After California’s dairy industry battled devastating HPAI outbreaks affecting nearly 70% of the state’s farms, new data shows infection rates declining significantly. The Bullvine examines what the recovery pattern means for your operation and why market impacts defied expectations.

EXECUTIVE SUMMARY:

The dairy industry is turning the corner on HPAI impacts, with infection rates slowing significantly after affecting approximately 650 herds (70% of California’s dairy farms). Historical patterns from Colorado and other states suggest production typically recovers within three months of peak infection, with milk per cow output returning to growth. Despite production challenges that dropped California’s output to a 20-year low and resulted in approximately $400 million in lost revenue, market impacts proved counterintuitive. January 2025 data shows overall U.S. milk production increased slightly (0.1%), with component-adjusted output up 2.2%, despite California’s 5.7% decline. Farmgate milk prices have stabilized at $21.75/cwt while the national dairy herd unexpectedly expanded by 10,000 head, suggesting the industry is entering a recovery phase despite ongoing challenges.

KEY TAKEAWAYS:

• California’s HPAI outbreak affected nearly 650 herds (70% of the state’s dairy farms) since August 2024
• November 2024 production fell 9.2% to 2.957 billion pounds, a 20-year low for California
• Production typically recovers within three months of peak infection, based on Colorado’s experience
• January 2025 data shows U.S. production up 0.1% overall, with California still down 5.7%
• Enhanced biosecurity measures, including heat-treating milk for calves, remain essential

The dairy industry is turning the corner on what veterinary experts call the most significant disease challenge in a generation. After HPAI decimated California production, sending November milk flows plummeting by 301 million pounds (-9.2%), we finally see concrete evidence that the viral storm is subsiding. Recent USDA data shows new infection cases dropping dramatically while production metrics gradually improve, offering a lifeline to producers who’ve weathered this unprecedented challenge.

BREAKING DOWN THE RECOVERY NUMBERS

The dramatic decline in new HPAI cases reported in recent months signals a potential turning point in the outbreak. While California initially recorded 105 confirmed cases just two months into its outbreak—with rumors of another 400 suspected cases that could be confirmed—the infection rate has significantly slowed. According to recent figures, approximately 650 herds (nearly 70% of California’s dairies) have been affected by the virus since August 2024.

This pattern mirrors what occurred in Colorado, where 59% of dairy farms were infected over the summer of 2024. The Colorado experience provides valuable insight into the recovery trajectory: milk production per cow was down 2.7% year-over-year in June, improved slightly to a 2.3% decline in July, and showed further improvement to just a 1% reduction in August before returning to growth. This consistent pattern suggests that affected states typically recover production capacity within approximately three months after peak infection rates.

California’s significance to national dairy production cannot be overstated. In 2023, California produced 18.1% of U.S. milk, 17.5% of cheese, 32.2% of butter, and approximately 50% of combined nonfat dry milk (NFDM) and skim milk powder (SMP). When production in California falters, the ripple effects are felt throughout the national supply chain.

Table 1: January 2025 Milk Production Year-Over-Year Changes

WHY MILK PRICES DEFIED PRODUCER EXPECTATIONS

One of the most surprising aspects of the HPAI outbreak has been its complex and sometimes counterintuitive impact on dairy markets. Despite widespread expectations that reduced milk output would drive prices higher, the reality proved more nuanced.

Butter prices reached their lowest level since January 2024 during what should have been peak demand season. This unexpected market behavior stemmed from surprisingly strong butter production, which ran ahead of the previous year every month in 2024, with August showing a remarkable 14.5% increase. This production strength suggests processors could adapt quickly, even as farm-level milk production faced challenges.

Cheese markets presented a different puzzle. Despite stocks turning out lower than expected and dropping 6.4% year-over-year in August 2024, cheese prices showed unexpected weakness. Without additional data, analysts have attributed this to potentially softening demand rather than supply constraints.

Nonfat dry milk (NFDM) markets have responded most logically to California’s production challenges. With California producing approximately half of the country’s NFDM and SMP, this product category was most vulnerable to disruption. The CME spot NFDM price has maintained support around $1.35 despite global SMP prices being 5-10 cents cheaper per pound, suggesting the California production situation has supported NFDM values.

Table 2: HPAI Economic Impact in California

REWRITING THE PRODUCTION PLAYBOOK FOR 2025

In its February report, the USDA reduced its 2025 milk production forecast to 226.9 billion pounds, a decrease of 400 million pounds from previous estimates. This adjustment was based on recent Milk Production and Cattle Inventory Reports that revealed a tighter supply of dairy heifers than expected. The World Agricultural Outlook Board indicates mixed price movement across dairy products, with cheese prices increasing slightly ($0.02 per pound) while butter decreased ($0.05 per pound), nonfat dry milk dropped ($0.04 per pound), and dry whey reduced ($0.03 per pound).

