Market Reports

The invisible hand is solving the heifer shortage. Years of decent profits and the promise of more prosperity on the horizon pushed producers to invest in new barns, forgo some beef calf income in favor of dairy calves, and cull as few cows as possible. Those efforts are adding up. USDA revised its estimate of the April milk cow herd. The agency now shows that dairy producers added 20,000 cows – rather than just 5,000 – that month, and they added another 5,000 in May. That puts the U.S. herd at 9.445 million milk cows, the highest head count since July 2021.

Strong exports have assuaged concerns about rising U.S. cheese and butterfat output. Even after a significant spring and early-summer rally, U.S. cheese and butter remain the cheapest in the world, putting a firm floor under these dairy commodities.

U.S. milk and dairy product output is growing quickly. But formidable exports are keeping a firm floor under the dairy markets. Even after sizable spring rallies, American cheese and butter are the cheapest in the world. Exports of those products are strong and likely to remain so. Daily average U.S. cheese exports surged to an all-time high in April, up 6.7% from already-lofty volumes in April 2024.

Even after the runup, U.S. cheese in the cheapest in the world, and exports are booming. The trade is searching for the price at which international buyers start to look elsewhere or simply make do with less. But prices may already be high enough to deter domestic demand. U.S. cheese consumption held steady in 2024, and it was down 0.8% year over year in the first quarter. With Cheddar north of $1.90, retailers will keep the cheese case stocked, but they probably won’t feature any promotions.

For several years the heifer shortage restrained growth in U.S. milk output. But the invisible hand has proved its might once again. Given enough time and economic incentive, industries can turn scarcity into abundance. Dairy producers have managed this feat by culling significantly fewer cows than they did in the past, reducing their need for replacement heifers.

The cheese markets soared. CME spot Cheddar blocks leapt 11.25ȼ to $1.93 per pound, their highest price since January. Barrels followed hot on their tail, climbing 11ȼ to $1.88. The widely anticipated increase in U.S. cheese output is underway, but the ramp up has been slower than expected. Cheese buyers who were waiting for heavy supplies and lower prices to lock in their summer needs are now scrambling to get their hands on some product.

The bulls feasted this week on news of booming U.S. dairy exports and signs that American dairy remains attractive to foreign buyers. Tuesday’s Global Dairy Trade (GDT) auction served as an appetizer. Buyers bid up nearly all products. Compared to the late-April auction, whole milk powder prices climbed 6.2% while Cheddar jumped 12%.

Despite the challenges, the national dairy herd and milk production continue to grow. In addition to rising year over year output, the spring flush is also driving ample milk availability in most parts of the country. Bottling demand is stable to softer and freeing up plenty of milk for processing. Spot milk for manufacturing could be obtained for about $5 under Class III prices in the Central region this week – significantly lower than the $1.50 discount available at the same time last year.

Every week, U.S. dairy producers send about 10,000 fewer milk cows to beef packers than they used to. That’s slowly adding up to more cows in the barn. Even so, dairy cow head counts are not as high as previously thought. After its quarterly survey, USDA trimmed its estimates of January and February milk cow inventories.

For producers who have been considering retirement for years, slim margins and high cow values offer a lucrative exit ramp. The auction docket is growing, which could allow producers to buy replacements and boost cull rates. Eventually, that could shrink the dairy herd. But for now, slaughter volumes remain low and milk output is on the rise.