A large increase in dairy processing capacity is due to come online in 2025, with $8 billion invested in plants for products from cheese to ice cream.
Leonard Polzin, Extension dairy market and policy outreach specialist at the University of Wisconsin-Madison, said he thinks an increase in milk supply for these plants has been happening on a farm level.
He said the market is currently trying to interpret a lot of signals — there are questions about potential storage when the new processing comes online. But this increase in processing has been a long time coming.
“It’s hard to believe that some of the capacity hasn’t been in the works for a while,” he said.
This comes after ups and downs for prices this fall.
“There was a rally early this fall that saw prices increase with decreased supply enough to respond,” Polzin said. “Most recent prices are down on demand.”
The new production capacity will either be absorbed in the domestic or international market. Currently, they are holding off on purchases either due to seasonality or booked orders, Polzin said. One of the large facilities will be online in February.
“Once we find a new equilibrium it could be low for quite some time to measure and figure out what to do with product,” Polzin said.
Polzin said that a few years back good exports pushed prices up. The U.S. had product when others didn’t. Domestic demand was steady, but there was a decrease in cow numbers.
2025 numbers
Polzin said the USDA National Agriculture Statistics Service reported an uptick in U.S. dairy herd numbers to 9.328 million head for August 2024. In the NASS Milk Production report, the October milk cow herd was measured at 9.365 million head, 10,000 more than in October 2023.
The average milk price for 2024 is projected to increase 8%, or $1.74 per hundredweight, according to the USDA Economic Research Service dairy forecast.
Similar milk production level, greater exports and higher prices for cheese and butter are contributing to the projection, Bradley Zwiling wrote for a University of Illinois farmdoc daily article. United States milk production is expected to increase about 102 pounds per cow in 2024.
Projections for 2025 suggest further improvements despite lower USDA-projected milk prices, as declining feed costs are expected to offset these reductions, Zwilling said. Economic costs are projected to be slightly below total returns in 2025 — the first time in the last 10 years this has occurred.
Export potential
Polzin said another factor in the dairy industry is the new presidential administration. If consumers have less to spend at restaurants and grocery stores there could be a change in spending.
Domestic dairy product consumption has climbed to the highest levels in over six decades and dairy exports are close to record levels, according to a CoBank news release.
This bullish sales data is boosting confidence that U.S. dairy will be a long-term growth industry, the company said. That’s not the only factor, as the European Union’s growth potential has stalled due to production constraints imposed by greenhouse gas reduction policies.
Likewise, New Zealand is reaching its peak cow population bound by land constraints.
The EU and New Zealand rank first and second for global dairy exports, with the U.S. standing as a strong third, CoBank said.
Mexico ranks as the top destination for U.S. dairy, purchasing 1 in 4 pounds of dairy products that leave the United States. In October, Mexico’s purchases grew to 29% of all U.S. dairy product exports, according to data from USDA’s Foreign Agricultural Service.
Trade disputes between these two countries may significantly impact U.S. dairy markets, CoBank said.
Polzin said a lot of trade has been shuffled around, but there have been no huge changes. China has backed off purchasing from the United States but plans to increase in the next year, which bodes well for U.S. dairy.
Dairy farmers will also have the opportunity to weigh in on proposed USDA Federal Milk Marketing Order amendments through a referendum process. At the heart of this reform lies a new method for pricing Class I milk.
Polzin said it’s important for those in dairy to use a risk management system that fits what they need for pricing. He said there are currently a large number of unknowns in the market.
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