Dive Brief:
-
Dairy and milk prices are on the rise driven by tightening domestic production and lower feed costs, according to the U.S. Department of Agriculture’s September outlook report, reversing a trend of declining margins.
-
USDA researchers recently revised their wholesale milk price estimates up 75 cents for the year to $23.05 per hundredweight, data show. The national dairy herd declined 5,000 head from last month’s forecast and total U.S. milk production fell by 400 million pounds.
-
The supply-demand equation is favorable to farmers who struggled with returns last year amid elevated feed and input costs. The farmer dairy margin was $12.33 per hundredweight in July, the highest of 2024 so far and nearly $9 higher than a year ago.
Dive Insight:
Farm margins have expanded due in part to lower feed prices for corn, alfalfa hay and soybean meal. Meanwhile, milk production totals are on track to decline through 2025, driving prices up further. According to USDA’s recent outlook, wholesale milk prices are expected to be $23.45 per hundredweight, up 70 cents from last month’s forecast.
Despite improved incentives for farmers to grow their herd sizes, the tight supply of heifers has moderated growth expectations in the first half of 2025. The national herd size next year is expected to be 9.36 million head, unchanged from last month’s forecast.
Higher prices are also set to make dairy products less competitive in domestic and international markets. According to the USDA’s latest outlook report, a decline in food service demand has been the underlying factor for reduced domestic dairy consumption as restaurants struggle with rising costs and shifts in consumer spending.
Meanwhile, U.S. grocery shoppers are spending more on milk and dairy products as the overall at-home food category softens, according to Consumer Price Index data.
Higher profits could push dairies to either expand their herds or invest more in production to capitalize on consumer trends. Over the years, farmers have adjusted their operations to expand production of organic milk and other premium products, citing sustainability and business reasons. However, rising feed and operational costs have historically outweighed returns, according to USDA data from 2005 to 2021.