As the dairy industry navigates another year of extraordinary growth, understanding its driving forces and future outlook becomes imperative. The industry’s beat remains positive, marked by thriving cow numbers, milk production and exports.
Milk Production Surges
Milk production in 2025 has exceeded expectations, with growth numbers surpassing 4%. Comparable to the robust growth seen in 2021, these numbers are partially attributed to weaker previous years. As the market responds to the abundance of milk, producers are seeing significant growth in yield, driven by multi-decades of high cow numbers. This surge is expected to continue as domestic demand combines with increasing exports.
“There’s no turning off this milk now that we have it,” says Lucas Fuess, senior dairy analyst for RaboResearch.
Beef-on-Dairy: A Key Revenue Driver
The surprising rise in cow numbers is largely due to strategic management by producers. Keeping cows in the herd longer and focusing on breeding programs have become crucial. Producers continue to leverage “non-milk” revenue streams, such as beef-on-dairy, which constitute a growing percentage of their revenue. The availability of technology and tools further aids farmers in executing these strategies effectively.
“Farmers are very dialed in and strategic about their breeding and reproductive programs right now, just because it’s so critical to making sure that you can pay the bills — but making sure that you can drive that revenue from beef-on-dairy,” Fuess shares.
With milk prices on the softer side and input costs declining, beef-on-dairy has become an essential component of farm revenues. In fact, Fuess shares these cross calf sales are projected to make up 5% to 10% of dairy revenue this year, with prices climbing steadily. Favorable feed costs, owing to large corn and soybean harvests, also support the financial viability of maintaining high cow numbers.
Eyes on Exports: The Global Demand for U.S. Dairy
The United States continues to play a significant role in global dairy exports. Mexico remains a top customer, breaking records in cheese exports. Other regions like East Asia, Southeast Asia and the Middle East also present growth opportunities as European milk production declines. New Zealand, while experiencing record production, shows limited long-term growth prospects, placing a spotlight on U.S. exports.
“Cheese exports in 2024 were record high. We might set yet another record high this year,” Fuess says. “It’s just been a really good story as Mexico’s trade situation hasn’t been interrupted due to any of the tariff discussions this year.”
Emerging Regional Trends: New York’s Ascendancy
New York is emerging as a key player in the dairy sector, previously overshadowed by states like South Dakota and Texas. With significant investments in processing facilities, including upcoming plants from Fairlife and Chobani, New York is poised for substantial growth. Current projections indicate these new facilities could handle half of New York’s milk production once fully operational.
“Current projections show that if those two plants run at full capacity, based on what they both stated, they will ramp up to almost half of New York’s current milk production, which is just a crazy number,” Fuess shares, noting that likely New York dairies will expand with the addition of new green sites dairies being added to help fill these production needs.
“People are very happy for that processing investment,” he says. “Just like in the center of the country, for years, we’ve been happy to see processing investment.”
A Bright Outlook for Dairy
The overall sentiment within the dairy industry remains optimistic. Strategic growth in cow numbers, innovative revenue streams and expanding export markets signify a promising future. Stakeholders eagerly anticipate processing investments, expected to benefit dairies and regions alike. As investments continue to pour into the sector, the dairy industry stands on the cusp of unprecedented growth and opportunity.
Listen to Lucas Fuess conversation with Chip Flory on AgriTalk:
https://omny.fm/shows/market-rally/agritalk-10-2-25-lucas-fuess
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