Expanding milk production and growing dairy herd sizes in the United States are continuing to weigh on global dairy markets, offsetting the benefits of stronger consumer demand, robust exports and favourable policy support.
According to the latest U.S. Department of Agriculture (USDA) Milk Production Report, milk output in the country’s top 24 dairy-producing states rose 2.4 per cent year-on-year in May to 19.8 billion pounds, reinforcing expectations that ample supplies will keep dairy prices under pressure in the near term.
The report showed average milk production per cow increased to 2,143 pounds during the month, up nine pounds from May 2025. Meanwhile, the dairy herd expanded to 9.23 million head, an increase of 182,000 cows compared with the same period last year.
Supply Outpaces Demand Gains
The sustained growth in milk production comes despite several positive demand drivers for the U.S. dairy sector.
Higher protein consumption, resilient export demand and policy initiatives—including proposals to restore whole milk in school meal programmes and revised dietary guidance—have strengthened the long-term outlook for dairy consumption.
However, analysts say these demand gains have yet to translate into stronger farmgate prices as milk supplies continue to expand faster than the market can absorb.
“The market is finding it difficult to generate sustained price strength while milk production continues to rise month after month,” industry observers noted.
Larger Herds Signal Continued Production Growth
The increase in dairy cow numbers suggests milk supplies may continue to expand during the second half of the year.
While herd expansion accelerated during the latter half of 2025, producers have maintained nearly 200,000 additional cows each month during January-May 2026 compared with the same period a year earlier.
This trend points to continued production growth unless adverse weather, feed costs or other market factors alter farmers’ expansion plans.
High Cattle Prices Create Mixed Incentives
At the same time, livestock markets are presenting dairy farmers with mixed economic signals.
Strong beef prices, driven by historically low U.S. beef cattle inventories, have boosted calf values and significantly increased returns from cull cows, providing an important source of income for dairy operations.
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However, replacement dairy cattle have also become considerably more expensive, making it financially difficult for farmers to remove productive cows from their herds despite elevated cull prices.
As a result, many producers continue to retain milk-producing animals, further supporting overall milk supplies.
Prices Likely to Remain Under Pressure
Market participants believe the dairy sector’s improving demand fundamentals will take longer to influence prices unless production growth slows.
Although export demand remains robust and consumer interest in protein-rich dairy products continues to increase, analysts say meaningful price recovery will depend on milk production stabilising or declining.
Until supply growth moderates, abundant milk availability is expected to remain the dominant factor shaping dairy market sentiment, keeping prices under pressure despite improving demand prospects.
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