Dairy farmers are holding cows longer in production instead of culling

U.S. cheese prices have been falling, driven in part by the uncertainty of the tariff tit for tat, and yet they remain above year ago levels. Butter has also fallen but is well below a year ago. Both cheese and butter prices are below global levels.

StoneX broker Dave Kurzawski admitted in the March 24 Dairy Radio Now broadcast that the tariff talk has contributed to the weaker prices however he said the main reason is weak demand. He said the trend reflects what we saw in 2024, where cheese demand was only up 0.4%, adding that he’s not aware of us ever stringing two years back to back where cheese demand was flat or lower.

While he expects demand to pick up, right now we’re about 70-75 cents per pound below the world market on cheddar and probably a dollar below on butter and “These discounts may kick U.S. exports into overdrive especially on cheese.”

“For whatever reason, we tend to focus on cheese exports more than butter,” he said, plus, butter made in the U.S. is not necessarily what the global market wants. That might change over time, he said, but “A dollar spread between U.S. and European butter, we can live with that, that’s kinda normal, but 75 cents on cheese between the U.S. and Europe or the U.S. and Oceania, that is pretty unusual and I do think that will spark a lot of exports for cheese.”

Another positive in the market is that cheese producers have not been over producing the past year or so and because of that inventory is not overwhelming. That may change with new capacity coming on line but right now, “We’re tight on the fresh market.” With prices where they are, “There’s plenty of buyers that want that cheese,” he concluded. “I think cheese is on sale.”

As traders awaited Friday afternoon’s February Milk Production report, cash cheddar block sunk to $1.5750 per pound Tuesday, lowest since April 15, 2024, but it ,closed Friday at $1.6025, down 9 cents on the week while still 21 cents above a year ago. The barrels closed at $1.55, 14 cents lower, lowest since April 11, 2024, 12.50 cents above a year ago, and 5.25 cents below the blocks. There were 23 loads of block traded on the week at the CME and 11 of barrel.

StoneX says “Consumer spending was lower than expected in February, at plus 0.2%, and revised lower in January (from minus .9% to minus 1.2%). Sales at restaurants and bars had the greatest month over month decline in 13 months, painting a picture of uncertainty and fear as consumers avoid discretionary spending amidst swift declines in the financial markets. But supply data around finished cheddar remains underwhelming and we’ve yet to build inventories, at least based on data we can see.”

“So the cheese market toggles between weak demand and weak supply narratives, which has really been the case for the last year,” says StoneX.

Dairy Market News reported, “Concerns are emerging regarding global trading hurdles keeping more cheese within U.S. borders. A number of cheesemakers have begun to add stocks to warehouses. Domestic demand is in line with seasonal expectations, particularly as cheese has become more affordable. Mid-week spot milk prices ranged from $2.50-under to 25 cents-over Class III.

Demand for Class III milk in the West is steady. Milk output is increasing in the region, following seasonal trends, and cheese output is busy. Retail cheese demand is strong but food service demand is lighter, according to DMN.

Cash butter fell to a $2.2950 per pound Tuesday, but finished Friday at $2.3025, down 4 cents on the week, and 50.50 cents below a year ago, with 24 sales.

“Butter demand has begun to spring ahead of seasonal holiday needs for both Central retail and food service sectors,” says DMN, but retail customers are more active than food service. Churning remains very active in the region and cream availability has shown no sign of near-term drawdowns. Plant managers say, if they ask for offers on 10 loads, suppliers offer them 15. Butter market tones are uncertain ahead of the spring holiday season. Stocks are plentiful and growing, while domestic demand is beginning to emerge from a seasonal lull, says DMN.

Cream is available in the West, but demand is mixed as some contacts say they are purchasing loads, as multiples remain favorable for butter production, while others do not have the capacity to take more. Churning is active in the region and output is increasing seasonally. Some are building inventory for second half.

Grade A nonfat dry milk closed Friday at $1.1450 per pound, down a penny on the week, lowest CME price since May 9, 2024, but still 3.75 cents above a year ago, with 11 loads sold on the week.

Dry whey closed Friday at 50 cents per pound, up a nickel on the week, and 10.50 cents above a year ago, on 5 CME sales reported for the week.

The Agriculture Department announced the April Federal order Class I base milk price at $19.57 per hundredweight, down $1.45 from March, but 39 cents above April 2024, and the lowest Class I since May 2024. It equates to $1.68 per gallon, up from $1.65 a year ago. The four-month Class I average sits at $20.56, up from $18.61 at this time a year ago, and compares to $20.26 in 2023.

The USDA’s latest Livestock Slaughter report showed an estimated 217,000 head of dairy cows were slaughtered under federal inspection in February, down 30,800 from January, and 35,700 head or 14.1% below Feb. 2024.

The week ending March 8 saw 55,400 dairy cows sent to slaughter, down 700 from the previous week, and 4,000 or 6.7% below that week a year ago. Year to date, 539,100 head had been culled, down 37,000 or 6.4% from a year ago.

The Agriculture Department’s monthly Livestock, Dairy and Poultry Outlook issued March 17, mirrored milk price and production projections in the March 11 World Agricultural Supply and Demand Estimates report.

The Outlook stated, “As of January 2025, the U.S. dairy herd reached 9.365 million head, marking a year-over-year increase from January 2024, and the fourth consecutive month of year-over-year increase. This expansion reflects the lagged response to improved profitability in 2024, as the milk-to-feed ratio rose from 1.73 in January 2024 to 2.35 in January 2025. The higher ratio suggests better margins for producers, leading to lower culling rates and herd retention. Low replacement numbers indicate that future expansion may be moderate.”

