The global dairy market: are we heading towards a new price cycle?
A year ago, many analysts in the dairy sector were discussing the same problem – global milk production is rising, whilst demand is not keeping pace. As a result, price pressure emerged in the dairy markets, and farmers’ expectations of faster income growth did not always materialise.
However, in recent months we have been hearing different forecasts with increasing frequency. Production growth among the world’s major dairy exporters is beginning to slow; in some regions, it has already come to a halt, and analysts are increasingly talking about a return to market balance. This raises the question: is the global dairy market approaching a new price cycle?
A period of surplus
The year 2025 was exceptional for the global dairy sector. Milk production grew rapidly in the United States, the European Union, New Zealand and South America. In some regions, previous production records were matched or even exceeded. Rabobank analysts estimate that the group of the world’s major dairy exporters increased production by more than three per cent, with growth in some quarters reaching its highest level in several years.
Such growth inevitably affected the market. The supply of milk powder, butter and other exchange-traded products grew faster than demand. Although consumption remained stable in most regions of the world, it was not sufficient to absorb the entire additional volume. The result was fairly typical for agricultural markets – downward pressure on prices and waning optimism.
What has changed?
The most important news is that production growth is beginning to slow. Rabobank forecasts that global milk production will continue to grow this year, but the rate of growth will be significantly lower than last year. In some regions, a decline in production is even forecast by the end of the year. According to analysts, it is precisely this halt in production growth that should bring the market back to a more normal balance between supply and demand.
There are several reasons for this. Firstly, farm profitability is declining in many countries. Milk prices in some markets are no longer rising as rapidly as production costs. Secondly, pressure from environmental regulations is increasing, particularly in Europe. Thirdly, in some regions, constraints on land, water and labour are emerging, limiting the scope for further herd expansion.
Why is Europe important?
Developments in Europe are particularly important for Lithuanian dairy farmers. Analysts at the IFCN and Rabobank are increasingly noting that the European dairy sector is approaching a structural limit. Unlike in the United States, expansion here is constrained not only by economic factors, but also by demographic and environmental considerations. Some farmers are choosing to diversify their income through other activities rather than increasing milk production.
This means that, in future, Europe may become a less aggressive producer of milk than it was in previous decades. If this trend continues, global markets will become increasingly dependent on production growth in the United States and certain South American countries.
The new face of milk demand
Another significant trend is taking place on the consumer side. In recent years, interest in protein has been growing rapidly worldwide. Demand is rising for high-protein dairy products, whey protein, sports nutrition and functional foods. Analysts refer to this phenomenon as the ‘protein halo’ – consumers are increasingly viewing dairy products not only as traditional foodstuffs, but also as a source of protein.
This is particularly important because this trend supports long-term demand for milk even at a time when consumption of traditional dairy products is declining in some markets.
What should Lithuanian farmers be keeping an eye on?
The most important question today is not whether there will be global demand for milk. Most international analysts agree that, in the long term, demand for dairy products will continue to grow. A growing global population, rising incomes in developing countries and the increasing popularity of protein-rich products remain strong drivers of growth in the sector.
A far more important question is which region and which farms will be able to produce most efficiently. Therefore, Lithuanian dairy farms would do well today to monitor not only milk prices but also the pace of global production. If current forecasts prove accurate and the growth in global milk production continues to slow, conditions for a more moderate price recovery may emerge in the market.
However, this is unlikely to be a sudden surge. A more likely scenario is a slow return to market equilibrium, in which the most important factor will not be record figures, but the ability to produce milk efficiently and adapt to constantly changing market signals.
Donata Uchockienė
