Dairy commodity prices linked to dairy manufacturing have shown a modest recovery in recent months, despite global milk supply continuing to outpace demand, according to new research from Rabobank.
In its Q1 Global Dairy Quarterly report, the bank’s RaboResearch division said prices had rallied this quarter, particularly for Australian and New Zealand-origin products, with consecutive gains in Global Dairy Trade (GDT) auctions helping lift sentiment across the sector.
However, the report said global markets remain well supplied, with milk production growing across most major exporting regions including the European Union, the United States, South America and New Zealand.
“Current supply data does not yet indicate that the recent upward move in dairy markets is structurally stable,” the report said.
RaboResearch senior dairy analyst Michael Harvey said geopolitical developments could also affect demand and trade flows.
“As the Middle East is an important market for milk powders, fat-filled powders and evaporated milk, the dairy market will follow the evolving situation in Iran and possible trade disruptions closely,” Harvey said.
Looking ahead, Rabobank expects supply growth to slow as farmer margins tighten, which could gradually support dairy markets. Milk output from the world’s seven largest exporters — the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay — is forecast to end 2026 just 0.2 per cent higher than the previous year, compared with growth of 2.6 per cent in 2025.
In Australia, milk production remains below last year’s levels, although the pace of decline has eased. Season-to-date production to January was down 1.2 per cent year-on-year to 5.3 billion litres.
“Falls in milk production have been led by western Victoria and South Australia, although monthly declines have slowed,” Harvey said.
RaboResearch expects Australian milk production to finish the current season down about 1.0 per cent, with seasonal conditions and water availability continuing to influence supply.
“There is likely to be some downward pressure on Australian farmgate milk prices if commodity prices in Australian dollar terms remain below prior-year levels,” Harvey said.
The report said Australia’s exportable dairy surplus is expected to remain tight in the first half of 2026 due to ongoing pressure on local milk supply, although weaker drinking milk consumption may leave slightly more milk available for manufacturing and export markets.
