Global Dairy Market Faces Rebalancing Amid Production Decline

The global dairy market is undergoing a significant shift as recent data from RaboResearch indicates a decline in milk production. After reaching a peak in 2025 with a 5.2% year-on-year increase, the market is expected to see a downturn. Rabobank forecasts that global milk production will rise by 1.5% in the second quarter of this year before flattening in the third quarter and declining by 1.6% by the fourth quarter of 2026.

This anticipated reduction in the fourth quarter marks the first quarterly decrease since the second quarter of 2024. For the entire year of 2026, Rabobank estimates a modest 1% increase in milk volumes, a sharp contrast to the 3.1% growth recorded in 2025. Looking ahead to 2027, preliminary models predict a 0.2% contraction, which would be the first full-year decline since 2022.

The decrease in milk production is attributed to a combination of economic and environmental challenges. Farmers are facing rising input costs, including oil, energy, and fertilizers, exacerbated by geopolitical tensions and shipping disruptions in key regions like the Strait of Hormuz. Additionally, El Niño weather patterns are causing concerns about forage and water availability in major exporting countries such as South America, New Zealand, and Australia.

The contraction in milk output is seen as a rebalancing of the structural dairy inventories, as producers navigate the effects of these challenging conditions. The dairy industry will need to adapt to these changes in global supply and demand dynamics.