Are Things Looking Up For Dairy?

With the Republican sweep of the recent US elections, global markets are focusing on the forthcoming risk of rising US protectionism and potential trade tensions. The November RoboResearch Food and Agribusiness report notes for dairy, a reemergence of tariffs could disrupt trade flows, while the threat of mass deportations could disrupt US farm labor availability. Uncertainty will be the tone in 2025 as the world waits to see how many of President Trump’s campaign promises will be put into law. And remember, the market detests uncertainty.

In the US, milk production has returned to growth as margins improve. The avian influenza outbreak is still spreading, but the impacts on production and trade have been minimal.

In the US, October milk production increased 0.2 percent versus the prior year, marking the third consecutive year-on-year gain after a 13-month of losses. Expectations is for production to continue moving higher versus the prior year for the remainder of 2024 and into 2025. Total 2024 milk production is estimated to be 0.4 percent lower compared to 2023, while 2025 is expected to show a 0.9 percent YOY gain.

Milk production in Iowa during October 2024 totaled 508 million pounds, up 3 percent from the previous October according to the latest USDA, National Agricultural Statistics Service – Milk Production report. The average number of milk cows during October, at 243,000 head, was 2,000 above last month and up 4,000 from October 2023. Monthly production per cow averaged 2,090 pounds, up 30 pounds from last October.

Improved on-farm margins, driven by both higher milk prices and lower feed costs, are encouraging farmers to increase milk output to capitalize on attractive profitability.

The USDA estimates that the dairy herd grew by 19,000 head in October, reaching 9.365m head. Compared to one year ago, cow numbers are up 10,000 head. Replacement cow values remain close to (or at) record highs in many parts of the country, limiting the ability of dairy operators to quickly increase cow numbers.

RaboResearch estimates the first half of 2025 milk prices of USD 18.78/cwt for Class III and USD 21.46/cwt for Class IV, with 2H 2025 milk prices of USD 19.01/cwt for Class III and USD 21.85/cwt for Class IV. Full-year 2025 price estimates are for USD 18.89/cwt and USD 21.66/cwt, respectively, as the Class IV premium is expected to persist opposite the Class III price.

During the fourth quarter 2024, Oceania and US spot butter prices have fallen 7 and 20 percents, respectively, from their 2024 peaks (June and August) but remain volatile and well above the five-year average. Prices have lifted across SMP, WMP, and cheese with gains above 10 percent from 2024 lows. Cheese and WMP are currently above their five-year averages, but SMP is still underperforming versus its five-year average.

A growing supply of higher component milk should increase dairy product production in 2025. Cheese remains the shining star of the export world this year. So far this year, shipments have been higher, year-on-year, in each month through September and are up 20 percent YTD, with volume to Mexico up 34 percent YTD. Cheese stocks declined 26.3 million pounds last month. This is the largest September-to-October drawdown since 2019. In January through October, stocks fell 99.9 million pounds, a noticeable departure from seasonal trends. Over the past five years, cheese stocks have grown by roughly 18 million pounds, on average, in the first 10 months of the year. After eight straight months of declines, the U.S. cheese stockpile is 8% smaller than it was a year ago. Higher cheese prices noted in recent weeks is expected to slow the export pace in the upcoming months.

While I’m betting on a positive 2025 for dairy producers, there’s lot of political reasons to bet against it.