Global dairy markets are moving towards a more balanced supply-and-demand outlook as global milk production growth slows after a prolonged period of expansion, according to Rabobank.
In its RaboResearch Q2 Global Dairy Quarterly, the bank said milk production growth began easing in the second quarter of this year following four consecutive quarters of increases above 2 per cent.
Growth peaked at 5.2 per cent at the end of 2025, described in the report as a “whopping” rise and one of the strongest on record.
Rabobank estimates global milk production will be 1.5 per cent higher year-on-year in the current quarter, before flattening in the third quarter and falling by 1.6 per cent in the fourth quarter. That would mark the first quarterly contraction since mid-2024.
The report said “higher input costs, the subsequent margin contraction on-farm and the tenuous milk price situation” will continue to shape sector conditions, while also pointing to geopolitical tensions, consumer health trends and weather risks as key market drivers.
Report co-author and Michael Harvey said the expected contraction would signal a clear turning point.
“This helps build the case for a rebalancing of global milk supplies following the intense output growth that has been the story for some time now,” Harvey said.
He said the slowdown reflected both cyclical pressures and rising costs, including energy, fertiliser and interest rates, alongside weather-related risks in major producing regions.
Looking ahead, Rabobank expects global milk production to rise 1 per cent in 2026, after 3.1 per cent growth in 2025, before edging down 0.2 per cent in 2027 — the first annual decline since 2022.
The report also noted that while dairy prices have shown some recovery in 2026, underlying product trends remain mixed, with volatility persisting across butter and cheese markets despite stronger movements in milk powders.
In Australia, the bank forecast milk production to remain under pressure, with a 0.3 per cent decline expected in the 2026/27 season due to tighter margins and rainfall risks. It also warned that below-average rainfall and potential El Niño conditions could constrain feed availability.
New season milk prices in southern Australia have been set at AUD8.80–9.50/kgMS, slightly below expectations, with Rabobank saying profitability is likely to remain constrained.
The report added that retail dairy price increases are re-emerging in Australia as supermarkets respond to rising supply chain costs, while export performance remained mixed, with strong milk exports offset by sharp declines in butter and cheese products.
Overall, Rabobank said the global dairy sector is shifting out of a rapid growth phase and into a more balanced market environment, though ongoing cost pressures and climate risks continue to shape the outlook.
