Whole Milk Price Analysis - May 2025

Summary

Key Findings:

• Current whole milk retail price of $4.022 per gallon in May 2025 reflects a 4.1% year-over-year increase despite recent monthly declines
• USDA has dramatically cut 2025 all-milk price forecasts by $1.00 to $21.60 per hundredweight, signaling potential market softening
• Highly Pathogenic Avian Influenza (HPAI) continues to impact dairy herds with 925 confirmed cases across 16 states as of January 2025
• U.S. dairy herd expansion continues with 9.365 million head in January 2025, driven by improved profitability ratios

The current milk price environment reflects a complex interplay of disease pressures, production adjustments, and evolving market forecasts that suggest potential price moderation ahead.

Current Price Trends

Recent Performance

The latest BLS data shows whole milk priced at $4.022 per gallon in May 2025, representing:

• -1.3% decline from April 2025 ($4.074)
• -0.1% decline over the past 3 months
• -2.8% decline over the past 6 months
• +4.1% increase over the past 12 months (+$0.158)

Historical Context

Looking at the 24-month trend, milk prices have shown significant volatility:

• Peak: $4.218 in November 2022
• Trough: $3.210 in May 2020
• Current Level: Near the middle of the recent range, suggesting market stabilization

Key Market Factors

Production and Supply Dynamics

The U.S. dairy herd reached 9.365 million head in January 2025, marking year-over-year growth driven by improved milk-to-feed ratios that rose from 1.73 in January 2024 to 2.35 in January 2025. However, low replacement heifer numbers indicate future expansion may be moderate.

USDA forecasts for 2025 milk production have increased to 227.3 billion pounds, though industry experts question the reliability of USDA's forecasting methodology given contradictory predictions of higher cow inventories but lower milk output per cow.

Disease Impact

Highly Pathogenic Avian Influenza (HPAI) was first confirmed in U.S. dairy herds in March 2024, with 925 cases confirmed across 16 states as of January 2025. Infected dairy cattle show clinical signs including reductions in milk production, though the full market impact remains uncertain.

International Trade Factors

China, the largest single importer of dairy products, backed off import levels in 2024 related to ongoing economic issues. However, the adoption of Westernized dietary staples like pizza and bubble tea is pumping up dairy demand globally, especially in Asia, where per capita consumption remains exceptionally low.

Price Forecast Revisions

USDA Projections

The USDA's March WASDE report dramatically cut the 2025 all-milk price forecast by a full dollar to $21.60 per hundredweight, representing a significant downward revision from earlier projections. For a 500-cow dairy producing 25,000 pounds per cow annually, this forecast reduction represents approximately $125,000 in lost revenue.

Market Outlook

Class III and IV milk prices are projected to be steady to a bit lower by the second half of 2025. Higher values for butterfat ingredients are incentivizing dairy farms to raise production, which should ease prices in the second half of 2025 into 2026.

Economic Pressures

Consumer Impact

Inflation remains a concern for households challenged by increasing housing, food/grocery, and household consumable prices. If households pull back on spending at restaurants and take-out, this could impact cheese usage for pizza versus purchases of yogurt and fluid milk for at-home use.

Feed Costs and Margins

The all-milk price in January 2025 averaged $24.10 per hundredweight, up $4.00 from January 2024, while feed costs were level to slightly lower, resulting in farm milk margins above feed costs of $13.85 per cwt.

Policy and Regulatory Changes

Federal Milk Marketing Orders

Federal Milk Marketing Order (FMMO) modernization is being implemented during 2025, with key modifications including increasing make allowances and Class I price differentials across the country - the first nationwide update since 2008.

Farm Bill Extension

Congress enacted a one-year extension of The Farm Bill on December 21, 2024, maintaining the status quo for the Dairy Margin Coverage program while a new bill might increase Tier 1 eligible milk production.

Market Outlook

The whole milk market in 2025 faces a complex set of pressures that suggest continued volatility. While current retail prices remain elevated compared to historical averages, the significant downward revision in producer price forecasts indicates potential softening ahead. The ongoing impact of HPAI, combined with evolving international trade dynamics and domestic policy changes, will likely continue to influence price movements throughout the year.

Key risks to monitor:

• Further HPAI spread and production impacts
• Chinese import demand recovery
• Weather-related supply disruptions
• Consumer spending patterns amid economic uncertainty

The market appears to be transitioning from a period of supply constraints and elevated prices toward a more balanced supply-demand dynamic, though significant uncertainties remain.