypes in 2025, D1.1 and B3.13, which require different solutions and management strategies. If a herd is exposed to the virus, it might see a 30-40% milk loss that can take 6-8 weeks to recover. Since October 2024, the California Department of Food and Agriculture (CDFA) has confirmed H5N1 bird flu on over 55 dairies. However, this number had previously been as high as 708, or nearly 75%, of the state’s dairies. 

What to Do: Be proactive: 

• Limit Visitors to only essential personnel.
• Have Employees Wear dedicated clothing and footwear and frequently wash their hands.
• Clean and Disinfect high-risk areas regularly, such as milking parlors, calving pens, and equipment.
• Test Lactating Cattle: The USDA requires testing lactating cattle before moving across state lines, and they recommend isolating new cattle.
• Isolate Sick Cows: If cows show symptoms like decreased milk production, fever, or thick milk, separate them from the rest of the herd.
• Keep Different Species Separate: Keep poultry away from your dairy cattle to help reduce the risk of transmitting the virus to your herd.
• Practice Good Biosecurity Measures as outlined by federal and state-specific guidance, and implement CDC-recommended biosecurity practices.

Trading with Other Countries 

We’re buying and selling dairy products worldwide, but things could change if we start having trade disputes with other countries. 

Trade Imbalance and Rising Imports: While the U.S. typically exports more dairy products than it imports, these numbers have shifted to require increased trade with other countries. The U.S. imported more cheese, butterfat, and whole milk powder during the first 11 months of 2024 than the year before. In January 2025, some analysts suggest there might be a trade war, with tariffs and counter-tariffs leading to significant trade disruption and volatility within the market. 

Canada: A 25% tax on dairy products crossing the U.S.-Canada border began on February 1, 2025. Canada quickly imposed a 25% tax on almost $40 billion of U.S. goods imported, with a final response expected this month. These new taxes and policies could halt exports. On the other hand, U.S. dairy prices are mostly lagging global prices, and there is potential for increased milk production, which could enhance dairy demand. 

What to Do: Now, you’ll need to pay even closer attention to the changing prices, watch what other countries are doing, and advocate for policies that support fair trade. 

The Bottom Line

The dairy industry stands at a pivotal moment as we move through 2025. With replacement heifer numbers at a 47-year low of 3.91 million head and milk prices projected at $23.05 per hundredweight, the industry faces both challenges and opportunities. The geographic redistribution of dairy operations, marked by the West adding 78,000 cows while the East lost 75,000, signals a fundamental shift in production patterns.

Production Planning
The current 27:100 heifer-to-cow ratio, down from 31:100 a decade ago, demands immediate attention to herd replacement strategies. With average replacement costs reaching $2,650 per head, producers must carefully weigh their expansion plans against limited heifer availability.

The emergence of high-protein dairy products and specialty markets offers new revenue streams for innovative producers. Rather than competing solely on volume, successful operations must focus on component yields and targeted market opportunities.
Risk Management
With H5N1 impacts still reverberating through California’s dairy industry and uncertain trade conditions, producers must implement robust biosecurity measures and diversify their market exposure.

The path forward requires a balanced approach: maintaining production efficiency while adapting to market demands and managing risk. Success in 2025’s dairy landscape will belong to those who can effectively navigate these challenges while capitalizing on emerging opportunities in specialty markets and value-added products.

Key Takeaways:

• USDA projects 2025 milk production at 227.2 billion pounds, down 0.8 billion pounds from earlier forecasts, with an estimated all-milk price of $23.05 per hundredweight.
• Dairy replacement heifer numbers have hit a 47-year low, with only 3.91 million head as of January 2025, down 0.9% from 2024, signaling potential future production constraints.
• Geographic shifts show the West adding 78,000 milk cows in 2024, while the East and Upper Midwest lost over 75,000 heads collectively, with Texas (+35,000) and Idaho (+17,000) seeing the most significant gains.
• H5N1 bird flu has significantly impacted the dairy industry, with two different genotypes (D1.1 and B3.13) now confirmed in U.S. dairy cattle, affecting milk production and requiring enhanced biosecurity measures.
• The average auction value of ‘average’ milking cows has increased by nearly $800 per head to $2,650 for 2024 versus $1,890 for 2023, reflecting tight supplies.
• Labor shortages continue to challenge the industry, with farms increasingly turning to H-2A visa programs and automation solutions while facing concerns about long-term impacts.
• New FDA “healthy” labeling rules exclude whole milk and full-fat dairy products, while the 2025-30 Dietary Guidelines Advisory Committee continues to push plant-based alternatives.
• Global dairy trade faces uncertainty with new tariffs, including a 25% tax on U.S.-Canada dairy trade beginning February 1, 2025.
• Consumer demand is shifting toward high-protein dairy products, with the segment expected to grow 9.3% in 2025, creating new market opportunities.
• Environmental regulations and sustainability initiatives are becoming increasingly important, with the industry working toward net-zero greenhouse gas emissions by 2050.

Summary:

The dairy industry 2025 faces several challenges, including fluctuating milk prices, lower numbers of young cows, and changes in where cows are raised. A new flu outbreak affected many farms in California, and trade issues with Canada are hurting U.S. exports. Despite these problems, farmers can find opportunities by using the latest technologies, focusing on sustainable practices, and expanding into high-protein and specialty dairy products. To succeed, dairy farmers must adapt to these changes by improving their operations and seeking support from local businesses and policy advocates.

Learn more:

• Mid-Year 2024 Global Dairy Business Review: Key Developments from January to June
• Dairy Executives’ Top Priorities: Sustainability Climbs Up, Talent Development Takes the Lead
• 7 Game-Changing Strategies to Skyrocket Customer Engagement When Marketing to Dairy Farmers

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