Dairy markets plunge as milk floods markets. Can producers adapt to heifer shortage and avian flu impacts?
EXECUTIVE SUMMARY: U.S. dairy markets face intense pressure as milk production surges (+1% YOY to 17.73M lbs in February) while prices plummet: butter (-4¢), cheese blocks (-9¢), and barrels (-14¢) hit multi-month lows. Despite historic heifer shortages, herds expanded to 9.405M head, driven by lower cull rates. Component production booms—cream output up 12.7M lbs YOY, milk protein +3.1%—but processors struggle with oversupply. Regional disparities sharpen due to avian influenza (California down 3.8%) and growth in Texas/Idaho. Futures indicate painful near-term margins (Class III .95/cwt), but export opportunities and feed cost savings (10.1% YOY) offer lifelines. Producers must prioritize cost control, component optimization, and strategic culling to survive the squeeze.
KEY TAKEAWAYS
- Herd Expansion Defies Logic: 9.405M cows (+62k YOY) despite heifer shortage, driven by low cull rates.
- Component Wars: Butterfat surges (+12.7M lbs cream) dominate, but protein growth (+3.1%) lags behind demand.
- Regional Crisis: California production plummets (-3.8% YOY) from avian flu, while Texas/Idaho thrive.
- Futures Forecast Pain: Class III futures at $17.95/cwt threaten margins; Q4 rebound potential hinges on exports.
- Strategic Solutions: Lock in sub-$4.70 corn, target 3.5% butterfat herds, and consider culling low-performing cows.
The whey market’s 5¢ rally to 50¢/lb this week fooled nobody who’s read a milk check lately. USDA’s Dairy Market News confirms what every producer knows – demand remains “lackluster” with inventories ballooning. This dead-cat bounce comes as:
- Butter crashes 4¢ to $2.3025/lb
- Cheese blocks nosedive 9¢ to $1.6025
- Barrels implode 14¢ to $1.55 – an 11-month low[3]
“Buyers play hardball below 50¢,” says our Chicago floor contact. “With milk flows increasing, this whey rally has expiration date written all over it.”
MILK FLOODGATES OPEN AS HERD EXPANSION DEFIES LOGIC
USDA’s March shocker: 9.405 million head in February – highest since May 2023. How?
HERD GROWTH DESPITE HEIFER ARMAGEDDON
| Metric | Feb 2025 | Change YOY |
| Total Dairy Cows | 9.405M | +62k |
| Heifers 500lb+ | 3.914M | -7% (1978 low) |
| Cull Rate (Jan-Feb) | 89k below historic avg |
Producers are playing musical barns – 15k cows added in February alone. The result? 17.73M lbs February output (+1% YOY leap-adjusted) – biggest jump since 2023.
COMPONENT WARS: FAT’S WINNING, PROTEIN’S FUTURE UNCERTAIN
The real money’s in what’s IN your milk:
FEBRUARY COMPONENT SURGE
| Component | Production Increase | Equivalent Product |
| Butterfat | +12.7M lbs cream | 15.5M lbs butter |
| Protein | +3.1% YOY | 620k lbs cheese |
| Nonfat Solids | +2.3% YOY | 9.2M lbs NFDM |
“Processors are fat-hungry,” notes USDA economist Dr. Mark Svennson. “That $2.30 butter price? Still 18% above 5-year average. The fat premium’s alive.”
COAST-TO-COAST CRISIS: BIRD FLU DECIMATES WESTERN HERDS
Avian influenza isn’t just a poultry problem anymore:
STATE-LEVEL MILK PRODUCTION
| Region | YOY Change | Key Factor |
| California | -3.8% | 62% herds infected |
| Texas | +4.1% | New mega-facilities |
| Pacific NW | -2.9% | Historic basis discounts |
| Upper Midwest | +1.3% | Component focus |
“California’s looking at 5% production drop by June if culling continues,” warns Western United Dairies’ Janelle Hasser.
FUTURES FORECAST: PAIN BEFORE GAIN?
USDA’s revised projections paint a grim near-term picture:
2025 PRICE PROJECTIONS
| Metric | March Estimate | Change vs Feb | Profit Threshold |
| All-Milk Price | $21.60/cwt | -$1.00 | $22.00+ |
| Class III | $17.95/cwt | -$1.15 | $19.50 |
| Class IV | $18.80/cwt | -$0.90 | $20.00 |
| Feed Cost Savings | 10.1% YOY | Corn $4.85/bu | Soymeal $395/ton |
“Q4 could see $19.75 Class III,” says CME analyst Luke Torrison. “But getting from here to there will bankrupt marginal operators.”
THE BULLVINE BOTTOM LINE: ADAPT OR EXIT
- Cost Crunch Calculus: Lock in sub-$4.70 corn now – USDA sees 2025 feed savings offsetting 14% of milk price decline.
- Component Premium Play: 3.5% BF herds now capturing $0.47/cwt premium over 3.0% herds.
- Exit Strategy Window: Beef prices at $1.92/lb make culling profitable – 12% ROI on heifer-replacement deferral.
As one Wisconsin producer told us: “I’m feeding more haylage, culling 5% low-end cows, and praying Class IV finds its legs by June. If not? The auctioneer’s getting my Rolodex.”
LEARN MORE
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