CoBank: Dairy Heifers at 20-Year Low

OMAHA (DTN) -- The number of replacement heifers available to enter the nation's dairy herd has fallen to a 20-year low. Replacement heifer supplies could fall even further over the next two years before a recovery begins in 2027, according to new CoBank research.

These declines in 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 a historic $10 billion investment in new dairy processing facilities expected to come online through 2027, according to this CoBank press release: https://www.cobank.com/….

TIGHT CATTLE SUPPLIES AFFECT DAIRY

The decline in dairy heifers over the past several years is closely tied to the dynamics of the beef and dairy markets. Tight cattle supplies and record-high prices for beef calves prompted many dairy farmers to produce more calves destined for beef feedlots and fewer for 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, CoBank said. While the economy has 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 proposition of more than three years.

The national dairy heifer shortage could persist and grow deeper in the next two years, according to a new report from CoBank's Knowledge Exchange. 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 above $3,000 per head.

"The U.S. dairy industry stands at a unique inflection point," Corey Geiger, CoBank lead dairy economist, said in the press release. "Beef sales are contributing a larger share of dairy farm profitability each passing year and the market for beef-on-dairy calves shows no signs of slowing down."

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, he said.

"And that could be difficult given how much they've already pulled back over the past two years," Geiger said.

DAIRY FARMERS PRODUCING CALVES FOR BEEF MARKET

CoBank said 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.

Most dairy farmers breed their cows by artificial insemination (AI), which gives them the option of using beef semen to produce calves well-suited for beef production. Based on semen sales data, many dairy farmers did just that.

CoBank reported that total U.S. beef semen sales nearly tripled from 2.5 million to 7.2 million units from 2017 to 2020. While a demographic breakdown of semen sales at the time was not available, the upward shift primarily came from dairy farmers, not beef producers, who largely rely on natural service bulls.

The National Association of Animal Breeders began tracking beef semen sales to dairy farmers in 2020. Of the 7.2 million units of beef semen sold that year, five million units were purchased by dairy farmers.

That number eventually climbed to 7.9 million of the 9.7 million units sold in 2024, according to CoBank. Their skyrocketing purchases of beef semen reflect the extent to which dairy farmers chose to produce calves destined for beef production rather than dairy herds.

As the supply of dairy heifers has dwindled and their value has climbed, dairy farmers are culling fewer cows to keep the milk flowing. They have also made significant changes in semen purchases to help remedy the shortage of replacement heifers by purchasing more gender-sorted units to create more dairy heifer calves.

REBUILDING DAIRY REPLACEMENT HEIFER SUPPLY WILL TAKE SOME TIME

CoBank said rebuilding the dairy replacement heifer supply will take some time. It typically takes two full years before a newborn dairy calf is available to enter the milking herd.

Geiger said the decline in heifer inventories raises the question of whether there will be enough milk cows to supply the additional demand created by new dairy processing facilities.

"The short answer is that it will be tight," he said. "Those dairy plants will require more annual milk and component production, largely butterfat and protein. And it will take many more dairy heifer calves in future years to bring the national herd back to historic levels."

Russ Quinn can be reached at Russ.Quinn@dtn.com

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