Content supplied by Rabobank.
Global dairy commodity prices have rallied this quarter – particularly for New Zealand and Australian product – despite the world’s milk supply continuing to grow and outpace demand, Rabobank says in newly-released research.
In its Q1 Global Dairy Quarterly report, the specialist agribusiness bank says overall global dairy prices have shown tentative signs of recovery in recent months, with consecutive increases seen in Global Dairy Trade (GDT) auctions lifting sentiment in the sector.
However, the report, by the bank’s RaboResearch division, notes that global dairy markets continue to be well supplied, with strong milk production growth across all the world’s major dairy-exporting regions, except Australia.
This global supply growth has been supported by relatively low livestock feed prices, which have encouraged production and kept milk supply levels elevated worldwide, RaboResearch says. And current supply data does not yet indicate that the recent upward move in dairy markets is “structurally stable”, the report cautions.
Added to this, says RaboResearch senior agricultural analyst Emma Higgins, geopolitical instability – particularly the recent conflict with Iran, but also ongoing tensions involving Ukraine and other regions – could “quickly and temporarily disrupt global market balances”.
“As the Middle East is an important market for milk powders, fat-filled powders and evaporated milk, the dairy market will follow the evolving situation in Iran and possible trade disruptions closely,” she said.
Abundant global supply
Abundant global milk supply had led to a pronounced impact on global dairy prices in the final quarter of 2025, the report said, with the prices of a number of dairy products – including fats, whole milk powder, skimmed milk power, cheese and whey – declining.
Dairy ‘protein’ markets – including skim milk powder (SMP), cheese and whey – had been more resilient, recording smaller price declines.
Ms Higgins said whey prices had even continued to rise during this period, supported by strong demand for high-end protein products in many markets.
The report says milk production remains well above last year’s level in the EU, the US, South America and New Zealand.
“And – although the rate of growth is gradually returning to normal – the market is still flush with dairy products,” Ms Higgins said.
“While total milk output remains ample, the availability of exportable product, particularly powders, has tightened. This is due to seasonal patterns in Oceania, shifting product mix in the U.S, and firm demand across multiple importing regions. This tightening has underpinned the modest price recovery seen in recent months.”
At the same time, Ms Higgins said, ongoing geopolitical tensions in the Middle East – including the evolving situation around Iran – continue to elevate freight and supply-chain risks.
“For key dairy-importing countries in the region, this uncertainty is likely to have encouraged some forward-purchasing behaviour, particularly for shelf-stable products such as powders,” she said.
Outlook
Looking ahead, RaboResearch expects global dairy markets to gradually tighten as farm margins come under pressure and supply growth cools across the major exporting regions.
The report says output from the world’s ‘big seven’ dairy exporters (the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) is forecast to end 2026 only 0.2 per cent above the prior year, compared with an annual increase of 2.6 per cent in 2025.
“This outlook is largely driven by softening supply growth in South America, and Australia, as well as China,” Ms Higgins said.
“Milk production is also expected to decline (by 0.9 per cent) this year in Europe, while the overall drop will be partly offset by the US, where farmer margins are supported by high beef prices, suggesting milk production growth will continue through this year.”
“While the recent lift in global dairy prices is encouraging, sustained recovery will depend on how quickly exportable availability normalises and how demand evolves across Asia and the Middle East.”
New Zealand export volumes and production
The report says New Zealand export volumes for the three months to December 2026 declined by 3% compared with the same period a year earlier.
“However, a shift in product mix toward higher-value categories, particularly butter, cheese, and casein, lifted export returns, contributing an additional $700m over the period,” Ms Higgins said.
“Despite milk production being 2% higher YOY, total export volumes for 2025 were broadly unchanged from 2024.”
Ms Higgins said rain meant farmers didn’t have to worry about the usual summer dry over Christmas, but in some areas, it proved to be a mixed blessing.
“Parts of the Manawatū and Waikato experienced periods of excessive rain, and arable growers in Mid Canterbury were the most negatively affected by unsettled weather.”
Despite elevated cull cow prices, the report says, season-to-January 2026 cow slaughter remains down by 17%, following an almost 7% decline in the 12 months to 30 September 2025.
“Farmer confidence is high, with most operators making good-to-excellent money this season,” Ms Higgins said.
“Combined with strong feed reserves and a few more hooves on some farms, the stage is set for higher milk production in the 2026/27 season.”
“RaboResearch continues to expect milk collections to lift by more than 2% across the current 2025/26 season, with further momentum likely into 2026/27, spring weather permitting.”
You can compare current analysts forecasts for the current dairy season here.
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