Fats under pressure but growth for added value dairy, says AHDB

Plummeting dairy commodity prices may have found a floor, according to the latest analysis from the UK Agriculture and Horticulture Development Board’s (AHDB) Dairy Agri-Market Outlook, released this week. According to the report, early 2026 has seen positive movements in wholesale markets for skimmed milk powder and cheddar, signalling a potential recovery. Fats, however, remain under severe pressure due to too much milk, and farmgate milk prices are expected to remain under pressure until at least mid-2026.

AHDB is forecasting growth for added-value products in retail. Retail cheese volumes are predicted to increase by 3%, supported by consumer interest in premium own-label products and cottage cheese. Yogurt demand is forecast to grow by 7%, driven by a continued focus on health, protein, and affordable indulgence. Whey also continues to expect strong global growth, reflecting rising demand for protein-rich diets, including among consumers using GLP-1 weight loss medicines.

Domestic retail demand is expected to remain steady after total dairy volumes fell by 1% in 2025, driven by less liquid milk consumed. However, household incomes remain tight, and low levels of shopper confidence are also continuing to affect food and grocery consumption. Despite this, demand for block butter remains strong and may strengthen further if prices fall, reflecting consumer preferences for less processed foods.

Susie Stannard, AHDB lead analyst for dairy, said, “The volume of milk in the system means the path back to higher farmgate prices is likely to be a slow rebuild, with fats prices still under pressure. Slowing production is vital to safeguard the future of the sector.

“The outlook shows British milk production is forecast to stabilise in 2026, with marginal growth of around 0.3% expected. However, this is from a high level, meaning processing capacity during the spring flush will still be challenged, keeping a lid on farmgate prices which have seen a cut of as much as 15ppl for some.

“More positively, the report does highlight some key growth opportunities for the dairy category through 2026 and beyond, both in Britain and abroad, reminding farmers that although times are currently tough, the longer-term prospects for the sector look bright as dairy remains a nutritious, sustainable, delicious and affordable cornerstone of the British diet.”

The AHDB Dairy Agri-Market Outlook is an analysis of the factors shaping the British dairy industry, providing insights into the balance of supply, demand, and pricing trends for the wider supply chain. The Dairy Outlook is the first to be released. AHDB will be releasing the agri-market outlooks for beef, lamb, pork, cereals, oilseeds and farm inputs (feed, fertiliser and straw) over the coming weeks.