The trend of declining margins for U.S. dairy farmers is seeing a positive shift as rising dairy and milk prices begin to reverse years of diminishing producer profits. According to the U.S. Department of Agriculture (USDA) in its September outlook report, this turnaround is attributed to decreased production levels and falling costs for essential animal feed, including maize, lucerne hay, and soybean meal.
The trend of declining margins for U.S. dairy farmers is seeing a positive shift as rising dairy and milk prices begin to reverse years of diminishing producer profits. According to the U.S. Department of Agriculture (USDA) in its September outlook report, this turnaround is attributed to decreased production levels and falling costs for essential animal feed, including maize, lucerne hay, and soybean meal.
The USDA’s revised estimates indicate that wholesale milk prices are projected to increase by $0.75, reaching $23.05 per hundredweight (approximately 45.36 kg). The national dairy herd has seen a reduction of 5,000 head compared to previous forecasts, leading to an overall decline in U.S. milk production by 400 million pounds (around 181 million kilograms). These factors create a favorable supply-demand balance for farmers who have faced challenging returns in 2023 due to soaring feed and input costs.
The USDA report highlights that the dairy margin for farmers hit $12.33 per hundredweight in July, marking the highest figure of 2024 and nearly $9 higher than the previous year. This trend is expected to continue, with production levels projected to decrease further through 2025, driving prices upward.
Despite the optimistic outlook, tight supplies of heifers have tempered growth expectations for the first half of 2025, even with improved incentives for farmers to expand their herds. The national herd is forecasted to stabilize at 9.36 million head next year, showing no change month-on-month.
However, the rise in dairy prices may render U.S. dairy products less competitive both domestically and internationally. The USDA’s report also notes a decline in the food service sector, particularly within restaurants, which may contribute to reduced domestic consumption of dairy products. The National Restaurant Association’s Restaurant Performance Index (RPI) has consistently indicated lower performance in 2024 compared to the previous year, reflecting challenges such as reduced consumer spending, rising costs, and shifts in preferences.
On a positive note, U.S. consumer price index data suggests that consumers are spending more on milk and dairy products, even as overall at-home food spending softens. Higher profits could prompt dairy farmers to consider expanding their herds or investing in production facilities to capitalize on current market trends.
In previous years, farmers adapted their operations to produce organic milk and other premium products, aiming for sustainability and addressing evolving consumer demands. However, USDA data shows that from 2005 to 2021, rising feed and operational costs consistently outpaced returns for many dairy producers.
As the landscape of the U.S. dairy industry continues to evolve, the latest trends in pricing and production may provide much-needed relief for farmers and stimulate growth opportunities moving forward.
