U.S. Dairy Industry Faces Tight Herd Numbers Until 2027

By Colbank | The Fence Post

The U.S. dairy industry is facing a potential shortage of its most important resource — milk cows. The number of replacement heifers available to enter the dairy herd as milk producing cows has already fallen to a 20-year low. Based on new CoBank research, replacements could fall even further over the next two years before a recovery begins in 2027. These declining heifer inventories could limit growth in the milk supply, a looming concern for dairy processors with expansion plans underway. The U.S. is currently experiencing an historic $10 billion investment in new dairy processing facilities expected to come online through 2027.

The decline in dairy heifers over the last several years is closely tied to beef and dairy market dynamics. Tight cattle supplies and record high prices for beef calves prompted many dairy farmers to produce more calves destined for beef feedlots and fewer to milk barns. At the onset of this trend, raising dairy heifers to enter the milk cow herd was a money-losing proposition due to extremely low heifer values and high rearing costs. While the economics have shifted and the shortage of replacement dairy heifers has sent values soaring, replenishing the pipeline of heifers available to enter the milking herd is a three-plus year proposition.

INFLECTION POINT

According to a new report from CoBank’s Knowledge Exchange, the national dairy heifer shortage could persist and grow deeper in the next two years. Based on CoBank’s predictive modeling, heifer inventories will shrink by an estimated 800,000 head over the next two years before beginning to rebound in 2027. In the meantime, dairy heifer prices have reached record highs and could climb well above $3,000 per head.

“The U.S. dairy industry stands at a unique inflection point,” said Corey Geiger, lead dairy economist with CoBank. “Beef sales are contributing a larger share of dairy farm profitability with each passing year and the market for beef-on-dairy calves shows no signs of slowing down. In order to maintain sufficient dairy cow numbers and milk production in the near term, dairy farmers will need to put the brakes on dairy cow culling. And that could be difficult given how much they’ve already pulled back over the past two years.”

The economic incentive prompting dairy farmers to produce calves destined for the beef supply stems from the historic contraction in the U.S. cattle supply, which currently stands at a 75-year low. Limited beef supply and strong consumer demand have driven beef prices to record highs.

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