The increase in Germany’s dairy cow population in November 2025 is a headline that will attract attention. It is the first rise in a decade, and on the surface, it suggests a reversal of a long-term structural decline.
Yet the data behind this headline tells a different story – one that is less about recovery and more about timing and incentive distortion.
This divergence in price responsiveness is the key driver behind the current premium expansion.
What is unusual about the November 2025 observation is not that cow numbers rose, but that they rose while heifer inventories fell sharply. This combination is not typical in a healthy renewal cycle. It is, in fact, a clear sign of atypical farm behavior driven by market signals.
In a normal cycle, cow numbers and heifer stocks move together. Heifers represent the renewal pipeline. If the herd is increasing, replacement ration typically rises to sustain and grow the population. In Germany, however, the replacement ratio has been trending downward for years, from around 64% toward the mid-50s. The trend is consistent with a sector that has been adjusting structurally, with fewer replacements needed as herd size declines.
The late-2025 divergence therefore matters. It suggests that farmers are not rebuilding the herd. They are postponing structural decisions.
This is the first key point: the herd increase is a retention effect, not a growth effect. The cows are staying in the system longer because the economic environment makes this the rational choice – at least for now.
The market drivers are straightforward. Farm revenue is a function of milk and cattle prices. In 2025, those two components moved in opposite directions. Milk prices declined sharply, reducing income from production. At the same time, cattle prices (particularly for heifers) remained elevated, strengthening the value of the livestock assets.
This combination creates a clear incentive structure. When milk income falls, farms tend to delay culling to maintain cash flow. Removing cows reduces immediate milk production and can worsen cash flow pressure. Keeping cows, even beyond their optimal productive age, provides continuity.
Simultaneously, high heifer prices change the calculus for replacements. Heifers become more valuable as a saleable asset than as a replacement. The opportunity cost of keeping them for herd renewal rises. The result is a reduction in the replacement pipeline: fewer heifers retained, fewer heifers entering the herd.
The observed fall in heifer stocks therefore is not accidental. It is a rational response to price signals.
This is the second key point: the herd increase is not self-sustaining. It is built on a short-term strategy: postpone culling, sell replacements, keep producing.
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The third key point is what this means for 2026.
Once the delayed culling materializes (and it will) cow numbers are expected to decline again. This is the natural correction to the temporary retention effect. But the correction will not be limited to cow numbers alone. The reduced heifer inventory means fewer fresh cows entering the herd. The renewal rate has already been trending downward, and the latest data suggest that trend may accelerate.
In other words, the sector is trading short-term stability for medium-term constraint. The immediate increase in milk supply is likely to be followed by a tighter supply environment, driven by a weaker replacement pipeline.
This has broader implications for market dynamics. A temporary increase in cow numbers can create a short-term buffer in milk supply, but it does not change the structural trajectory. The long-term trend remains a sector adjusting to declining herd size and reduced replacement rates. The question is no longer whether the herd will decline but how quickly the adjustment will resume once the retention effect fades.
From a strategic perspective, the current situation highlights the importance of understanding the market’s “incentive architecture.” Dairy farmers are responding to price signals in a predictable way. The sector’s response is not a surprise; it is a rational adaptation to current economics.
Yet the market’s interpretation can be misleading. Rising cow numbers can be read as a sign of confidence, when they are actually a sign of delay. And delay can be a dangerous strategy if it leads to an even sharper adjustment later.
For the 2026 outlook, the key variable will be the timing of culling and the speed at which heifer inventories are rebuilt, if they are rebuilt at all. If milk prices remain weak and cattle prices remain strong, the retention effect could persist longer. If the price environment shifts, the correction could accelerate.
What is clear is that the data point from November 2025 is not the beginning of a new growth cycle. It is a snapshot of a market temporarily holding its breath.
And markets rarely hold their breath for long.
