Dairy Outlook
The dairy industry in the United States is having a moment in the sun. Dairy processing capacity in the United States is expanding as Americans have been red iscovering their appetites for cheese and butter while dietary trends favoring protein enriched foods grow the use of whey as a protein- rich food additive. But there are storm clouds on the market horizon related to increasing supplies of milk domestically and internationally.
According to the International Dairy Foods Association (IDFA), more than $11 billion is flowing into 53 new or expanded dairy manufacturing facilities across 19 states. These projects are slated to come online between 2025 and 2028. This includes a $59 million expansion in Virginia of the Shamrock Milk processing plant in Verona, just north of Staunton, scheduled for completion in 2028.
The past few years have been good for dairy farmers with favorable milk prices, low feed costs, and expanded adoption of new technology by dairy farmers. One notable example being technology for segregating bull semen used to breed cows by artificial insemination (see Timely Topics, Jan. 29, 2025). This technology allows dairymen to choose which cows give birth to daughters. The dairy farmer utilizing this technology is assured their very best cows will have daughters they need for cow replacements and the remaining cows can be bred to beef-type bulls that are better suited for the beef market and more valuable in that market channel. The sale of these half-bred beef calves into a very strong beef cattle market has been a handsome income supplement for U.S. dairy farms in recent years.
Meanwhile, the trend toward larger dairy operations continues with significant expansion of dairy operations in the corn belt and the Plains. These dairies often have 1,000 to 5,000 cows, which allow them to ship milk direct to processors on a daily basis. In contrast, most Virginia dairies are much smaller and therefore have refrigerated storage tanks that are emptied every other day by dairy processors with truck routes that pick up milk from multiple farms. The vast majority of the very large dairies found in the Midwest and West are independently owned and operated by families that have sought out locations conducive to largescale operations of 1,000 or more cows.
Some readers of this column may have previously read my description of agriculture in Virginia as being “a lot more like Ireland than Iowa.” With a few exceptions, Virginia has not been able to participate in the trend toward dairies with 1,000 or more cows due to its pattern of land ownership, small land parcels, and challenging terrain.
Indeed, Virginia has lost around half of its individual dairy farm businesses over the past 15 years as small dairies struggled with periods of low milk prices between 2012 and 2021. Yet by many measures of efficiency (volume of milk shipped per worker, milk production per cow, feed cost per unit of milk), Virginia’s remaining dairies are competitive and have been profitable. But Virginia is losing its longheld advantage in proximity to East Coast cities because less fluid milk is being consumed and improved extended shelflife technologies are enabling the shipment of dairy products greater distances.
Forecasts for milk supply suggest challenges for dairy farmers in the next two years and international supply indicators are already pointing to excess supply and lower prices. As has so often been the case, the capacity of dairy farmers to produce milk will outstrip the paying consumer’s demand for it and prices will fall. Hopefully, Virginia dairy farmers will be able to capitalize on the expanding demand for specialty dairy products.
