Rabobank: the global dairy market is entering a new phase

The global dairy market is approaching a new phase: following a period of faster supply growth, the rise in milk production in the main regions is set to slow significantly, and may even turn into a decline in the fourth quarter of 2026. This scenario is presented by Rabobank in its latest global dairy market review. The bank’s analysts also forecast that, in the first half of 2027, overall milk production levels in the major exporting regions will remain virtually stable.

From greater supply – to greater uncertainty

According to Rabobank’s assessment, the global dairy market is emerging from a period in which milk supply in the main producing regions grew at a relatively rapid pace. Milk production growth in the “Big 7” regions monitored by the bank is expected to gradually weaken in the second half of 2026. An overall decline in production is forecast for the fourth quarter, whilst the first half of 2027 is expected to see production remain virtually unchanged.

This does not mean that the situation will be the same across all regions. According to Rabobank’s assessment, production in the US and Australia may continue to grow, albeit at a slower pace. In South America, the rate of growth is slowing, whilst in New Zealand, weather conditions and the potential impact of a strong El Niño pose additional risks.

Milk powder and proteins appear to be the strongest performers

Rabobank highlights a growing divergence between individual dairy product markets. The most favourable outlook is currently seen for milk powder and milk proteins. Analysts attribute this to resilient demand in Asia, signs of stabilisation in China and growing demand for proteins, which may be further driven by changing consumer dietary habits.

Meanwhile, supply in the milk fat market remains fairly high. The cheese market is also under pressure from rising production capacity. Rabobank therefore does not foresee a uniform trend across the entire dairy sector: different product groups may react differently to the slowing growth in milk supply.

Signs of stabilisation in the Chinese market

China remains one of the most significant sources of uncertainty for the global dairy market. In its latest review, Rabobank sees the first signs of stabilisation. This is significant because changes in Chinese import demand can quickly affect global flows of milk powder and other commercial dairy products.

However, the bank does not treat China’s recovery as a done deal. It is more a signal that, following a prolonged period of weakness, the demand environment may become more favourable. Chinese data will therefore remain one of the most important indicators for assessing the market direction in 2027.

Farm margins may become a factor limiting supply

Another point highlighted by Rabobank is the weakening of dairy farmers’ margins. Rising costs of feed, energy, fertilisers and transport may reduce farmers’ willingness and ability to increase production. In Europe, this is compounded by structural constraints that limit the pace of expansion in milk production.

Consequently, the slowdown in supply growth may not be solely linked to short-term market conditions. In some regions, it may also reflect deeper structural constraints within the sector: production costs, environmental requirements, labour shortages or limited opportunities to expand herds.

What might this mean for the Lithuanian dairy sector?

Rabobank’s forecast does not in itself imply an imminent sharp rise in milk prices. However, it suggests that the global market may be moving away from a situation where abundant supply was the main issue. If growth in milk production does indeed slow significantly, whilst demand for certain products remains strong, the international dairy market may become more vulnerable to any further disruptions.

For Lithuanian farms, it is not the Rabobank forecast itself that matters most, but the direction it points in. If supply growth weakens in the major production regions, this could gradually improve market balance. However, the impact will depend on which products see the strongest demand and how trade flows change.

At present, there are three key points to monitor: whether production growth among the “Big 7” will indeed turn into a decline in the fourth quarter of 2026 , whether the stabilisation of Chinese demand will become more sustainable, and whether the milk protein and powder markets will continue to outperform the weaker fat and cheese segments.