From a farmer’s perspective, global agricultural commodity markets, outside of beef and eggs, have been somewhat shaky. There are a multitude of reasons why, including less-than-stellar consumer confidence that can cause a pullback on spending and market tribulation caused by tariffs and global trade.
“When looking at the U.S. dairy situation, markets have potential for both upside and downside movement,” says Corey Geiger, lead dairy economist at CoBank. “Upside because retail sales remain rather strong. Downside due to sluggish restaurant sales. Upside because most U.S. dairy products and ingredients remain the lowest priced among the big three dairy exporters, making the U.S. a good buy. Downside because of uncertainty about tariffs and shipping costs.”
High-priced cows
One thing is certain when looking at the supply side of the equation, Geiger says. U.S. dairy producers have a limited ability to boost milk production, and that situation could help buoy milk checks.
“That’s a supply-side situation documented by dairy replacement inventories that stand at the lowest levels in over two decades,” Geiger says. “In addition, dairy replacement values have pushed deep into record territory from a price standpoint.”
In April, USDA reported that the average price for a dairy herd replacement ready to enter the milk barn reached $2,870. That’s up from $2,120 the same time last year.
“Those dairy farmers looking for dairy replacements know that this $2,870 figure is merely an entry point, as premium dairy replacements have demanded as much as $4,000 at auctions across the United States this spring,” Geiger says.
Through March, the U.S. dairy cow herd was up 80,000 head when compared to the start of 2024. However, that gain, which reached a total of 9.4 million head, has less to do with replacement inventories and more to do with a historic pullback in culling.
“The big pullback in dairy cow culling started on Labor Day 2023,” Geiger explains. “In the final 18 weeks of that year, dairy farmers sent 140,500 fewer dairy cows to slaughter when compared to the previous year. The big pullback continued throughout 2024, as 367,400 fewer head of dairy cows went to slaughter as dairy farmers looked to shore up herd numbers when faced with fewer heifers.
“To start this new year, another pullback on culling has taken place to the tune of 86,000 head through early May. All told, dairy farmers have sent 593,900 fewer cows to slaughter over the past 87 weeks.”
This historic pullback in culling has long-term implications. For years, dairy farmers used first-lactation pens, as those young cows have unique needs when compared to older herd mates.
“Now that dairy farmers are keeping cows longer, these older cows also have unique needs and can become more prone to issues such as mastitis, lameness and fertility, just to name a few,” Geiger says.
To overcome these potential hurdles, Geiger says dairy farmers and their advisers should discuss how to handle older cows, as the dairy replacement pipeline shows no signs of filling during the next two years.
Europe has herd challenges, too
The U.S. isn’t the only region that is struggling with herd numbers. Dairy cow numbers in the European Union fell from 19.9 million to 19.2 million from 2023 to 2024.
“Among the big five, all faced headwinds,” Geiger explains, citing the following declines:
- Germany, 3.3%
- France, 2.9%
- Poland, 12.6%
- Italy, 2.4%
- Netherlands, 2%
- Ireland, 2%
Geiger says these six countries represent 70% of the dairy cows in the EU group of 27 countries.
“This region is important to global dairy, as it’s the world’s largest dairy product and ingredient exporter,” he adds. Overall, the EU exports 20% of its total milk production via dairy products and ingredients.
“There are two reasons that the EU may have sluggish milk production this season,” Geiger notes. “Top of mind is blue tongue. Overall, the continent had a rather mild winter, and that could lead to the rise of more biting midges that transmit the blue tongue virus. Like mosquito larvae, midge larvae tend to fair better during mild winters.”
More concerning is an outbreak of foot-and-mouth disease in Hungary and Slovakia, and now in the Middle Eastern country of Kuwait.
“The only two ways to keep that disease at bay are vaccination or full-scale slaughter of dairy herds,” Geiger says. “From my conversations with European veterinarians, people are on edge over this matter. Back in 2001, Great Britian had a major outbreak, and over 6 million cows and sheep were slaughtered and either buried or incinerated to overcome the disease.”
Declining dairy product demand
Over half of dairy products and ingredients move through food service. This is especially important for the king of cheese — mozzarella. To that end, major pizza chains have posted sluggish sales. In the first quarter of 2025, Pizza Hut’s sales were down 5%, Papa John’s were off 3%, and Domino’s, the largest in the category, fell 0.5% when looking at same-store sales. On the flip side, Taco Bell, Pizza Hut’s Yum! Brand sister store, posted 9% growth with the help of price promotions.
Geiger says that while tariffs have been making headlines throughout the world, U.S. dairy prices have slid below those among the big three dairy exporters: the EU, New Zealand and the U.S. That has propelled exports, as U.S. dairy is a good buy.
Butterfat exports were 203% higher than a year ago in March at 17.9 million pounds, according to the U.S. Dairy Export Council. Canada was a major buyer as sales volume grew 172% compared to the same time last year.
“The first three months of butterfat exports in 2025 are the equivalent of over half of butterfat exports last year. Overall, U.S. butter prices continue to be discounted compared to the two largest global dairy exporters — the EU and New Zealand,” Geiger explains.
While March 2024 still holds the record of 110 million pounds of cheese exported in one month, March 2025 secured the No. 2 spot at 109 million pounds. Mexico remains the top U.S. dairy customer and purchased 95.5 million pounds of cheese in the first quarter of 2025. Geiger says these two major developments caused March to post the largest monthly U.S. export volume since February 2023.
“Milk prices could have upside if domestic restaurant sales would pick up momentum,” Geiger says. “However, if dairy exports falter and restaurant sales remain sluggish, dairy markets will be hard-pressed to experience much upside.”