Two Dairy Economies: How the National Milk Glut of 2025 Conflicts With Vermont’s On-the-Ground Reality
Vermont dairy farmers, who rely on local forage and silage, are forced to purchase expensive supplemental feed and, in some cases, haul water to hydrate their herds.
The Numbers Behind the Surge
The U.S. dairy industry experienced significant growth in September 2025, according to official USDA data released after the recent government shutdown. The 24 major dairy-producing states produced 18.3 billion pounds of milk in September, representing a 4.2 percent increase compared to September 2024.
This growth stems from two factors: the national dairy herd expanded by 235,000 milking cows to reach 9.15 million head, and production per cow increased by 30 pounds compared to the previous year.
The expansion is concentrated in specific regions. Kansas saw production jump 21.1 percent, Georgia increased 9.8 percent, and South Dakota grew 9.4 percent. Michigan alone added 19,000 dairy cows in the past year.
Why Production Is Booming
The national surge is not accidental but rather a response to planned market developments.
The primary driver is an $8 billion investment in new and expanded dairy processing facilities across the country. These plants, which convert raw milk into cheese, butter, and milk powders, were planned years in advance and are now coming online in regions experiencing herd growth, including Kansas, Texas, South Dakota, and New York. These facilities require steady, large-volume milk supplies to operate efficiently.
Simultaneously, dairy farmers face favorable economics for expansion. The milk-to-feed price ratio—a key profitability indicator—remains in the “expansion zone” because national feed costs are low. Feed expenses are projected to drop 10.1 percent in 2025, with corn prices at yearly lows.
An additional factor amplifies this growth: dairy farmers are changing herd management practices. The high market value of beef-dairy crossbred calves incentivizes farmers to keep cows in production longer, extending the average from three to four lactations. According to dairy economist William Loux of the U.S. Dairy Export Council and National Milk Producers Federation, this shift effectively increases the milking herd by 25 percent.
Weak Demand Compounds the Oversupply
While production surges, domestic demand remains weak. Throughout 2025, consumption has been “subdued” in both foodservice and grocery retail. Restaurant sales, for example, declined from $97.0 billion in December 2024 to $95.5 billion by February 2025.
The export picture is complex. U.S. dairy exports to China have collapsed, with cheese shipments down 80 percent year-over-year and low-protein whey down 70 percent. Chinese demand has fallen to 15-year lows due to their slowing economy and contracting domestic dairy sector.
However, the U.S. industry is successfully pivoting. Domestic oversupply is being converted into cheese and butter, which has lowered prices and made American dairy products highly competitive globally. As a result, U.S. cheese exports set records earlier this year, up 7 percent, and butterfat exports are up 151 percent in the first half of 2025 compared to 2024. Growth is concentrated in established markets like Mexico and Canada.
Vermont’s $5.4 Billion Dairy Industry
Vermont’s dairy sector tells a different story. The industry generates $5.4 billion in economic activity and accounts for 63 percent of all fluid milk production in New England.
The state has successfully shifted toward value-added processing, growing from 95 dairy processors a decade ago to 158 processors in 2025. This transformation is supported by the Northeast Dairy Business Innovation Center, hosted by the Vermont Agency of Agriculture, Food and Markets, which has funded modernization efforts to help processors expand capacity and create high-value products. A $1 million Dairy Processor Modernization Grant program was open for applications from June to August 2025.
Among established processors, Vermont Creamery, a certified B-Corporation owned by Land O’Lakes, recertified its B-Corp status with its highest-ever score in October 2025, citing work to strengthen Vermont’s goat dairy supply chain.
St. Albans Creamery, owned by Dairy Farmers of America, faces challenges. In July 2025, the facility agreed to a $210,500 civil penalty with the Vermont Attorney General for multiple wastewater violations. As of November 2025, the plant is experiencing a worker strike from Teamsters Local 597 over pay and benefits.
The Vermont Crisis: A Catastrophic Disconnect
Vermont dairy farmers face a perfect storm that contradicts the national narrative.
Nationally, the production boom is driven by cheap feed. Vermont farmers face the opposite reality. As of fall 2025, 78 percent of Vermont is experiencing “severe drought,” with another 2 percent in “extreme drought” according to the U.S. Drought Monitor. This “flash drought” on top of a longer-term dry spell is “stunting” feed crops like grass, alfalfa, and corn.
Vermont dairy farmers, who rely on local forage and silage, are forced to purchase expensive supplemental feed and, in some cases, haul water to hydrate their herds.
This creates what can be termed the “Vermont Vise”: a catastrophic margin squeeze. The national oversupply—driven by cheap feed in other states—suppresses milk prices that Vermont farmers receive. The November 2025 Base Class I price was announced at $16.75 per hundredweight, a $1.29 decrease from the previous month.
Vermont farmers must accept low prices set by a flush national market while simultaneously bearing high costs driven by regional climate crisis. As one Vermont dairy farmer stated, “All of a sudden you go from possibly making some money to absolutely not making any money”.
Trade and Political Context
Recent political developments add complexity to the dairy market outlook.
The 43-day federal government shutdown—the longest in modern U.S. history—ended on November 12, 2025. However, the resolution is only a short-term continuing resolution funding most agencies until January 30, 2026, which sets up another potential funding crisis.
A “historic trade and economic deal” between the U.S. and China was announced by the White House on November 1, 2025. Agricultural groups, including the American Farm Bureau Federation, have issued statements praising commitments on U.S. soybeans and other exports.
President Trump recently floated a “tariff dividend” proposal—suggesting tariff proceeds could fund payments to Americans. However, Treasury Secretary Scott Bessent was reportedly “blindsided” by the proposal and had not discussed it with the president. The nonpartisan Committee for a Responsible Federal Budget projected the cost at $600 billion per year, and budget experts “scoffed” at the idea.
Relations with Mexico are strengthening. Agriculture Secretary Brooke Rollins led the largest-ever USDA agribusiness trade mission to Mexico, reinforcing the $80 billion agricultural trade relationship. However, the U.S. border remains closed to live cattle imports due to a New World Screwworm outbreak in Mexico. Discussions focus on joint eradication efforts, including a new sterile fly dispersal facility in Tampico.
Trade negotiations with Canada remain suspended. President Trump halted talks last month after being angered by an anti-tariff ad campaign sponsored by the Ontario government featuring a 1987 clip of former President Ronald Reagan. As of November 13, 2025, Canadian officials confirmed talks had not resumed.
What Happens Next
For the national dairy industry, the current price pressure represents growing pains from planned capacity expansion. As new processing facilities reach full operation and find stable supply chains, the market may stabilize. However, this process could take months or years, and farmers in expansion regions will continue benefiting from favorable feed costs.
For Vermont, the outlook depends largely on weather patterns. If drought conditions persist into 2026, Vermont dairy farmers will remain trapped in the margin squeeze—receiving prices set by a national market flush with cheap milk while bearing high local costs. State modernization grants may help processors add value and create premium product markets, but this won’t immediately resolve on-farm cash flow challenges.
The short-term federal funding resolution expiring January 30, 2026, creates uncertainty. Another government shutdown could delay critical USDA market reports and support programs that farmers rely on for planning.
Vermont dairy farmers facing immediate financial stress should contact the Vermont Agency of Agriculture, Food and Markets for information on available assistance programs and the Northeast Dairy Business Innovation Center for grant opportunities.