December 22, 2025

Current trends shaping the U.S. dairy industry

By Lori Fetzer
Compeer Financial

The U.S. dairy sector continues to evolve as producers navigate a changing marketplace marked by strong beef demand, shifting margins, component-driven pricing, and long-term investment opportunities. Several key themes are emerging across both farm and processor levels, influencing profitability and strategy heading into 2026.

Beef x dairy integration

The integration of beef genetics within dairy herds remains one of the most significant industry developments. With beef demand surging but national herd rebuilding lagging, dairy producers are filling the supply gap. Higher beef prices — providing an additional $4 to $4.50 per hundredweight of income compared to the historical $1 to $1.50 — are supporting margins and helping offset milk price volatility.

Many dairies are increasing cow numbers to gain access to more calves, keeping pregnant cows that might otherwise be culled. This shift could lead to a short-term rise in milk production from late 2025 through early 2026. As market dynamics tighten, producers are expected to reevaluate culling decisions, while beef heifers are increasingly retained domestically for herd rebuilding. Interest in Livestock Risk Protection (LRP) programs is also rising as producers seek to lock in returns.

Components and basis trends

U.S. producers have successfully met consumer demand for higher-fat, higher-protein milk products, driving notable changes in milk composition and basis levels. Butterfat levels have climbed 13% over the past decade.

However, butterfat growth has outpaced protein, creating challenges for some processors. With many capping butterfat payments around 4.5% or even deduction for excess fat, optimizing herd genetics for balanced components is becoming increasingly important for profitability as well as understanding the needs of your processor.

Demand dynamics

While domestic and global dairy demand remains steady, additional milk supply is weighing on prices. More milk means more dairy products, and global inventories are swelling, suggesting continued price pressure into spring 2026. Base or quota programs could resurface to manage production growth. Importantly, this is not a weak demand story but rather an oversupply issue as the market digests new processing capacity.

Why processors are investing

Processors continue to expand capacity to align with long-term growth. U.S. dairy output is expected to rise by 15 billion pounds by 2030. Exports are strengthening as U.S. dairy gains a global reputation for safety and quality.

Domestically, consumer demand for high-protein products is surging: cottage cheese consumption is up 20%, and protein beverages such as Starbucks protein drinks continue to be developed. Per-capita dairy use reached a record 661 pounds in 2023, driven by a doubling of cheese consumption over 50 years and the first growth in fluid milk use since 2009.

Lori Fetzer is Director Animal Agriculture – Dairy at Compeer Financial, a Vision Partner of Professional Dairy Producers^®. She can be reached at lori.fetzer@compeer.com.