The global dairy market is entering a more supply-sensitive phase, according to Emma Higgins, senior analyst, New Zealand at Rabobank. Milk production growth across the major exporting regions is slowing, producer margins are tightening, and El Niño could disrupt Southern Hemisphere output during a critical production period, she she warns in RaboResearch’s Global Third Quarterly Report for the dairy sector. At the same time, GLP-1 drugs, resilient Asian demand and a stabilizing Chinese market are supporting milk powders and dairy proteins, which continue to outperform fats and cheese. The balance of risks is becoming more supportive for commodity prices into 2027, although energy costs, geopolitics and consumer resilience remain important watchpoints, she notes.

Overall, exports from the Big 7 are expected to slow to 0.5% year-on-year in the second half of 2026, with output contracting by 0.2% in the fourth quarter. Static growth is expected through the first half of 2027. Segments winning have been milk powder, which has seen SMP prices increasing by 7.6% and WMP going up by 3%, despite a large volume on offer, Higgins observes. Butterfat prices are subdued due to well supplied markets, and cheese has softened. The Oceania cheese index fell to its lowest level since 2020 in July and European cheese prices have also softened despite resilient export demand, she notes. US cheese remained solid due to increased export demand, but the increased production and ample supply globally is weighing on cheese market fundamentals.

Demand growth for dairy is increasingly concentrated in protein-rich products, supported by consumer focus on health and nutrition, as well as GLP-1 dietary trends. Strong import demand for milk powders, protein ingredients and cheese continues to underpin trade growth and helping to absorb abundant milk supplies, Higgins says. However, rising input prices for producers is posing a threat to profitability, which include fertiliser, feed, fuel and freight costs.