By most all accounts, 2024 was a remarkable time for the dairy industry. The question is, “Can 2025 match last year’s momentum?”
The answer lies in a few key factors, including domestic production, global demand and political moves put forth by the Trump administration. Above all, risk management will be critical for dairy operations to survive the potential rollercoaster ride of 2025.
“In a few minutes I cannot paint a very detailed picture of what’s going on in the world, but I’ll paint the big picture,” Marin Bozic said. “… I think [President Donald] Trump is going to be a major force affecting both the world affairs as well as domestic development.”
Mike North agreed.
“We have some big problems to address,” he said. “They’re much broader than just the scope of agriculture, and we’re going to go at them head on.”
Bozic, founder and CEO of Bozic LLC; and North, president of the producer division at Ever.Ag, presented “Dairy Market Outlook for 2025” at the Dairy Business Association’s Dairy Strong Conference Jan. 16 in Green Bay, Wisconsin.
Big factors influencing dairy markets
While there are many elements that lead to the price producers receive on their milk check, Bozic and North spoke of three that may hold the most influencing power in the year ahead. Those include global markets, increased processing capacity across the U.S. and feed costs.
Relations with major trade partners
U.S. dairy exports reached historic heights in 2024 with sales surpassing $8 billion. As dairy product sales surged in major partnerships, the grander agriculture export scene was less vibrant. The year ended with a trade deficit over $2 billion.
“If you’re the secretary of agriculture and you’re president of the United States, you’re not focusing just on dairy; you’re focused on all ag,” Bozic said. “We are importing much more than we are exporting when you look at the federal trade exchange between us and the rest of the world.”
Trump’s approach to finding fair deals for the U.S. is nothing new in his second term. The president’s unique tactic was evident in his first four years in office, North alluded.
“We’re going to take it really fast,” North said. “We know he comes at it quick and, sometimes, the actions feel a little bit brutal. … We expect there’s going to be some heavy-handed plays as we walk into [2025].”
Mexico is a well-rounded trade partner for the U.S. in terms of dairy and other agricultural products.
“They’ve been an incredible partner for us,” North said of Mexico. “That’s one thing we’re watching a little bit more closely as we look at the balances of supply and demand through 2025. Mexico is going to be an important one for us.”
Overall, domestic cheese consumption was mediocre in 2024, but exports of the product were unprecedented.
“Remember 2024, month after month after month through the first half of the year, we were talking about new record exports,” North said. “It was a great time. We moved a lot of cheese, and big export trade kept everything alive.”
Such growth in the global marketplace began in 2023 when lackluster prices for cheese enticed other countries, namely Mexico, but also countries within Central America and Southeast Asia. Part of Mexico’s significance has been their committed purchases of cheese month after month, being the leader in that category of dairy exports.
“They stepped in and made some massive purchases of cheese, but also powders,” North said.
Demand seems good in the new year, but North recognized the vital role dairy sales across borders have played in boosting prices. In September and October 2024, data revealed futures on mozzarella traded in Europe were matching up against the forward curve in the U.S., creating a disparity in cheese prices and triggered the sale of U.S. products. From November 2023 to November 2024, cheese stocks fell exactly by the same amount cheese exports grew, according to North.
“It’s pretty easy to see what the impact was with exports [in 2024],” North said. “If we can repeat this going into 2025 with some big, big export volume, that would be great.”
As of January, U.S. prices were a bit more expensive than other global players.
Increased processing capacity
The kicker with cheese stocks is that there is additional pressure to move product as major expansions have and will continue to come online over the course of the year.
“If you start taking a look at production capacity on the processing side, we’re not slowing down at all,” North said.
By the end of 2025, there may be an extra 360 million pounds of cheese based on production capacity and comparing that to assumed domestic demand growth of 2%. There will be compromise, of course. Currently, the U.S. dairy herd cannot support the milk demand for these plants to run at full capacity. This will likely cause older, less efficient plants to shutter.
An additional plus on the industry’s side is the massive consumer trend of protein consumption. In 2024, alone, there was 20% growth in high-protein whey production.
“As we direct more whey toward these products, we’re not making as much dry whey, leading to dry whey inventories dropping to the lowest in over a decade,” North said. “Consequently, prices have been on the rise and enjoying a run that carried us all through 2024 and seemingly willing to walk through 2025.”
This is important for Class III prices. Last year’s move from the spring low to the year-end high added nearly $3 to Class III values, North said.
Feed costs and margins
The USDA’s World Agriculture Supply and Demand Estimates in January indicated extraordinary yield changes. Corn production was estimated at 14.9 billion bushels, down 276 million as a 3.8 bushel-per-acre cut in yield to 179.3 bushels was partially offset by a 0.2-million-acre increase in harvest area.
“That’s a massive move,” said North of the bushel cut. “This number happens to be the exclamation point on the year. Seldom, if ever, do they go back and change it, so whatever that yield is today will stand as we go forward.”
The change in yield lowered stocks-to-use to under 11. Historically, North said, when the change in stocks have hit this threshold as forecast, prices are often north of $5 per bushel.
“I don’t want to scare you,” North said. “… We have to respect what the USDA did. When they made that change, they fundamentally changed the risk picture for your feed situation. If you’ve not addressed what’s going on in the feed side of your business, you must.”
The Argentine corn crop recently saw rains which alleviated concerns for the commodity. If the dry weather returns, more premium will be added to the market. Soybeans tell a bit different story with the world awash in the commodity as the U.S. continues catering to growing energy and prosperous livestock industries.
Dairy Margin Coverage margins for program year 2024 revealed some of the highest margins in program history. Even with higher feed costs predicted, forecasts indicate a similar outlook for 2025.
Protect profits with risk management programs
Over the last three quarters of 2024, the Dairy Revenue Protection (Dairy-RP) program has secured about 35% of U.S. milk production. With the Federal Milk Marketing Order referendum passed, Bozic said he hopes to see additional milk covered for the remainder of the year.
The validity of an insurance like Dairy-RP has been evident since the program’s inception in 2019. Bozic shared data that reflected indemnity payments issued throughout the lifetime of the program.
“We had five quarters in a row with positive indemnities from 2023 all the way to the summer of 2024. We had really, really good payout in Dairy-RP,” Bozic said. “You’re going to have these clusters … several quarters in a row with heavy indemnities, then several quarters of great milk checks and no indemnities. That’s perfectly fine; that’s the way the program is designed to work.”
Theoretically, for every $1 producers put into insurance, they should receive $1.67 in return. Bozic analyzed Dairy-RP for producers in Wisconsin over the course of the program’s six years. What he found was, cumulatively from 2019 to 2024, producers put in $150 million and received $233 million; for every $1 in, $1.55 was returned.
“Clearly, this is a product that is well designed, well rated, well subsidized and very useful,” Bozic said.
Preparing for 2025
There are positive trends carrying over from 2024 into 2025 with massive possibilities for market fluctuation based on these major factors, and others to a lesser degree. The best decision a producer can make is to plan.
“On one hand, we can praise the Lord for the great weather and be kind of optimistic about the future,” Bozic said. “On the other, we can also prepare for calamities.”
