UK Dairy Market Faces Challenges and Opportunities in 2026

The UK Agriculture and Horticulture Development Board (AHDB) recently released its Dairy Agri-Market Outlook, highlighting key trends in the UK's dairy industry for early 2026. The report indicates that dairy commodity prices, which had plummeted, might have found a floor. Notably, there have been positive movements in wholesale markets for skimmed milk powder and cheddar, suggesting a potential recovery in these sectors.

Despite these positive signs, fats remain under significant pressure due to an oversupply of milk. Farmgate milk prices are expected to remain low, at least until mid-2026, impacting dairy farmers' earnings. AHDB forecasts that added-value products such as premium retail cheese and cottage cheese could see a 3% increase in volumes, driven by consumer interest.

The report also projects a 7% growth in yogurt demand, attributed to consumer focus on health and protein intake, as well as affordable indulgence. Whey products continue to experience strong global demand, particularly among consumers using GLP-1 weight loss medications.

Domestic retail demand for dairy is expected to remain steady, even after a 1% decline in total dairy volumes in 2025, primarily due to reduced liquid milk consumption. However, consumer preference for block butter remains robust and could increase if prices fall.

Susie Stannard, AHDB's lead analyst for dairy, emphasized the importance of slowing production to stabilize farmgate prices, which have decreased by as much as 15 pence per liter for some producers. British milk production is projected to stabilize in 2026, with marginal growth of approximately 0.3%. This stabilization is expected to challenge processing capacity during peak production periods.

The Dairy Agri-Market Outlook is part of a broader analysis by AHDB, which will soon release similar reports for other agricultural sectors, including beef, lamb, and cereals.