Record Milk Production, Shrinking Herd Pipeline

By Daniel Munch

Key Takeaways

• Record milk production masks underlying herd strain. U.S. milk output is reaching record levels, but those volumes reflect short-term herd management decisions rather than durable expansion.
• Herd signals are increasingly distorted. Historically low culling, an aging cow herd and a shrinking pool of replacement heifers mean milk pricing is no longer the primary signal guiding herd decisions, limiting the industry’s ability to adjust gradually to changing market conditions.
• Beef-on-dairy economics are tightening the replacement pipeline. Strong beef prices and beef-on-dairy premiums have boosted near-term revenues but reduced the number of dairy-bred heifers available to sustain future milk production.
• Global supply growth is pressuring prices while boosting exports. Expanding milk production in the U.S. and other major exporting regions has weighed on farm-level prices even as it has made U.S. butter and cheese highly competitive abroad, supporting record export volumes that do not fully offset on-farm margin pressure.

U.S. milk production is setting records, but those volumes are sending increasingly misleading signals about the health of the dairy sector. Milk cow inventories are at their highest level since 1993, even as replacement heifer numbers have fallen to their lowest point since 1978 — a divergence driven by short-term herd management decisions rather than true expansion.

Strong beef prices and elevated beef-on-dairy premiums have encouraged farmers to keep cows in production longer and shift breeding toward beef genetics. While that strategy has provided an important income offset through calf sales, it has also inflated milk supply and dampened farm-level milk prices, worsening returns on the milk side of the business even as total farm revenue appears more resilient.

Lower milk prices have improved U.S. competitiveness abroad, supporting record cheese and butter exports in 2025. But this export-driven relief masks a growing imbalance at home: today’s production gains rely on older cows and a shrinking replacement pipeline. This Market Intel examines how current supply strength is amplifying price pressure, distorting market signals and setting the stage for tighter and potentially more volatile milk markets ahead.