In the past four months, US dairy producers have added almost 80,000 dairy cows to the herd, and the inventory of dairy cows is up 323,000 head (+3.5%) from the cyclical trough in June 2024. Now at 9.645 million head, the dairy cow herd is at the highest level in 33 years, providing a boost to both milk and beef production.

Food price inflation has been a constant topic of debate, especially as we enter the political season, but dairy prices have bucked the trend. In April, prices for dairy products and related items at grocery stores were 0.6% lower than the previous year, with cheese prices down 3.1%. More dairy cows, more milk per cow, and higher component yields have all combined to shore up dairy supplies and keep prices in check.

In past years, declining dairy prices would have been a source of concern and invariably resulted in a higher culling rate and herd contraction. This time around, however, dairy producers have continued to add cows. There are a couple of key reasons for this, and it is good news for US and world consumers. First and foremost, the dairy industry has been at the forefront in recognizing and responding to growing US consumer demand for protein. US dairy producers have far outpaced other major exporting countries in increasing component yields (butterfat and protein per pound of milk). Larger and more efficient operations, relying on genetic improvement, have been key in accomplishing this. The expansion in milk production and better yields have necessitated a steady expansion of processing infrastructure. A recent report from CoBank notes that the industry has invested nearly $12 billion in new processing plants and supporting infrastructure.

But productivity gains and efficiency improvements can only take you so far.  The recent surge in production would not have been possible without one additional component, beef. Producers have benefited from the recent jump in beef prices in two key ways. First, slaughter cow prices are currently 70% higher than they were just three years ago. With fewer beef cows available, dairy cows now make up a larger share of the cow beef supply feeding America’s hamburger demand. Second, and more importantly, calf values have skyrocketed, in part because of tight calf supplies but also due to the growing popularity of beef-on-dairy crossbreeding. According to USDA, in April the price of a 0–14 day dairy bull calf was $1,582/cwt compared to $291/cwt just three years ago and $60–80/cwt before 2020.

Given current industry incentives, we expect milk production to continue to outpace expectations in both 2026 and 2027. More importantly, the 320,000 dairy cows added in the last couple of years will help offset some of the shortfall created by the steady decline in the domestic beef cow herd.