Two months ago, we discussed some of the factors affecting which way dairy pricing might swing as herd sizes have continued to grow. As we discussed, beef has continued to garner record-setting prices, and many dairy farmers strategically decided that any decrease in dairy prices could be offset with increases in beef revenue. After all, dairy farmers have had the ideal profile to expand:
- Dairy farmers have built-in infrastructure and know how to raise cattle.
- Feed prices have been very favorable. Corn has stabilized after extreme volatility from 2021 through 2023 while soybean meal has hit a 9-year low.
- The number of milk plants increased to meet consumer demand, and an increase in herd size for milk demand sets the stage for an increase in future beef sales*.
However, have we reached a tipping point where dairy expansion into beef is exacerbating an already fragile bear market and eating significantly into dairy pricing? Let’s explore the fundamentals producers are facing, what needs to work through the system, and the implications for your operation, regardless of whether you have expanded to beef.
Low Demand and Higher Capacity Is Pushing Prices Deep Down into Bear Territory
Contrary to the optimism driving milk plant expansion over the past year, demand has not kept pace with capacity. Declining butter demand had dragged Class IV milk prices by nearly 45% from the summer highs of $19.00/cwt in June to almost $13.75 in late November as tracked on the second-month futures contracts. Furthermore, it has been reported that some milk plants are only paying for butterfat up to a certain level, encouraging producers to cut back on the high components.
While you might assume Class IV milk is approaching a low, unfortunately it could still fall. Historically, it’s not uncommon for prices to decline to around the $13.00 level. Take a look at the chart below, which shows the lowest point second-month Class IV milk price of a bear market cycle from 2012 through 2021. It’s important to note that the $9.99 low during Covid may have been a bit extreme, due to the black swan Covid event and panic across all markets. However, with that included, the average low over that stretch was $13.63. Following 2021, there was a shift in the dairy herd, which led to better prices. In 2022, the low was $19.57, 2023 was $17.51, and 2024 was $19.02. So far in 2025, the low on the second month chart has been $13.35 (as of November 30, 2025).
In contrast, Class III milk has been holding at “middle of the road” prices near $16.00 as of late November. Much of the price support is driven by spot whey. Over the past month and a half, strong demand has boosted the price by about $0.24/lb to nearly $0.80/lb, the high for the year. However, cheese has lacked holiday momentum and presents a concern for Class III milk. At $1.60/lb, the spot cheese block/barrel average price is starting to retreat to the lower end of the range and risks hitting its lowest price since April 2024. As we discussed with butter inventories, extra production coming online from new milk plant expansion will likely increase inventories and apply downward pressure on prices. Our research shows recent lows to watch on Class III are the 2024 low of $15.46 and the 2023 low of $13.93. A glut of production could eventually push the market to those levels, which would line up closer to where Class IV is trading.
Bottom line, for Class IV and Class III milk, increased production capacity and lower demand present ongoing downward risk for milk prices.
Dairy to Beef Is a Further Drag on Dairy Prices
Typically, when we experience a decrease in prices deep into bear territory, culling increases and older cows are retired earlier. The high price of beef, and more specifically newborn calves, has thrown a wrinkle into this tried and true solution to higher prices. To put things into perspective, we have a growing herd size problem with a record 9,581,000 milking cows in the U.S. as of September 30. This is up a whopping 228,000 head from the same month last year and up 74,000 head from the prior peak in May 2021. Much of that run-up has occurred from April to September of 2025 with an average increase of 29,000 head per month. This has led to year-over-year milk production growth of 3.40% in August, 3.80% in September, and 3.70% in October. This type of growth just isn’t sustainable and the market has noticed.
So why is the herd growing so fast? As mentioned, slaughter numbers are down drastically this year. Although the data is a bit outdated due to the government shutdown, through the week ending September 13, total dairy cows slaughtered in the U.S. were down 5.40% from last year. This is also down 14.60% from the average of the previous five years. Instead, producers are milking cows longer and are less eager to cull cows. Record beef prices (that continue to make new highs) and previously profitable milk prices are likely the two reasons cows are being milked longer. If an older cow’s milk is still profitable, and if that older cow can give birth to another $1,300 calf (estimate) and go through another milk cycle, there’s reason to hold onto cows longer. Until producers AS A WHOLE begin to contract on herd size, dairy prices will likely continue to sag under the weight of too much supply in addition to too much inventory and too low demand.
Will Seasonality Save the Day?
In a typical year, the U.S. dairy market tends to see low milk prices at the start of the year, while production is heavy and post-holiday demand is light. The market tends to struggle through Q1 and into the start or middle of Q2, before finding bottoms sometime around April and May. This time of year is viewed as the “Spring Flush,” a time when production is the heaviest. After that, the market believes production tends to decrease going into the hotter summer months and the market might post a rally, often boosted when school is back in session. Demand then starts to pick up going into the holiday season.
Applying this seasonal analysis to our current situation, there is still likely some downward pressure on Class III. Class IV is trading near its historical lows and Class III could get dicey here, especially if whey can’t hold near all-time highs. The lack of a holiday rally this year has put a damper on prices, and demand could still follow the seasonality pattern and cool off over the next few months. Though there are no guarantees this year’s market will follow this pattern, the market believes production will pick up at the start of the year and into the Spring Flush. With milking cows going up an average of 29,000 head per month and no uptick in slaughter rates, the industry may still be in expansion mode for a bit. All these factors in tandem may lead one to believe it will likely get worse before it gets better.
Plan to Manage This Downward Pressure
For now, use the tools available to you to protect yourself over this rough stretch. The market has already fallen from the highs, and – as we’ve discussed – it can get worse, especially in Class III. Over the past 15 years, Class III milk prices in the first quarter of the year performed the worst by a fair margin, and it looks like that could be the case again this year. Lower prices are needed to fix the supply situation and to encourage producers to slow expansion and slaughter more cows. If that plays out, the market could be in recovery mode by early next summer – especially if feed keeps pushing higher. The next few months may look bleak, with a light at the end of the tunnel. Protect your milk price in the short term, should this scenario play out.
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©December 2025. Total Farm Marketing. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices may have already factored in the seasonal aspects of supply and demand. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Total Farm Marketing and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies.
Author
Evan Disher