U.S. milk production edges up 0.1% despite HPAI headwinds as Texas & Idaho surge 6%+, But California struggles (-5.7%) amid outbreaks. Canada tariffs PAUSED until March 4—exporters pivot to Asia. Butter defies glut, up 3.75¢. 

Summary:

The U.S. dairy sector demonstrated resilience in February 2025, with milk production edging up 0.1% year-over-year to 19.1 billion pounds, driven by a 41,000-head herd expansion and robust growth in Texas (+6.5%) and Idaho (+6.4%). California’s output, however, fell 5.7% due to persistent HPAI outbreaks affecting 747 herds. Global markets saw mixed trends, with Argentina and New Zealand posting substantial early-year gains, while the Global Dairy Trade Index dipped 0.6% amid sluggish demand for skim milk powder and cheese. A temporary pause in U.S.-Canada tariffs until March 4 provided exporters breathing room, though uncertainty loomed as prices fluctuated—butter rose 3.75¢ to $2.415/lb despite oversupply, while cheese and nonfat dry milk declined. Labor costs, environmental regulations, and trade tensions with Mexico remain key challenges, but strategic shifts toward automation, biosecurity, and Southeast Asian markets aim to bolster sector stability. Stakeholders are advised to hedge margins and diversify exports to navigate 2025’s volatility.

Key Takeaways:

• U.S. Production Growth: In January 2025, milk output rose 0.1% YoY to 19.1B lbs, driven by Texas (+6.5%) and Idaho (+6.4%) herd expansions. California lagged (-5.7%) due to HPAI outbreaks (747 herds affected).
• Global Trends Mixed: Argentina (+5.6%) and New Zealand (+5% milk solids) surged, but the GDT Index fell 0.6% due to weak skim milk powder (-2.5%) and cheese demand.
• Tariff Pause Relief: The 25% U.S.-Canada dairy tariffs were paused until March 4, and 18% of exports were rerouted to Asia. Mexico threatened retaliation on $1.13B in cheese imports.
• Commodity Volatility: Butter rose 3.75¢ to $2.415/lb despite oversupply; cheese blocks fell to $1.90/lb. NDM slumped to $1.24/lb (-4¢).
• HPAI Strains Circulating: Two variants (B3.13 and D1.1) impact herds; 40% recover within 60 days.
• Cost Pressures Mount: Labor costs up 6.2% YoY; California’s methane rules push digester adoption.
• Strategic Shifts: Redirect exports to Southeast Asia (+9% demand); hedge 40–60% of Q2 milk via futures.

The U.S. dairy sector is showing tentative signs of recovery, with January 2025 milk production rising 0.1% year-over-year to 19.1 billion pounds despite ongoing challenges from avian influenza (HPAI) and trade disputes. Regional disparities remain stark: Texas and Idaho saw output surge over 6%, while California’s production slumped 5.7% due to HPAI outbreaks. Meanwhile, a temporary pause in U.S.-Canada dairy tariffs offers breathing room for exporters, though uncertainty looms ahead of a March 4 negotiation deadline.

U.S. Production: Growth Amidst Regional Disparities

The USDA’s latest Milk Production Report reveals a dairy herd of 9.365 million head in January 2025, up 41,000 cows year-over-year. Texas led the expansion, adding 40,000 cows to drive a 6.5% production jump, while Idaho’s output grew 6.4%. However, California’s struggles persist, with 747 herds affected by HPAI (Highly Pathogenic Avian Influenza) and production down 5.7% year-over-year.

Dr. Lucas Fuess, RaboResearch Dairy Analyst: “Producers are walking a tightrope—expanding herds where possible while managing HPAI risks. Texas and Idaho’s growth is impressive, but California’s woes remind us how quickly disease can destabilize regional markets.”

Milk per cow dipped slightly to 2,054 pounds in January (-0.4% YoY), though higher butterfat and protein levels partially offset volume declines. Component-driven processing remains critical as cheese and butter manufacturers adapt to shifting milk composition.

