Dairy market outlook 2025: Challenges, opportunities and policy considerations
- amy55735
- Jun 5
- 2 min read
While export demand and record-high processing investment offer bullish momentum, policy uncertainty combined with soft domestic demand and rising milk solids production efficiency is exerting downward pressure.
The dairy markets in 2023 and 2024 have shown us once again how fast and far the pendulum of profitability can swing. Income over feed costs (IOFC) fell sharply to multiyear lows in mid-2023 before rebounding in the first half of 2024, resulting in a $12.05 per hundredweight (cwt) swing over 14 months. However, following the late-2024 peak, IOFC has been generally declining. As 2025 progresses, dairy markets remain soft with somewhat mixed – though more bearish than bullish – signals. That said, prices and IOFC have, thus far, held up better than many expected. The scale and duration of current market pressures, however, remains uncertain.
On the bullish side, expanded dairy processing capacity will be increasing demand for farmers' milk, while high beef prices have bolstered that revenue stream for the dairy farm. Beef prices have encouraged optimization of herd management and dairy replacement inventory. Arguably, the greatest bearish factors in the first quarter of 2025 have been policy uncertainties, such as potential tariffs, reductions in food assistance programs, changes at the USDA/FDA and shifts in immigration and labor policies. Additionally, as new dairy processing facilities become operational in 2025 and beyond, the market must absorb eventual increased product availability, which could pressure prices downward. Furthermore, anticipated Federal Milk Marketing Order (FMMO) reforms, set to take effect in 2025 (Table 1), are anticipated to decrease the all-milk price by approximately 30 cents per cwt, with a more pronounced impact on Class III prices.
Leonard Polzin
May 28, 2025
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