Guest Columns

Perspective:
Dairy Markets

Producers know how to make milk, but this may be biggest challenge yet

Colin Kadis

Colin Kadis is a dairy market advisor at Ever.Ag*, a brokerage firm that specializes in dairy product price risk management. He contributes this column exclusively for Cheese Market News®.

One can often pick up on the future direction of cheese markets from the market sentiment of participants at the International Dairy Foods Association’s (IDFA) Dairy Forum. A meeting of nearly every major organization in the cheese industry — and in particular, their executive officers — IDFA’s Dairy Forum comes at the beginning of the year and can set the tone for markets for the next 12 months. This year, the two big concepts expected to drive cheese markets for the year were the same topics we’ve been talking about for more than a year — incoming cheese processing capacity and whether or not we have the milk to fill the aforementioned new cheese plants.

Of the two, we can say with certainty that the new capacity is indeed built and, in many cases, is actively making saleable product, some ahead of normal schedules. It seems that we’ve gotten pretty good at plant startups, at least by previous standards. The factor that remains largely uncertain (and highly debated) is whether American dairy farmers will be able to produce enough milk to fill these new cheese plants.

One of the old sayings shared often by those with long tenure in our industry is, “Don’t bet against the American dairyman.” Dairy producers have a long history of rapidly growing milk supply in response to profitable margins both more quickly and to a larger extent than market participants often deem possible. Simply put, despite significant challenges, the American dairyman has a track record of producing more milk when it seems impossible.

Despite this history, some participants at IDFA seemed unconvinced. Could 2025 set up as an anomaly — a year where outside factors combine to inhibit milk production and support cheese prices? While history is not on their side, the question makes sense. Despite profitable margins on many dairies, cattle market fundamentals have thrown new variables into the mix.

From 2020 to 2023, severe drought throughout the United States caused thousands of beef cattle to end up in feedlots instead of out on the range producing calves. Rising feed prices, driven by similar factors, further incentivized American ranchers to reduce the domestic beef herd to its smallest inventory since 1951. As a result, cattle inventories decreased with relatively stable demand — and prices skyrocketed.

At the same time, dairy producers have a relatively new tool: sexed semen. By deliberately creating female dairy calves from their best cows, they can supply themselves with enough top-quality replacements to match cows leaving their herd. This leaves any extra pregnancies for beef semen. Beef x dairy cross calves currently sell for around $800 per calf — paid the week the calf is born — creating a clear incentive for producers to make beef cross calves, not excess dairy replacements.

Looking back, 2022 was a banner year in cheese markets, followed by extremely low prices in the beginning of 2023. With low milk prices and high beef prices, dairymen did exactly what markets told them to do: They sent high numbers of productive dairy cattle to slaughter. But, when it was time to turn on the spigot and make more milk as prices rebounded in 2024, producers struggled; milk production was negative in five of the last six quarters from today. Highly pathogenic avian influenza, which left some cows struggling to return to prior production levels and culled others, has reduced the size of our national dairy herd further.

Fast forwarding to 2025, we sit in a unique position. While many states are returning to milk production growth, indicating the possibility that new cheese plants may get the milk they need, beef prices remain high. It will be difficult for dairy producers to pass up the quick cash from a beef cross calf against the three years it takes to raise a heifer from conception to production. Without an abundance of heifers, it may be difficult to turn on the milk spigot, potentially supporting cheese prices.

That being said, dairymen have a few secrets left up their sleeve. While they’ve largely decreased cow numbers and are milking older cows to make up for the lack of younger replacements, they’ve also bumped up the component value of the milk that they sell, increasing the amount of cheese that can be made from 100 pounds of milk. In fact, average milk fat tests in 2024 were 4.22%, up 2% year-over-year from 4.10% in 2023.

Similarly, record high heifer prices seem prohibitive to growth, but some dairy producers have been willing to spend to rebuild their herds. An old maxim is that two cull cows should equal one heifer. With cull cows consistently bringing $1,900 to $2,000 and similarly good heifers around $4,000, dairy replacements may be fairly priced relative to their eventual beef value — assuming current beef prices stay constant.

While many factors will undoubtedly impact cheese prices this year, dairy producers may be able to grow herds despite high heifer prices and ship more milk components. If they do continue to grow milk production, watch out — new cheese plants running at full capacity could dampen cheese prices dramatically.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

*The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made. The information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended to be a solicitation. Past performance is not indicative of future results.

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