The pricing outlook reflects these dynamic market conditions, with farmgate milk prices stabilizing at $21.75 per hundredweight. Some price adjustments can be attributed to changes in the Federal Milk Marketing Order, particularly for class prices, which are calculated differently under the new system.

Table 3: U.S. Dairy Industry Current Indicators (January-February 2025)

TRANSFORMING FARM PROTOCOLS: BIOSECURITY BECOMES NON-NEGOTIABLE

The HPAI experience has fundamentally transformed biosecurity practices across the dairy industry. The Maryland Department of Agriculture’s December guidance offers a template that forward-thinking producers nationwide are adopting. These enhanced measures include restricting access to livestock areas with proper signage and secured gates, implementing rigorous sanitation protocols, and limiting exposure between species.

The management of milk diverted from commercial channels is critical. The FDA strongly recommends that any milk used for feeding calves be heat-treated to kill potential pathogens. Once considered optional in many operations, this practice is increasingly considered an essential standard operating procedure during and after the HPAI outbreak.

The USDA’s comprehensive National Milk Testing Strategy (NMTS) represents another significant shift in industry practice. This structured testing system aims to identify affected states and herds, enhance biosecurity measures, prevent transmission, and protect the dairy workforce from exposure. The program has a five-stage implementation approach, beginning with nationwide testing of milk silos at processing facilities and progressing through increasingly targeted surveillance as infection rates decline.

DEBUNKING MARKET MYTHS: WHY BUTTER PRICES FELL DESPITE PRODUCTION DROPS

Many producers expected the HPAI outbreak to drive milk prices dramatically higher as California’s production declined. However, the reality proved more complex and offers essential lessons in market dynamics.

The butter market performance perfectly illustrates this disconnection between expectations and outcomes. Despite production challenges at the farm level, butter manufacturing ran counter to expectations, with output exceeding previous year levels every month in 2024. August’s remarkable 14.5% year-over-year increase in butter production demonstrates how quickly processing capacity can shift to compensate for regional production disruptions.

This adaptability explains why butter prices hit their lowest level since January during what traditionally would be the tightest market period of the year. The processing sector’s resilience effectively neutralized what could have been significant price inflation, reminding producers that production challenges don’t automatically translate to higher prices in modern dairy markets.

SECURING CONSUMER CONFIDENCE: SAFETY MESSAGING THAT RESONATES

Throughout the HPAI outbreak, federal agencies have consistently emphasized that the commercial milk supply remains safe for consumption. Pasteurization effectively inactivates the virus, and milk from affected animals has been diverted or destroyed to prevent entry into the human food supply.

Following virus detection, the FDA’s December 2024 recall of raw whole milk and cream from a California dairy reinforces the inherent risks of unpasteurized products. While causing no reported illnesses, this incident is a powerful reminder of pasteurization’s critical role in food safety.

Beyond milk, the USDA’s Food Safety and Inspection Service has extensively tested meat products, including ground beef samples from states with confirmed-positive dairy cattle herds. All samples tested adverse using polymerase chain reaction (PCR) methods, confirming that the meat supply remains unaffected by the outbreak.

FORGING AHEAD: LESSONS LEARNED BECOME TOMORROW’S STRENGTHS

The dairy industry’s resilience in managing the HPAI outbreak is remarkable. From processing adaptability to enhanced biosecurity protocols, stakeholders across the supply chain have implemented effective countermeasures against a novel threat.

While the outbreak caused significant disruption, particularly in California, where nearly 70% of the state’s dairy farms were affected, the recovery pattern established in other states suggests that production typically returns to growth within approximately three months of peak infection. This relatively swift recovery timeline offers encouragement for affected producers still working through the challenges.

The USDA’s February forecast adjustment reflects current realities and cautious optimism. Pricing is expected to remain stable despite production adjustments. As the industry continues to implement the comprehensive National Milk Testing Strategy and strengthened biosecurity protocols, dairy producers can approach the remainder of 2025 with greater confidence in their ability to manage disease challenges while maintaining operational continuity.

LEARN MORE:

• Dairy Biosecurity Best Practices: Lessons from the HPAI Crisis
• Rebuilding Dairy Production After Disease Challenges
• USDA Outlook Forum: Complete Dairy Market Projections for 2025-2026

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