National Dairy Month is quickly coming to a close, but it’s not too late to reflect on the current market trends shaping the industry.
As of this writing, Class III dairy futures are recovering slightly after posting fresh contract lows for the July delivery period. Prices had traded as high as $19 per cwt earlier this year before sinking to sub-$16. A large factor behind the decline has been record milk production, which has weighed on cheese and dairy product markets.
Record milk production is overwhelming even record export demand, but a shrinking replacement-heifer pipeline could eventually limit future production growth.
Record milk production continues in May
The USDA’s latest Milk Production report released on Monday showed that output was estimated at 20.6 billion pounds, up 2 percent year-over-year, and a record for any month.
That brought total production up to 99 billion pounds for the calendar year, marking a 3 percent increase and a record pace. The USDA projects milk production to increase 2 percent in 2026 from last year.
The increase has been twofold; milk per cow has risen rapidly over the past decade, and the milk cow herd has rebounded substantially since the end of 2024. Milk per cow in May averaged 2,138 pounds per cow, up 8 pounds from May 2025 and also a record for any month. Output increased by 28 percent from 18,960 pounds per cow annually in 2004 to 24,178 pounds in 2024, according to the USDA.
New technologies and advanced management practices are among factors that have contributed to the increasing productivity of cows on U.S. dairy farms. That includes advanced breeding technologies, computerized feed delivery and milking systems, and other management practices.
Milk cow numbers advance
Another major feat by the dairy industry has been the rapid growth in the milk cow herd over the past year and a half. In May, the number of milk cows sat at 9.665 million head, up 184,000 head or 2 percent from a year ago. Additionally, the inventory has grown 3 percent since the end of 2024 to the largest in over 30 years.
The growth has not been from an influx of heifers entering the herd, either. Rather, producers have been opting to keep their older cows and breed them to beef bulls to capitalize on record cattle prices. Last year, we saw milk cow slaughter numbers fall to the lowest since 2008.
Additionally, milk replacement heifer inventories have been tightening and are at their lowest level in decades. CoBank expects dairy replacements to begin a slow rebuild over the next two years. For now, heifers represent a significantly low percentage of the total dairy herd.
The number of heifers relative to dairy cows began retracting in 2023, falling to 27.9 percent. Today, that ratio lands at only 26.1 percent. In response, replacement heifers are fetching prices upward of $4,400 in some states.
Dairy product exports at record pace
Dairy product exports have been a bright spot for the industry. During the first four months of 2026, dairy exports by value totaled $3.33 billion, rising 10 percent year-over-year. That also surpasses the pace in 2022, when dairy shipments were a record.
Exports of butter, milk fat, milk powder, and cheese saw substantial growth last year. Growth was observed in export value for shipments to East Asia (16 percent), South America (14 percent), Central America (19 percent), the Middle East (48 percent), and North Africa (106 percent).
Ample supplies of milk in the U.S. have kept farm-level prices under pressure. Exports have helped absorb much of the excess supply, resulting in growth in global market share. However, there is still excess supply, leading to bearish fundamentals. In short, higher exports have been a function of higher supply.
Interestingly, milk prices have not been the primary driver of recent herd expansion. While current fundamentals remain bearish due to record milk supplies, historically tight replacement inventories suggest the pace of herd growth could slow over the next several years. That may eventually provide support for dairy prices once production growth begins to moderate.
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PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. FUTURES TRADING INVOLVES SUBSTANTIAL RISK AND IS NOT SUITABLE FOR ALL INVESTORS.