GREENWOOD VILLAGE, Colo. – A new report by CoBank shows the number of replacement heifers available to enter the dairy herd as milk-producing cows has already fallen to a 20-year low – and based on the research, could fall even further over the next two years before a recovery begins in 2027.

“These declining heifer inventories could limit growth in the milk supply, a looming concern for dairy processors with expansion plans underway,” the report said. “The U.S. is currently experiencing a historic $10 billion investment in new dairy processing facilities expected to come online through 2027.

“The decline in dairy heifers over the last several years is closely tied to beef and dairy market dynamics,” the report added. “Tight cattle supplies and record high prices for beef calves prompted many dairy farmers to produce more calves destined for beef feedlots and fewer to milk barns.”

Andrew P. Griffith, University of Tennessee professor of agricultural and resource economics, told Farm World, there are several reasons for the lower quantity of replacement heifers in the dairy industry, but the main reason is due to the high value of beef x dairy steers (when a dairy cow is bred to a beef bull to produce a half-beef/half-dairy calf).

He said when the trend of breeding beef and dairy steers started, milk prices were slightly depressed, and there was a demand for more cattle to be placed on feed.

“It became clear very early on that cattle buyers were willing to pay a premium for beef x dairy steers, compared to full-blooded dairy steers,” he said. “Thus, the cross calves became a profit center for dairy operations and were more valuable than developing more heifers to place in the milking herd.

“This same occurrence has helped push milk prices higher, which makes it worthwhile to breed cows for heifers, and put the dollars into heifer development. These operations still have to have a mature female to produce the beef x dairy steers.”

Corey Geiger, CoBank lead dairy economist, told Farm World since roughly 90 percent of U.S. dairy cows are bred via artificial insemination, “we can predict the future based on semen sales.

“These market shifts began with the low prices for dairy replacements and purebred dairy bull calves,” he said. “Our research first evaluated the financial factors that led to the beef-on-dairy movement. That caused dairy farmers to pivot and use beef bull semen on a portion of their dairy cows.”

By 2024, he said, 7.9 million of the 9.7 million of beef bull semen units sold in the U.S. were purchased by dairy farmers: “However, the market pendulum swung too far when dairy farmers capitalized on record beef prices. As a result, dairy replacement tumbled to a 20-year low.”

He said there are three types of bull semen sold to dairy farmers: 1) conventional dairy semen that results in 50 percent heifer calves and 50 percent bull calves; 2) gender-sorted dairy bull semen that results in over 90 percent heifer calves; and 3) beef semen.

From 2000 to 2024, he said gender-sorted dairy semen sales climbed by 43.5 percent as dairy farmers began planning their future dairy replacements.

“Likewise, beef semen sold to dairy farmers jumped 58 percent as dairy farmers made beef-on-dairy crosses to capitalize on record beef prices,” he said. “The conventional dairy semen category tumbled 46.5 percent as dairy farmers wanted more assurance about their market and financial future.

“Lastly, it wasn’t until 2024 that dairy farmers fully came to appreciate just how few dairy replacements were out there,” he added. “That’s when they ramped up purchases of gender-sorted dairy bull semen.”

He said dairy replacements available to enter the milking string will fall further by an estimated 357,500 in 2025, and drop further by an estimated 438,800 in 2026: “It’s not until 2027 that the rebound begins with 285,400 more head entering milk barns. Until then, we are likely to see record prices hold.”

Based on CoBank’s predictive modeling, the report said heifer inventories will shrink by an estimated 800,000 head over the next two years before beginning to rebound in 2027.

In the meantime, Geiger said, dairy heifer prices have reached record highs, and could climb well above $3,000 per head.

“The U.S. dairy industry stands at a unique inflection point,” he said. “Beef sales are contributing a larger share of dairy farm profitability with each passing year and the market for beef-on-dairy calves shows no signs of slowing down.

“In order 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 added. “And that could be difficult, given how much they’ve already pulled back over the past two years.”

As the supply of dairy heifers has dwindled and their value has climbed, the report said 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,” the report said. “But rebuilding the supply will take time. It typically takes two years before a newborn dairy heifer 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.”