Global Dairy Market Faces Challenges with Increased Supply and Weak Demand
In the United States, one of the top global dairy suppliers, producers are experiencing decreased margins due to falling prices of products like butter and cheese. These lower prices have pushed margins below breakeven, increasing pressure on farm profitability.
Similarly, in the European Union, milk prices have dropped significantly. Despite this, production is expected to continue growing until mid-2026, owing to a later calving cycle which complicates any quick reduction in supply.
New Zealand's dairy production has increased by 4.2% at the start of the season, despite facing climatic challenges. This growth has been supported by a record use of palm kernel expeller, a by-product of palm oil processing used in animal feed, indicating a strategic effort by New Zealand producers to maintain international market supply.
On the demand side, consumption is not keeping pace with the increased supply. In Europe, demand for cheese has weakened, and similar trends are observed for butter and anhydrous milk fat. Global imports of skimmed milk powder have been declining over the past two years, suggesting more comfortable stock levels or reduced purchasing needs among major importers.
The Brazilian market is particularly influenced by the global dairy supply, which limits the potential for a strong recovery in international prices. Producers in Brazil are closely monitoring production costs and domestic consumption trends amidst tighter margins.
Geopolitical tensions, particularly in the Middle East, also play a role. About 6% of global dairy trade passes through the Strait of Hormuz, a strategic route affected by tensions involving Iran. This instability has increased logistics complexity and costs, impacting Gulf countries where dairy consumption has been affected by operational difficulties.
The cessation of Iranian milk powder exports has partially offset the reduction in regional demand by removing some supply from the international market. Experts from StoneX anticipate that until the end of 2026, the dairy market will continue adjusting, with producers worldwide facing pressured prices and reduced margins.