Source: USDA Milk Production Report (Feb 21, 2025)

Global Markets: Stagnant Supply, Strategic Stockpiling

Global milk production among major exporters was virtually flat in 2024 (-0.1%), but early 2025 data hints at recovery. Argentina’s output rose 5.6% in January, while New Zealand milk solids climbed 5% year-over-year. However, the Global Dairy Trade (GDT) Price Index fell 0.6% this week, with skim milk powder (-2.5%) and cheese prices leading declines.

Key Trade Developments:

• U.S.-Canada Tariff Pause: The 25% retaliatory tariffs on $1.2B in annual dairy trade are suspended until March 4, 2025. During the pause, U.S. exporters rerouted 18% of Canada-bound shipments to Southeast Asia and the Middle East.
• Mexico’s Warning: If the Canada dispute escalates, Mexico threatens retaliatory tariffs on $1.13B in U.S. cheese imports.

Michael Dykes, IDFA President: “This tariff pause gives both nations time to realign priorities. But long-term solutions are needed—dairy can’t thrive under constant trade whiplash.”

Sources: Allied Market Research (2023), Mordor Intelligence (2025), SNS Insider (2022)

Commodity Markets: Butter Bucks Bearish Trend

CME Spot Prices (February 21, 2025):

• Butter: $2.415/lb (+3.75¢ WoW) on short-covering, though cream multiples remain low (1.03–1.30× Class IV).
• Cheese: Blocks fell 2¢ to $1.90/lb; barrels dropped 1.75¢ to $1.80/lb.
• NDM: $1.24/lb (-4¢ WoW) amid sluggish export demand.

U.S. butterfat remains oversupplied due to intense component levels and seasonal inventory builds. However, new American-style cheese plants (slated to open in Q2) could absorb excess fat.

HPAI: Two Strains, Uneven Recovery

The CDC confirms two HPAI strains circulating in U.S. herds: B3.13 (dominant in 2023–2024) and D1.1 (first detected in Nevada). California remains the hardest-hit state, with 297 herds recovered and 450 still under quarantine.

Impact on Production:

• Infected cows experience 10–20% milk loss for 2–3 weeks.
• 40% of affected herds resume expected output within 60 days.

Dr. Amy Swinford, Texas A&M Veterinary Lab: “D1.1 appears more virulent but less transmissible. Biosecurity upgrades—like foot baths and rodent control—are reducing spread in proactive herds.”

Labor and Regulation: Cost Pressures Mount

• Labor Costs: Up 6.2% YoY, driving robotics adoption (35% of large farms now use automated milkers).
• California’s SB 1383 requires dairies to cut methane emissions by 40% by 2030, spurring digester installations.

Paul Bleiberg, NMPF SVP: “Between labor shortages and environmental rules, producers need policy stability—not new hurdles.”

Consumer Trends: Retail Resilience, Export Risks

• Domestic Demand: Cheese sales rose 1.8% YoY; organic dairy grew 4%.
• Exports: Mexico, South Korea, and Japan bought 60% of U.S. cheese exports in 2024.

However, Southeast Asia has emerged as a lifeline, absorbing 22% of diverted U.S. dairy shipments since January.

Strategic Outlook: Agility Required

Recommendations for Stakeholders:

1. Producers: Hedge 40–60% of Q2 milk via futures; prioritize biosecurity.
2. Processors: Target Vietnam (+9% dairy demand) and Saudi Arabia.
3. Exporters: Use CPTPP terms to access Japan’s skim milk powder market.

March 4 isn’t just a tariff deadline—it’s a litmus test for North American trade relations. In 2025, agility will separate winners from strugglers.

Learn more:

• CME Dairy Market Report February 13, 2025: Mixed Signals Amid Global Shifts
• Global Dairy Market Dynamics: Navigating Volatility and Strategic Opportunities in 2025
• Global Weekly Dairy Market Recap 17, 2025: Production Surges, Trade Tensions, and Consumer Shifts

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