The global dairy market is expected to face a period of weaker commodity prices following ‘stunning’ global milk production growth across the second half of 2025, according to a new report by food and agribusiness banking specialist Rabobank.
In its Q4 Global Dairy Quarterly Report, Rabobank says global milk production growth is estimated to have peaked in Q3 2025, with Q4 growth likely to be not far behind.
“The EU and UK posted their strongest growth since 2017 for the month of October, while surging US October milk flows posted their fifth consecutive month of growth rates over 3%,” report co-author RaboResearch senior agricultural analyst Emma Higgins said.
“Not to be outdone, New Zealand farmers have been setting new milk solid records each month from May to September 2025, with the peak month of October the third highest output on record.
“South America is also shaping up to deliver a significant annual volume increase, and output from the Big-7 (the EU, the US, New Zealand, Australia, Brazil, Argentina and Uruguay) is forecast to finish 2025 up 2.2% year-on-year.
Ms Higgins said the wave of milk production had softened dairy markets through Q3 2025, with sharp price falls recorded in Q4.
“Too much milk for the market, combined with strong milk solids growth, has contributed to a sharp decline in commodity prices,” she said.
“Butter has led the decline, down 9% since the beginning of October, and 24% below its peak earlier this year. Whole milk powder (WMP) and cheese have also followed suit, each 7% down on the beginning of the quarter. In contrast, skim milk powder (SMP) prices have held up better, declining a mere 1% from already low prices felt earlier in Q3.”
Looking forward to 2026, the report said, a period of weaker commodity prices was likely in the face of ample milk supplies and exportable surpluses.
“Demand remains fragile and, in the absence of any supply shock to impede surplus milk, this raises the risk of prolonged weak pricing through mid-to-late 2026 as surplus milk enters the market,” Ms Higgins said.
“However, supply growth is expected to slow to just 0.12% next year, and weaker prices should eventually support a gradual recovery in demand, with commodity prices expected to return to historical averages by year-end 2026.”
New Zealand
The report says New Zealand dairy farmer revenues remain sound, despite lower milk commodity prices.
“Fonterra has lowered its milk price forecast to $9.50/kgMS for the 2025/26 season last month, a 50-cent haircut from the previous forecast,” Ms Higgins said.
“Still, it remains a profitable price and one of the highest season milk prices to date. Dairy farmers will also be supported by a tax-free capital distribution to Fonterra shareholders, due to be paid by Q2 2026, at $2/share following the sale of Fonterra’s consumer business to Lactalis.
"But there is elevated risk that the farmgate milk price moves lower across the course of the season which could mean that the final season payout lands around the 9.00/kgMS mark."
Ms Higgins said export volumes for the three months up to October 2025 bounced higher than the prior year, by 4% year-on-year, in line with more milk flowing from New Zealand farms.
“Shipments to China, New Zealand’s largest dairy export market, jumped by 17%, boosted by strong export volumes in September and October,” she said.
“Total export receipts for the same period were up 23% compared to 2024. A weaker NZD/USD, down 5% over the period, along with higher commodity prices, supported the increase.”
The report says a bumper milk production season has been the theme this year.
“Since May 2025, milk solids growth has been hitting hit new records, with season-to-October milk flows higher by 3.4%,” Ms Higgins said.
“The broader picture remains positive for milk flows. With affordable feed, a profitable milk price forecast, and broadly supportive weather so far, a new production record still looks possible – building on a strong 2024/25 season, which ended 2.6% higher year-on-year in tonnage and 3.3% higher year-on-year in milk solids (adjusted for the 2024 leap year).”
RaboResearch Disclaimer: Please also refer to our disclaimer here for information about the scope and limitations of the RaboResearch material provided in this media release.