Strong consumer demand, rapid gains in milk components and the rising role of beef-on-dairy production are reshaping the dairy industry heading into the latter half of the decade, according to a new market outlook presented at World Ag Expo.
Abbi Prins, a livestock economist at CoBank, told producers the dairy sector remains the largest category in U.S. grocery retail, with consumers spending more than $80 billion on dairy products in 2025. The category grew more than 3% year over year, reflecting steady demand across cheese, butter and other value-added products.
Even with the national dairy herd holding relatively steady over the past 25 years at around 9.2 to 9.4 million head, milk production has surged to roughly 231 billion pounds annually, about 38% higher than a quarter-century ago. That growth, Prins noted, reflects gains in efficiency and genetics rather than herd expansion.
A key shift has been the rapid rise in milk components. From 2011 to 2025, total milk production increased about 18%, but butterfat and protein output climbed more than 30%, meaning the milk being produced today is significantly more nutrient-dense.
Those higher component levels are driving changes throughout the supply chain. Processors now get more cheese and butter from the same volume of milk, with 100 pounds of milk yielding nearly 12 pounds of cheese, up from about 10 pounds two decades ago.
Consumer preferences are also shifting. Rather than drinking milk, Americans are increasingly eating dairy products, particularly cheese, yogurt and butter. Cheese now accounts for about 44% of U.S. milk utilization, and yogurt consumption has grown roughly 600% since the mid-1970s.
Prins said taste, freshness and price consistently rank as the top three factors driving consumer purchases, while sustainability concerns, though present, tend to rank lower for most shoppers.
On the supply side, the industry is investing heavily to keep pace. About $11 billion in new dairy processing capacity is expected to come online between 2023 and 2028, including projects in California, the Central Plains and the Northeast. The expansion is intended to support both domestic demand and exports, which now account for roughly 17% of U.S. milk production.
Exports are becoming an increasingly important outlet, particularly for cheese. The U.S. surpassed 1 billion pounds of cheese exports for the first time in 2024, with Mexico remaining the largest buyer and emerging markets in Latin America, Africa and Asia gaining importance.
Meanwhile, new technology and management strategies are transforming herd genetics. Genomic testing, gender-sorted semen and beef-on-dairy breeding have accelerated productivity gains and boosted farm income. Prins said day-old beef-on-dairy calves, which sold for around $200 in 2019, were bringing about $1,500 by late 2025, providing a significant new revenue stream.
Feed costs, the largest expense for dairy farms, have stabilized after spiking in recent years, providing some relief. But price volatility in milk markets remains a concern, underscoring the importance of risk management.
Looking ahead, Prins pointed to two potential black swan risks that could reshape the outlook: unexpected increases in European milk production and a downturn in the currently strong beef market.
She struck an optimistic tone overall, pointing to sustained demand and continued productivity gains.
“Dairy is a growing food category,” she said. “Consumers are buying dairy like nobody’s business.”
