Strong beef prices are giving dairy producers an added cushion as milk prices soften, but market analysts say the opportunity comes with a growing need to protect margins on multiple fronts.
During a recent dairy market webinar hosted by Standard Nutrition, Ever.Ag analysts Mike North and Kathleen Wolfley outlined an environment where beef-on-dairy revenue, cull cow values and relatively affordable feed costs are helping offset weaker milk futures.
“As we look forward right now, dairy margin coverage (DMC) margins are still favorable,” North says. “But this calculation doesn’t include any beef revenue. When you add what many farms are receiving from beef calves and cull cows, you’re looking at some of the strongest overall margin opportunities we’ve seen in years.”
North estimates beef-related revenue is adding roughly $3 to $4 per hundredweight to many dairy operations compared with just a few years ago, when that contribution was closer to $1 to $1.50.
Ground Beef Keeps Cattle Values Elevated
The beef side of the equation remains exceptionally strong, particularly for ground beef demand. North says U.S. consumers continue to favor hamburgers over higher-priced steak cuts, helping support cull cow values and lean beef prices.
“As U.S. consumers of beef, we love a good cheeseburger,” North says. “Ground beef is still king in terms of overall consumption.”
This demand has pushed cull cow prices to levels that were difficult to imagine a few years ago. North highlights $2,800 cull cows as an example of the strength currently flowing through the market, giving dairies an income stream that can change whole-farm profitability.
Yet he also emphasizes that high prices attract additional supply from outside the U.S. Beef imports from countries such as Brazil, Australia and Mexico have increased substantially as global suppliers respond to elevated U.S. prices.
“High prices are the cure for high prices,” North says. “When markets get this strong, imports increase and substitutes start to enter the marketplace.”
Beef-on-Dairy Fuels Milk Production
While beef revenue continues to strengthen farm income, Wolfley says milk production is moving in the opposite direction from what many producers would expect when prices soften. High-value beef calves have encouraged dairies to keep more cows in the herd, including animals that may have been culled under different market conditions.
“We’ve seen 17 months in a row of growth in U.S. milk output,” Wolfley says. “We’re holding on to a lot of cows because people are seeing a lot of value from these beef-on-dairy calves.”
The U.S. dairy herd has expanded by roughly 180,000 cows over the past year, reaching its largest size in more than three decades.
“I think we’re going to continue to see high cow numbers propel milk production growth,” she says. “Until we see a major change in the beef market, milk production will likely continue to expand.”
Feed Costs Create Opportunity
Grain markets have become more volatile in recent weeks as weather concerns push corn and soybean prices higher. North notes that corn futures rallied sharply after forecasts called for hot, dry conditions during pollination, while soybean futures also gained ground.
Even with the recent rally, he does not view the current feed outlook as a repeat of previous supply shocks. Large planted acreage, generally favorable crop ratings and adequate domestic inventories are giving producers more breathing room than they had during earlier periods of feed tightness.
However, North cautions producers against becoming complacent, especially with pollination weather, export demand and geopolitical tension capable of changing the tone of the market in a hurry.
“We are one weather disaster or geopolitical event away from a major move higher in corn prices,” North says. “Don’t get asleep at the switch just because feed feels comfortable today.”
He points to global corn stocks as a longer-term concern, noting that world inventories have been trending lower for more than a decade. Soybean meal prices near $300 per ton also represent historically attractive buying opportunities.
“When soybean meal is around $300, you’re near the bottom end of the historical range,” North says. “That’s a market producers should be thinking about defending.”
Screwworm Remains a Concern
Another development drawing attention is the spread of New World screwworm cases in Texas and New Mexico. While North does not expect a major reduction in beef supply from mortality, he believes transportation restrictions could become a more significant issue if the outbreak expands.
“The bigger question is whether we see limitations on cattle movement between states,” North says. “That could have a much larger impact on local slaughter capacity and regional basis levels than the actual mortality.”
Mexico has already reduced feeder cattle shipments into the U.S., which North says has contributed to tighter feeder supplies and stronger cattle prices.
Heavier Cattle Reshape Feedlot Inventories
Despite the tight-cattle narrative, North says feedlot inventories have been creeping higher for several months.
The increase is not coming from a surge in replacements. Instead, cattle are staying on feed longer, resulting in heavier carcass weights and more pounds of beef moving through packing plants than headline cattle numbers might suggest.
This additional weight has helped keep beef production steadier than many expected, even with historically low cattle numbers.
North believes producers should pay close attention to these signals rather than assuming today’s record cattle prices will continue indefinitely.
“Short cattle numbers do not automatically mean high prices forever,” he says. “Markets always change, and the producers who manage that risk tend to be in the best position when conditions shift.”
The story does not stop at the U.S. border. Milk production is also growing in Europe and New Zealand, creating additional competition for export business. Wolfley notes that European milk production is roughly 1.7 times larger than U.S. production, making overseas trends increasingly influential on domestic markets.
“We’re becoming a much more global marketplace,” she says. “What happens in Europe and New Zealand has a much larger influence on U.S. prices than it did several years ago.”
Cheese Exports Keep Growing
Despite larger milk supplies, cheese prices have found support through strong export demand. Wolfley says U.S. cheese exports remain one of the brightest spots for dairy demand, with shipments running near record levels through the first half of the year.
