2024 brought a changing tide for milk prices. After depressed prices in 2023, milk prices recovered this year, but as supply concerns come back into the picture, which was a wet blanket for prices in the final quarter of this year, what’s the outlook for 2025?
“The supply side has been the issue,” says Ben Buckner, dairy analyst with AgResource Company. “Demand looks really good, as far as we can tell. In terms of total disappearance, nothing remarkable there. And things like butter, it has been pretty remarkable. But it’s been supply the last two years from a very high level. We can see just generally no one in the world producing more milk than in the previous year. And that’s the driver you need to kind of spark fear in the marketplace.”
Buckner says the milk market has hit $25 twice in the past 24 months, but the reverse is happening now.
“We are comparing current U.S. milk production to some very low levels. But I think that we did find 40,000 cows in Texas year over year. We’re finding growth even if it’s small for the last three months. It’s also happening in places like New Zealand. It’s been happening in Australia for a long time. So, everyone was producing less milk a year ago, everyone is producing more milk currently,” Buckner says.
This fall, prices hit $24 for Class III. Does that mean $25 milk could make a comeback in 2025? It’s possible, but according to Lucas Fuess, senior dairy analyst for RaboResearch Food and Agribusiness, producers shouldn’t expect $25 milk to be the norm for 2025.
“I do think that the $24 that we saw in that September milk check on both Class II and Class IV, were the highest in more than two years, and an incredible payment for milk producers. That was kind of driven by a little bit of a short squeeze in the cheese market,” Fuess says. “We are in our lowest producing months in that time of the year. We had to draw on fluid milk as schools reopened. So, it was very short-lived. We’re not necessarily forecasting a sustained period of $25 milk into 2025, but we are pretty optimistic on milk prices in the next year. We think with the feed costs being lower, the profitability will be there, and overall, it’s pretty good news looking ahead for dairy farmers.”
Buckner says the biggest hurdle for the market is cheese supply. Mike North, EverAg’s principal of risk management emphasizes the critical role that production growth plays in maintaining this competitive edge.
“I think one thing that we’ve been watching is where cheese or butter or even U.S. dairy products exist in the world marketplace,” he says. “Everyone’s producing more now, but those and milk and butter prices and cheese prices are still pretty elevated to the point where the U.S. markets are very competitive. If we don’t grow production like the USDA forecasts, if we don’t see per cow output growth of half of a percent continuously, we’re kind of back to where we were. And so, I think $20 is pretty fair for the foreseeable future.”
North says there’s a balance the market needs to strike between prices and how much the U.S. consumer is willing to pay.
“I think the reality as we came through this fall, however, was that we still consume most of our product here, and when we saw blocks go to $2.20 and barrels go to $2.60, the consumer basically said, ‘we’ve had enough,’” North says. “And when the market fell, there was no bid until 80¢ later, basically. And we moved back to the same market clearing prices that we saw preceding the run up into late summer, early fall.”
That’s why North says the dairy industry needs to be careful not to push prices so high that it starts to deteriorate demand.
“I think as you talk about the supply side, it’s easy to be fair in saying higher prices are possible,” North says. “We have to balance that, though, with the demand conversation that domestically is seeing a pressured consumer.”
The Shaky Outlook on Trade
There’s no shortage of trade talk in the markets. With the incoming Trump administration making threats of additional tariffs on China, Mexico and Canada, it’s creating concern. But it’s also opening up the conversation again about trade, something from which the U.S. dairy industry stands to also gain.
“I think as you look around Southeast Asia, there’s been a little bit of, let’s call it rough waters inside of some of those economies, inside of some of the politics,” North says. “We saw some key partners retract this year, including South Korea has been a big question mark for us. There’s room to grow back into that South and Southeast Asia market and pick up kind of what we’ve lost. And so we’ll see how that plays out going through 2025.”
North says the tariff discussion with the incoming administration is concerning when it comes to key trade partners, which includes Mexico.
“The place where we stand to lose the most is Mexico,” North says. “We’ve got some hot button issues with regard to the border and security and how do we leverage this discussion of tariffs to try to solve those problems. As recent as just a few weeks ago, they were called out as a potential tariff target. And so one thing we’ve learned from the first Trump presidency was that he generally does what he says he’s going to do. How they leverage that and to what extent will shape some of that conversation around not just trade for dairy, for corn and for pork and otherwise. This will be an interesting dialog.”
Buckner says the Mexican market has grown into an extremely important market for the U.S., so he agrees with North, that could be where the U.S. dairy industry stands to lose the most if a trade war would play out.
“It seems like their food economy is really booming,” he says. “It’s also a country that’s mostly subject to drought unless they get a certain number of hurricanes passing through. So we’ve seen exports of U.S. hog products to Mexico explode. And I think while we kind of shuffle the deck on Southeast Asia and East Asia, that is the market that we want to focus on. And we don’t want to lose, you know, especially what they’ve been purchasing recently.”
For Fuess, he thinks dairy will be in the spotlight again with any trade discussions, and that could bode well for exports.
“I think I continue to be encouraged by how not only the U.S. dairy industry, but also all of American agriculture made our voice heard in USCMA (U.S., Mexico Canada Agreement) during Trump’s first term. We were very adamant that Mexico is a key market, that we cannot lose any ground there. And it’s a critical driver of our export market. I’m encouraged that regardless of the conversations so far, hopefully that message continues to shine through in this second term,” Fuess says.
