IN Brief:
- Strong milk flows across most major exporters are continuing to weigh on dairy commodity values.
- Butterfat and whole milk powder have been hit hardest, while protein-linked products have proved more resilient.
- Europe is expected to soften later in the year, but current supply remains ample.
Rabobank has warned that global dairy markets remain heavily supplied after a strong first quarter, with continued milk availability keeping pressure on commodity prices across butterfat and powder categories.
In its latest global dairy quarterly, the bank said milk production growth remained firm across all major exporting regions apart from Australia, limiting any meaningful price recovery. The report said fat markets have taken the hardest hit, with prices falling by more than 40% from September to February, while whole milk powder declined by around 30% over the same period. Protein markets, including skimmed milk powder, cheese, and whey, were described as more resilient, although they also moved lower.
Europe has been a major part of that supply picture. Milk volumes rose strongly through the winter peak, with December and January especially high, before growth moderated in February. Rabobank now expects European milk production to decline later in the year, though the market is still carrying enough milk to keep the immediate balance soft.
That leaves processors in an awkward trading position. Plants can run, raw material is available, and output can be maintained, but the product mix becomes more important when fat-heavy categories are under pressure. Butter and whole milk powder are absorbing the sharpest pricing weakness, while whey and some protein-led products are holding up better, which may encourage manufacturers to lean harder into value recovery where demand remains firmer.
The report also sits alongside a broader pattern that has been building across dairy for months. The sector has moved away from the acute supply tightness seen in earlier cycles and back into a phase where operational discipline matters more than scarcity. When milk is plentiful, efficiency gaps show up more quickly. Yield, energy use, inventory decisions, and the ability to move product into the right channels start to matter more than simple access to raw supply.
For European processors, the timing is especially relevant. Milk flows may ease later in the year, but spring output and current availability still need to be worked through, while energy, fertiliser, feed, and geopolitical risks remain capable of changing sentiment quickly. That means the second half of 2026 is unlikely to be shaped by a clean rebound. It looks more like a period of selective resilience, where some categories recover faster than others and processors with exposure to stronger protein demand or more flexible product portfolios are better placed to defend margins.
Rabobank also flagged fertiliser disruption as a potential risk later in the cycle, suggesting that wider geopolitical tension could still feed back into farm economics and milk flows beyond the current quarter. For now, though, the market is dealing with a simpler problem: there is still a lot of milk around, and commodity values are reflecting that.
