Larger on-farm margins, driven by higher milk prices and lower feed costs, are encouraging farmers to increase milk output, analysts say.

October milk production, up 0.2% from a year ago, marked the third consecutive year-on-year gain after a 13-month stretch of lower output. Production is expected to continue moving higher versus the prior year in the fourth quarter of 2024 and into 2025, according to the latest dairy quarterly report by Rabobank analysts.

USDA estimates the dairy herd grew by 19,000 head in October, and cow numbers are up 10,000 head from a year earlier. But replacement cow values remain close to or at record highs in many parts of the country, limiting the ability of dairy operators to quickly increase cow numbers, the analysts said.

Total 2024 milk production is estimated to be 0.4% lower compared to 2023, while 2025 is expected to show a 0.9% YOY gain.

Milk prices

Following a Class III milk price average of $16.92 per hundredweight in the first half of the year, the price climbed sharply, peaking at $23.34 per cwt in October — the highest of any month since June 2022.

“A steep run-up in cheese prices driven by a short-lived mismatch in lower supply and higher demand drove the strength,” the analysts said.

Looking ahead, slightly lower milk prices than those highs are expected, but margins should remain positive when coupled with feed price declines, they said.

Production mixed

Dairy product production has been mixed, with milk volumes lower but largely offset by higher component production. Cheese output is just 0.1% higher year over year, with mozzarella up 3.8% but cheddar down 6.9% during the first three quarters.

Ample cream pushed butter production up 5.4% year over year. Whey protein isolate volume is up 46.1% year over year while dry whey is down 8.7%. Combined nonfat dry milk and skim milk powder production is down 14.2%.

Growing milk supply and expected continued higher component output should increase dairy product production in 2025.

Cheese demand

Cheese remains the shining star of the export world this year. Shipments have been higher, year-on-year, in each month through September and are up 20% year to date, with volume to Mexico up 34%.

But the analysts expect the higher cheese prices noted in recent weeks will slow the export pace in the upcoming months.

After a slow first half of the year, nonfat dry milk shipments were up 8% in the third quarter, with volume up 17% to Mexico.

Domestic dairy disappearance slipped lower year-on-year in the third quarter, driven by a 1.6% year-over-year decline in July — the steepest monthly fall since March 2022.

Outlook

Looking ahead, domestic demand is expected to recover into the fourth quarter due to easier-to-overcome prior year comparable data, the analysts said.

The analysts estimate milk prices in the first half of 2025 at 18.78 cwt. for Class III and $21.46 cwt. for Class IV. They estimate a Class III price of $19.01 and a Class IV price of $21.85 cwt. in the second half of the year.