“We’ve been crushing it into the export market,” she says. Approximately 10% to 11% of U.S. cheese production is now exported, compared to roughly 7% to 8% only a few years ago, a shift that has made international buyers far more important to price direction.
Mexico continues to lead purchases, while Japan, South Korea, Southeast Asia and Australia have also increased imports of U.S. cheese. Still, Wolfley does not expect unlimited upside. Domestic demand has softened as consumers continue watching household budgets, quick-service restaurant traffic has declined for several consecutive weeks, and retail cheese sales have lost momentum.
“We’re just not seeing this big push for additional domestic cheese demand that can absorb all of the additional production,” Wolfley says.
Wolfley says U.S. cheese prices must remain attractive compared to European values if exporters want to keep sales flowing into international markets.
“I think the U.S. needs to maintain about a 20- to 30-cent discount to European cheese prices to continue moving product into those contested markets,” she says.
Countries such as Japan, South Korea and Australia have multiple suppliers to choose from, making price competitiveness especially valuable. If U.S. cheese prices climb too high, buyers can quickly shift purchases elsewhere.
“I have a hard time believing we see a major rally if Europe stays where it is today,” Wolfley says. “We need to remain competitive.”
She also points to currency values and higher energy costs as additional headwinds that could influence export demand during the second half of the year. A stronger U.S. dollar makes American dairy products more expensive overseas, while higher fuel costs reduce purchasing power for consumers in many importing countries.
“When buyers are dealing with higher energy costs, they may decide they don’t need that extra pound of cheese,” Wolfley says.
Heat Keeps Milk in Check
Wolfley says weather could still influence milk supplies over the next several weeks. Early summer heat across the Upper Midwest, Northeast and Europe has already reduced milk production in some regions, and repeated heat events can create a more lasting drag than a single short stretch of uncomfortable temperatures.
Those extended periods of heat can reduce milk production, affect reproduction and tighten milk availability heading into late summer.
While that could temporarily support dairy commodity prices, Wolfley views it as a short-term influence rather than a long-term market driver.
“I think it’s something producers should watch over the next eight to 10 weeks,” she says. “If milk supplies tighten, there may be opportunities to protect stronger prices if they develop.”
Powder Pressure, Protein Strength
After reaching record highs earlier this year, nonfat dry milk prices have fallen sharply as production increased and supplies became more available. California’s expanding milk supply has added more product to dryers, while manufacturers have shifted production to capture favorable market opportunities.
“This run in the nonfat market was really a U.S. phenomenon,” Wolfley says. “The rest of the world never reached those price levels.”
As U.S. prices climbed above global competitors, some international buyers looked elsewhere for product. Wolfley says continued supply growth could add more pressure to the market.
“I wouldn’t be surprised if the nonfat market continues to move lower from here,” she says. “If we end up with more powder than we can export, that creates additional pressure.”
Butter has been one of dairy’s brighter spots, with strong retail sales and steady export movement supporting demand. Consumer interest in dairy fat has remained firm, although Wolfley says it is difficult to pinpoint exactly what is driving the trend.
“We’ve continued to see really good butter sales this year,” she says.
However, increasing butterfat production is limiting how far prices can climb. Producers continue selecting genetics and feeding programs that support higher component production, resulting in more butterfat entering the market.
“We’re producing about a million more pounds of butterfat per day than we were a year ago,” Wolfley says. “That additional fat eventually has to find a home.”
While strong demand has prevented major declines, expanding supplies could keep butter prices from making significant gains.
Meanwhile, dairy protein continues to stand out as one of the industry’s strongest demand stories. Wolfley says growing consumer interest in high-protein foods has increased demand for whey protein concentrates, whey protein isolates and other dairy protein ingredients.
“I think we need to keep in the back of our minds that there is really strong demand for these protein products,” she says.
Ready-to-drink protein shakes, sports nutrition products and other high-protein foods continue to pull more dairy protein through the supply chain.
“It’s a really good news story for the dairy industry,” Wolfley says.
Protect Margins Early
Although analysts don’t expect feed prices to move dramatically higher in the near future, North says today’s favorable margin opportunities won’t last forever unless producers actively manage risk.
“Domestic feed prices are still relatively comfortable,” he says. “Be ready for potential shock waves by having defensive strategies in place.”
That includes watching for opportunities to purchase feed ingredients before markets react to weather or geopolitical events. North delivers a similar message for beef, noting that today’s cattle market is rewarding dairies now but is already showing signs of adjustment through imports, substitute products and heavier feedlot cattle.
“Don’t get caught in the mindset that short cattle numbers equal high prices forever,” North says. “Markets come and go.”
Wolfley believes the dairy industry faces a similar challenge. As long as beef calves continue generating strong returns, producers have every incentive to maintain larger dairy herds, resulting in additional milk production and more cheese, butter and powder entering the marketplace.
“I have a hard time painting a picture of a major bullish rally in dairy markets through the remainder of this year and into 2027,” Wolfley says.
Instead, both analysts encouraged producers to protect today’s favorable margins rather than trying to predict the next market move. Whether through Dairy Revenue Protection, Livestock Risk Protection, futures, options or forward contracts, they say using available risk management tools can help preserve profitability if markets reverse.
“If you’re not managing milk, feed and livestock together,” North says, “you leave yourself exposed to letting one side of the operation sabotage the outcome.”
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