Even though the overall beef-cow inventory stands at the lowest numbers since 1961, dairy cow numbers have bucked this trend by growing 114,000 head over the past 12 months. Most of that growth has taken place since January 2025 as 90,000 additional cows brought the herd total to 9.445 million head. That’s the highest U.S. dairy cow population dating back to July 2021.
Four states have been responsible for nearly all the growth – Texas up 45,000 head; Idaho, 31,000; Kansas, 26,000; and South Dakota, 18,000. It’s no coincidence that these locations have the newest dairy processing assets coming online. On the flip side, the Pacific Northwest has faced some headwinds and cow numbers were off 12,000 head during the past year. Retention rates, not heifer inventories, have been them bedrock for herd growth. Dairy heifer numbers have dropped to a 20-year low, driving heifer replacement values to an all-time high at $2,870 per head (Exhibit 1).
To shore up inventories, dairy farmers culled 99,400 fewer dairy cows through late June when compared to the same time last year building on a trend over the past 95 weeks as dairy farmers sent 607,300 fewer head to slaughter (Exhibit 2). This pullback on culling indicates margins to produce milk have been favorable enough for dairy farmers to retain cows for milk production versus sending them to slaughter to capture record beef prices. As a result, U.S. milk production increased by 1.6% year-over- year in May – the highest monthly growth in well over two years. But the bigger story
continues to be growth in milk components, largely butterfat and protein. That growth has doubled and even tripled gains in milk output over the past 12 months (Exhibit 3).
Dairy markets remain in a delicate balance as domestic demand has been slightly sluggish and is being felt in food service. In the U.S., over half of all dairy moves through food service, which is especially important for Mozzarella cheese. To that end, major pizza chains have posted slower same-store sales during the first quarter with Pizza Hut’s sales shrinking 5%, Papa John’s off 3%, and Domino’s, the largest pizzeria in the category, down 0.5%. On the flip side, Taco Bell, Pizza Hut’s Yum brand sister store, posted 9% growth with the help of price promotions.
Protein continues to be regarded as a hero ingredient and dairy is a proven winner in this category. To that end, a record $8 billion in U.S. dairy plant investment was on the books in January 2025. That number leapt to over $10 billion by April as Chobani announced $1.7 billion in new facilities to enhance yogurt production. Overall, yogurt set a new production record of 4.76 billion pounds in 2024. This year’s sales were off to a great start with May up nearly 11%, according to data from Dairy Management, Inc.
While agricultural exports have faced headwinds with a never-before-seen $20 billion deficit through April 2025, dairy has been a bright spot with $3.8 billion in exports and $2.2 billion in imports for a net trade surplus of $1.6 billion through May 2025. Cheese and butter exports have been buoyed by lower U.S. prices when compared to the largest two dairy exporters – the EU and New Zealand.
Through May 2025, the U.S. has already exported 88 million pounds of butter and anhydrous milk fat. By comparison, the U.S. exported 101.1 million pounds of those two products all last year. This means that U.S. butter makers have sold 87% of last year’s sales volume in the first five months of the year (Exhibit 4).
