Despite the recent pricing struggles, there is a looming potential for a supply loophole that could dramatically shift the market trajectory. The practice of breeding cows for at least one additional calf to produce high-value beef calves is effectively keeping older cows in the herd longer. This behavior, coupled with the challenge of retaining and breeding for dairy heifers due to the high dollar value they command as beef calves, is creating a scenario where the overall supply of dairy cows is limited.

This tightening of the dairy cow supply, should demand recover, may ultimately lead to a return to higher product values. Market projections suggest that milk futures of $20 and up may be on the horizon, potentially materializing in late 2026 and throughout 2027. Furthermore, the dairy processing industry is showing aggressive commitment to the future, with estimates suggesting up to $10 billion is dedicated toward either revamping or building new processing plants, signaling confidence in long-term demand growth.

In response to this dynamic, volatile market, dairy producers are strongly advised to maintain a sharp marketing pencil and focus on managing input costs. Feed, when indexed to inflation and compared to the breakeven levels for struggling grain producers, is currently considered inexpensive, implying a strategic purchasing opportunity for feed buyers. Protecting these costs should be a high priority, especially since two consecutive years of huge global crops are not guaranteed to continue for a third or fourth year.