Dairy markets pressured by rising supply
Dairy producers worldwide are navigating a challenging start to the year as rising milk supply and falling commodity prices squeeze farm margins, according to the latest Global Dairy Outlook for Q1 2026.
Abundant milk production across major exporting regions has driven significant price declines. Fat markets have dropped by 40%, while whole milk powder is down 30%. Protein-based products—including skim milk powder, cheese and whey—have shown more resilience but still declined by 15%. The global dairy trade index has also turned negative, with butter falling 8.1% and anhydrous milk fat down 7.1%.
Milk production remains elevated globally, though growth is slowing. Total output is forecast to increase just 0.2 % in 2026, a sharp slowdown from 2.6% growth in 2025. The United States continues to lead expansion, with February production up nearly 3% year over year and herd sizes reaching their highest levels since the 1990s.
Europe also posted strong gains late in 2025 but is expected to contract slightly in the second half of 2026. Growth is also expected in New Zealand and South America, while Australia remains the only major exporter experiencing a decline due to weather challenges and increased culling.
Oversupply continues to weigh heavily on producer profitability, despite relatively stronger performance in protein markets. Commodity dairy prices on the Chicago Mercantile Exchange in March were mostly up from February, with whey being the only commodity down. Compared with last March, barrel, block and butter prices were down, while nonfat dry milk and whey prices were up.
The U.S. Department of Agriculture’s March Milk Production report showed Iowa cow numbers up 1,000, totaling 245,000 from a year earlier. Total milk pounds showed a 1.5% increase over 2025. USDA has adjusted its 2026 milk production forecast upward, yet the all-milk price for the year is projected around $19.70 per hundredweight.
Looking ahead, geopolitical tensions in the Middle East present additional risks. While short-term impacts are limited, disruptions could tighten supplies and potentially slow milk production in 2027. Dairy producers face tightening margins as supply exceeds demand, with future market direction hinging on production adjustments and global input availability.
Fred Hall is a dairy field specialist with Iowa State University Extension and Outreach.
