Content supplied by Rabobank.
The global dairy market is transitioning from a period defined by milk production growth to one increasingly influenced by supply uncertainty, with anticipated slowing production growth, tightening producer margins, structural constraints in Europe and a stabilising Chinese market providing greater support to global dairy commodity prices and upside potential for the New Zealand farmgate milk price, Rabobank says in newly-released research.
In its Q3 Global Dairy Quarterly the specialist agribusiness bank says global milk production has continued to expand across the major exporting regions through Q3 2026, although the pace has slowed to an estimated 1.4% year-on-year (YOY), the weakest quarterly growth since early 2025.
“Milk supply remains elevated in the US, New Zealand and, at a headline level, the EU, although north-western Europe is showing clear heat impacts. Production growth in Brazil and Argentina is also moderating due to challenging year-earlier comparisons and heavy rainfall,”
RaboResearch senior agricultural analyst Emma Higgins said. “RaboResearch expects milk production across the Big 7 exporting regions (The US, Argentina, Brazil, Uruguay, the EU, New Zealand and Australia) to slow to 0.5% YOY in the second half of 2026, with output contracting by 0.2% in Q4 before remaining flat through the first half of 2027.”
The report says global dairy demand has remained more resilient than expected despite abundant milk supplies and ongoing economic uncertainty.
“Import demand across Asia continues to provide a strong foundation for international markets, with China showing signs of stabilisation and Southeast Asian demand remaining robust. Demand growth is increasingly concentrated in protein-rich products, supported by consumer focus on health and nutrition as well as emerging GLP-1-related dietary trends, “ Ms Higgins said.
“These developments highlight the strategic importance of derived ingredients. Strong demand for milk powders, protein ingredients and cheese continues to underpin global trade flows and help absorb rising milk production.”
Upside potential for New Zealand milk price
Ms Higgins said milk powder markets – which are particularly significant for New Zealand as milk powder makes up just over half of all New Zealand dairy exports – have been the standout performer during Q3.
“The past two Global Dairy Trade auctions (410 and 411) delivered a significant lift in powder markets. Skim milk powder prices jumped more than 10% across the events, while whole milk powder prices gained nearly 3%, despite the large volumes on offer,” she said.
“We’ve also seen strong demand for New Zealand dairy product from South East Asian countries (Indonesia, Malaysia, Philippines and Thailand) throughout 2026 which has helped to ensure New Zealand farmgate prices have held up better than in the Northern Hemisphere.”
Ms Higgins said New Zealand farmgate milk price prospects for 2026/27 were weakened when Fonterra’s opening midpoint figure of $9.75/kgMS was shifted 50c lower to $9.25/kgMS in July.
“However, RaboResearch thinks this position may be short-lived and we anticipate the final milk price for 2026/27 has room to land somewhere closer to $10.00/kgMS which would help maintain broad-based profitability for another season if costs are well managed,” she said.
The report says New Zealand milk production for the 2026/27 season is expected to grow marginally.
“The 2025/26 season closed at a record 2.027 billion kgMS, becoming the first season to exceed the 2 billion kgMS threshold,” Ms Higgins said.
“The first two months of the 2026/27 season have confirmed that strong momentum is continuing. June and July 2026 both set new monthly production records, surpassing the highs established in the same months last year.”
“At this stage, RaboResearch forecasts New Zealand production growth of around 1% in 2026/27, although this outlook is likely to change as the effects of El Niño become clearer.”
As in other regions around the world, Ms Higgins, said New Zealand producer margins are increasingly under pressure.
“Strong milk price forecasts continue to support farmer confidence, but increasing on-farm costs and rising interest rates mean that milk prices and input costs are beginning to move towards each other, reducing the margin buffer that has supported profitability over the past couple of years,” she said.
“Although producer returns remain positive in most regions, profitability is less secure than it was earlier in the year, raising the risk that producers may become more cautious about expansion.”
What to watch
The report says the Middle East conflict remains a key watch point for global dairy markets, with the prolonged disruption to oil flows through the Strait of Hormuz increasingly becoming the market's new operating environment.
“Continued draws on global fuel inventories, record-high diesel crack spreads and constrained refining capacity are expected to keep energy, freight and fertiliser costs elevated well into 2027,” it says.
Ms Higgins said RaboResearch would also be keeping close tabs on the resilience of consumer demand.
“Consumer demand across many dairy-importing markets has remained more resilient than expected,” she said.
“Looking ahead, the key question is whether consumers continue to absorb higher living costs or begin to adjust spending behaviour more materially. Any shift in consumer confidence or purchasing patterns could have important implications for dairy demand, particularly across Asia and other key import regions.”
Other watch points identified in the report include Europe’s structural supply constraint and El Niño risk.
You can compare current analysts forecasts for the current dairy season here.
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