Insight Focus

The past month in global dairy markets has been defined by a tug of war between persistent oversupply and early signs of renewed buying interest. This shift does not yet signal a full market reversal, but it does suggest that buyers—after months of hand to mouth purchasing—may be stepping back in as prices reach value territory.

Pricing Sees Signs of Life

Pricing conditions over the past month have been dominated by the weight of persistent global oversupply. Milk production reached decade-high levels across major exporters through late 2025, pushing butter, WMP, cheese and SMP lower, with butter falling roughly 24% from earlier-year peaks.

Despite these challenges, the first signs of price stabilisation emerged in early 2026. The January 6 Global Dairy Trade (GDT) auction recorded a 6.3% increase—the first rise since August—followed by an additional 1.5% lift at the second auction of the month. Gains were broad-based across WMP, SMP, butter and AMF, indicating that prices may have reached value territory for buyers who had been waiting on the sidelines. 

Almost 28,000 tonnes were sold, with 164 bidders participating, indicating broad-based demand rather than a narrow technical bounce.

China’s continued engagement on GDT and growing participation from Middle Eastern buyers reinforced the impression that low prices were finally stimulating renewed demand.

Meanwhile, SMP remained comparatively resilient, supported by compressed prices and strong competitiveness from EU origins. Some skimmed milk concentrate (SMC) fell below EUR 1,200/tonne, implying SMP values of EUR 1,600–1,800/tonne.

Butter, by contrast, remained historically weak, particularly in Oceania, although buyers are beginning to perceive value in current New Zealand butter pricing. 

Source: CLAL

Trade Flows Shift

Trade flows over the past month reveal meaningful shifts in importer engagement and origin differentials. Middle Eastern buyers increased purchasing activity significantly, reaching their highest share of GDT participation in two years—most notably during the January 6 event—indicating renewed appetite at current pricing. Egypt, in particular, remained a key destination for Irish butter.

China re-emerged as a meaningful buyer despite its long-term push toward self-sufficiency. Domestic output now covers roughly 85% of national demand, reducing annual import requirements by more than 200,000 tonnes. 

Source: USDA 

But Chinese buyers continued to secure opportunistic WMP volumes on GDT, holding approximately three months of rolling stock and seeking coverage through the end of the current season.

One of the most influential trade events of the month was Algeria’s ONIL tender, which awarded 50,000 tonnes of WMP at approximately USD 3,500/tonne CFR, mainly from New Zealand. It also awarded 30,000 tonnes of SMP at around USD 2,700/tonne CFR, largely from EU suppliers. This tender helped re-establish global benchmarks for milk powder pricing after weeks of volatility and reinforced the EU’s position as the most competitive SMP origin.

In the Americas, Colombia’s removal of tariffs on US dairy products from 2026 is expected to support US export channels at a time when currency dynamics have otherwise constrained competitiveness. Argentina also continued to export aggressively, seeking to clear heavy WMP inventories.

Intense Competition, Shifting Arbitrage Windows

Arbitrage dynamics have been shaped by widening gaps between regions and between dairy categories. Throughout December and early January, Oceania retained pricing advantages over the EU and US, especially for WMP, opening arbitrage windows into Southeast Asia and the Gulf. But strong EU milk flows have seen EU WMP pricing gap to New Zealand converge to its closest level in years.

Source: CLAL

The Algerian tender further influenced arbitrage conditions by narrowing the price spread between SMP and WMP and solidifying EU SMP as the cheapest available origin. This recalibration may reduce arbitrage opportunities in subsequent months as buyers move to secure coverage ahead of anticipated seasonal supply tightening.

Improving Signals but Still Fragile

The fundamental driver of current market conditions remains the profound global oversupply of milk. Output surged throughout 2025, with Europe posting a 6% year-on-year rise by September and the US recording a strong multi-month production run. New Zealand set multiple milk solids records between May and September, and Argentina, Uruguay and Belarus all contributed additional exportable volumes. In addition, Mexican investment in dairy self-sufficiency poses a longer-term risk to US demand.

The UK experienced particularly strong performance, with Q4 2025 milk deliveries 5.6% higher year-on-year and 7.4% above the five-year average. 

Note: dotted line indicates forecast
Source: ADHB

In Europe, stable herd sizes and improved yields supported abundant supply, aided by forward-bought feed that insulated producers from cost spikes. Oceania added further volume, with New Zealand maintaining strong production momentum, even as Australia faced a projected 2% decline due to adverse weather.

Demand, by contrast, has remained cautious. Weak global consumer confidence, lower discretionary spending and sluggish foodservice traffic limited importers’ willingness to rebuild stock. Some multinational confectionery manufacturers reported chocolate sales down 10% year-on-year, reflecting softer dairy-fat utilisation.

Nonetheless, improving signals appeared in January. The consecutive GDT increases, rising Asian participation and MENA’s renewed purchasing interest indicate that demand is beginning to respond to multi-month lows in commodity prices.

The Chinese economy for the past six years has been in a weaker phase and WMP pricing has been relatively expensive. Current pricing represents good profit opportunity and product needs to be bought before February to see buyers through to the end of the current season.

Long-term fundamentals remain anchored by stable growth in emerging-market dairy consumption and rising global protein demand. However, near-term pressures—including the likelihood of continued oversupply and projected declines of up to 42% in Irish dairy farm incomes in 2026—suggest that market recovery will be gradual.

Structural adjustments, including ongoing consolidation among smaller producers and potential shifts toward value-added products, are expected to shape the sector throughout 2026.