“Slaughter of dairy cows has declined substantially since the fourth week of 2025 to levels below 2024 and 2023. Given the relative limited number of replacement dairy heifers available in the herd and steadily increasing number of cows in milk production, the lower slaughter rate suggests that dairy farmers are holding cows longer in production instead of culling,” the Outlook stated.

“Milk solids continue their upward trend; both the milk-fat test and nonfat solids test increased substantially year over year. Higher concentrations of fat, protein, and other solids (lactose and minerals) in milk lead to more efficient dairy processing by reducing the amount of raw milk required.”

The forecast for the average number of cows in the U.S. herd was raised from the previous forecast by 5,000 head in the first quarter. The herd is projected to average 9.38 million head in 2025. The forecast for milk per cow was reduced 80 pounds to 24,120 pounds. These reductions reflect, in part, retention of the older cow in the production cycle as well as stronger-than-average growth in milk fat.

There have been 16 new confirmed cases of on-farm bird flu reported in the U.S. in the past 30 days. States included Arizona, Nevada, California and Idaho, but the number of cases is low overall. 

Agriculture Secretary Brooke Rollins hosted an update Thursday, providing the first progress report on USDA’s five-pronged strategy to combat the highly pathogenic avian influenza as well as lower egg prices. Less than a month after the plan’s rollout, USDA reported significant advancements across all five areas, including research on bird flu vaccines as well as increasing imports of eggs.

Rollins announced on National Agriculture Day that the USDA was issuing up to $10 billion directly to agricultural producers through the Emergency Commodity Assistance Program (ECAP) for the 2024 crop year.

“Administered by USDA’s Farm Service Agency, ECAP will help agricultural producers mitigate the impacts of increased input costs and falling commodity prices,” according to a USDA press release.

“Producers are facing higher costs and market uncertainty, and the Trump Administration is ensuring they get the support they need without delay,” said Rollins. “With clear direction from Congress, USDA has prioritized streamlining the process and accelerating these payments ahead of schedule, ensuring farmers have the resources necessary to manage rising expenses and secure financing for next season.”

Meanwhile, Politico reported that the USDA halted funding for food banks in at least six states. The March 20 Daily Dairy Report says “The cut wasn’t USDA’s first in 2025. Earlier this month, a $1 billion pledge to school lunch programs and food banks was also eliminated.”

Down on the farm, “Dairy margins were mixed over the first half of March as nearby milk futures continued to sell off while deferred contracts moved higher and the feed markets were largely flat,” says the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

“The looming threat of a trade war due to tariff escalation is causing particular concern for the export market,” the MW warned. “Exports accounted for 16.4% of total U.S. milk production last year, with Mexico, Canada and China representing more than 50% of all dairy exports by both volume and value.”

“Mexico is the leading export market for U.S. dairy products, taking 52.4% of our NDM exports and 37.7% of total cheese exports last year. Mexico is also the second largest market for U.S. butter and milkfat behind Canada, and China is our largest whey customer taking 42% of total shipments last year and over 50% in January 2025,” the MW stated.

“During the 2018-19 trade war that started under Trump’s first term, dairy exports to Mexico declined 17.6% between 2018 and 2020. Mexico is expected to launch retaliatory tariffs against U.S. products including agriculture beginning next month if the 25% threatened tariffs take hold, and Canada has already begun reciprocal tariffs of 25% on $30 billion worth of U.S. products with dairy prominently.”

“China has also imposed 10%-15% duties beginning March 10 on more than 700 agricultural products including 10% tariffs on some dairy products. The U.S. will have to clear significantly more dairy products through domestic channels if exports slow down, with consumers already showing signs of fatigue. Just released retail sales figures were particularly weak for sales at food service establishments, with February sales reflecting a real decline of 2.2% year-over-year,” the MW concluded.

Butter and cheese registered small gains in Tuesday’s Global Dairy Trade where the weighted average was unchanged after slipping 0.5% on March 4. Volume fell to 43.1 million pounds, down from 46.2 million on March 4, lowest since June 18, 2024. The average metric ton price, fell to $4,209 U.S., down from $4,370.

Butter was up 1.1%, after jumping 2.7% on March 4. Anhydrous milkfat was down 1.8%, after inching 0.3% lower. Cheddar was up 1.0%, following a 1.1% gain, while mozzarella was up 5.1%, following a 7.9% leap. Lactose was up 0.5% following a 14.0% jump. Whole milk powder inched 0.2% higher, after dropping 2.2%, and skim milk powder was off 0.4%, after inching 0.6% higher on March 4.

StoneX says the GDT 80% butterfat butter price equates to $3.3930 per pound U.S., up 4 cents, after rising 8.8 cents last time, and compares to CME butter which closed Friday at a bargain basement $2.3025. GDT cheddar equated to $2.2571, up 2.8 cents, after gaining 2.4 cents, and compares to Friday’s CME block cheddar at a steal of $1.6025. GDT skim milk powder averaged $1.2379 per pound, compared to $1.2447 last time. Whole milk powder averaged $1.8380 per pound, down from $1.8419 CME Grade A nonfat dry milk closed Friday at $1.1450 per pound.

Analyst Dustin Winston stated, “North Asia purchases, which includes China, increased from the last event. This brought market share up above last event’s levels and nearly in-line with year-ago levels. The biggest change in purchase volume came from SE Asia and Oceania, where purchases fell substantially from the last event and last year.”

Lee Mielke is a graduate of Brown Institute in Minneapolis, Minnesota. He’s formerly the voice of the radio show “DairyLine” and his column appears in agricultural papers across the U.S. Contact him at lkmielke@juno.com.