Dairy Market Challenges: Lower Prices and Higher Milk Production

The US dairy market is entering a challenging phase, marked by rising milk production and declining prices. The USDA’s April 2025 World Agricultural Supply and Demand Estimates (WASDE) report projects US milk production at 226.9 billion pounds, an increase from the prior estimate, while prices for key dairy products like butter, cheese, nonfat dry milk (NDM), and whey are expected to fall, dragging the all-milk price down to $21.10 per cwt.
Rising Production Meets Falling Prices
The WASDE report highlights a notable increase in US milk production for 2025, now forecasted at 226.9 billion pounds, up from the previous estimate of 226.2 billion pounds. This rise is driven by larger cow inventories and a slight increase in milk yield per cow, reflecting improved productivity in the dairy sector. However, this supply growth comes at a cost: prices for dairy products are projected to decline across the board. Cheese prices CSC1! are lowered to $1.79 per pound (down from $1.81), butter BTR1! to $2.445 per pound (down from $2.515), NDM to $1.22 per pound (down from $1.255), and dry whey DY1! to $0.51 per pound (down from $0.525). As a result, the Class III milk price DC1!, tied to cheese and whey, is reduced to $17.60 per cwt, while the Class IV price GDK1!, linked to butter and NDM, falls to $18.20 per cwt. The all-milk price, a key indicator for dairy farmers, is now projected at $21.10 per cwt, down from $21.60.
This price decline reflects not only the increased domestic supply but also broader market dynamics. The WASDE report notes that higher milk production is putting downward pressure on prices, as supply outpaces demand growth. Additionally, the dairy market is grappling with weaker demand for certain products, particularly in export markets, which further exacerbates the price squeeze.
Trade Barriers and Export Challenges
Trade dynamics are adding to the dairy sector’s challenges. The WASDE report indicates that imports on both a fat and skim-solids basis are lower, primarily due to additional duties on imported dairy products like butter fats and milk protein products. For example, fat basis imports are down to 8.5 billion pounds (from 8.9 billion), and skim-solids imports are reduced to 6.7 billion pounds (from 7.0 billion). These tariffs, a byproduct of the ongoing US-China trade war and broader protectionist policies, are limiting the availability of imported dairy products, which could otherwise offset domestic oversupply.
On the export side, the outlook is mixed. Exports on a skim-solids basis are reduced to 44.6 billion pounds (down from 47.5 billion), driven by lower shipments of dried skim milk products and whey products, which face weaker global demand and competition from other dairy-producing regions. However, fat basis exports are slightly up at 11.8 billion pounds (from 11.7 billion), supported by higher shipments of butter. Despite this uptick, the overall export picture remains challenging, as global trade tensions-such as tariffs on US pork and beef exports to China-indirectly impact dairy by slowing economic growth in key markets, reducing demand for dairy products.
Domestic Demand and Market Implications
While export markets pose challenges, domestic demand for dairy products in the US remains relatively stable. The WASDE report projects fat basis domestic use at 223.1 billion pounds, unchanged from the prior estimate, and skim-solids domestic use at 187.3 billion pounds, up from 184.3 billion. This stability in domestic consumption provides a buffer against export declines, but it’s not enough to offset the oversupply-driven price drop. Dairy farmers, facing an all-milk price of $21.10 per cwt, may see compressed margins, particularly as input costs like feed remain elevated amid broader inflationary pressures.
For investors, this environment signals caution in the dairy sector. The lower all-milk price could pressure the profitability of dairy producers, especially smaller operations that lack the scale to absorb cost increases. However, larger, vertically integrated dairy companies with diversified product lines-such as those producing cheese, butter, and yogurt-may be better positioned to weather the downturn by leveraging economies of scale and tapping into stable domestic demand.
Investment Strategies in a Challenging Dairy Market
Despite the challenges, the dairy market offers selective opportunities for long-term investors willing to navigate the current headwinds. The stability of domestic demand, coupled with the potential for export recovery if trade tensions ease, provides a foundation for strategic investments. Larger dairy companies with strong balance sheets, such as Dairy Farmers of America (DFA), which reported $2.8 billion in revenue in 2024, could benefit from their scale and ability to manage costs effectively. DFA’s cooperative model, serving over 12,500 farmers, positions it to maintain stability even as prices fall to $21.10 per cwt.
Another avenue for investment lies in dairy-focused ETFs, which offer diversified exposure to the sector. The Invesco DB Agriculture Fund (DBA), with 10% of its portfolio allocated to dairy futures, provides a way to gain exposure to the broader agricultural market while mitigating the risks of individual dairy stocks. DBA’s assets under management grew to $800 million in 2024, reflecting investor interest in agriculture as a hedge against inflation, despite dairy’s current price challenges.
Investors might also consider companies in the dairy processing and consumer goods space, where innovation and branding can drive growth. For example, Danone North America, known for its yogurt and plant-based dairy alternatives, reported a 6% sales increase in 2024, driven by consumer demand for healthier options. Danone’s ability to adapt to shifting consumer preferences-such as the growing popularity of low-fat dairy products-makes it a resilient player in a price-constrained market.
Risks to Monitor
The dairy market’s challenges come with notable risks. Persistent trade barriers, such as the tariffs on butter fats and milk protein products, could further limit export recovery, with skim-solids exports already down to 44.6 billion pounds. Additionally, the projected increase in milk production to 226.9 billion pounds may exacerbate oversupply if domestic demand growth stalls, potentially pushing prices even lower than the current $21.10 per cwt forecast. Inflationary pressures on input costs, such as feed and labor, also pose a risk to dairy producers’ margins, particularly for smaller firms.

The US dairy market faces a challenging landscape with milk production rising to 226.9 billion pounds and the all-milk price falling to $21.10 per cwt amid trade barriers and export declines. While these dynamics pressure dairy producers, they also create selective opportunities for investors. Larger firms like Dairy Farmers of America, ETFs like the Invesco DB Agriculture Fund DBA, and innovative consumer goods companies like Danone DAO1! offer pathways to navigate the downturn. By focusing on resilient players and monitoring trade developments, investors can position themselves for long-term growth in the dairy sector, even as it grapples with oversupply and price challenges in a volatile global market.
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