Iran–US Tensions and Dairy
So far, the Iran–US conflict has had indirect and limited impact on dairy fundamentals. The main transmission channel is energy and freight. Heightened tensions in the Gulf and periodic disruptions around key shipping lanes have supported oil prices and raised concerns over freight costs and insurance for routes serving MENA and South Asia. This is happening against a backdrop of a strengthening USD, making products even more expensive in domestic currency terms.
For dairy, that means:
- Higher landed costs into oil importing markets, potentially dampening demand for higher value products.
- Relative advantage for closer suppliers (e.g. EU into North Africa and Middle East versus Oceania/US) when freight differentials widen.
- Risk premium on logistics, which could briefly widen regional price spreads and create short term arbitrage for flexible traders.
- The heightened fear factor in the market is likely to push buyers to increase safety stocks, which could help sustain the current bull run.
In addition, higher oil prices are feeding into global inflation, which is likely to prompt further interest rate increases to keep inflation in check. Higher rates raise the cost of financing commodity flows worldwide. Because dairy is already a relatively expensive commodity, these financing costs have an outsized impact when expressed in USD/tonne.
However, there is no clear evidence yet of large‑scale trade diversion or sanctions directly targeting dairy, so the conflict remains a background risk factor rather than a primary driver of current price moves.
Fat Under Pressure, Powders Edging Up
In the first GDT event of March, prices were up 5.7% on the month – the second consecutive increase of 2026. The average winning price was USD 4,30, with the biggest gains seen in SMP, cheese and butter.
Despite rises, CLAL’s world butter series shows prices around EUR 4,150/tonne in January–February 2026, well below the late‑2024 peak above EUR 7,000/tonne, confirming a deep correction in fat values.
Source: CLAL
Data from the European Commission echo this. EU butter fell 1.1% between February 1 and February 15 to USD 4,873/tonne, while Oceania butter rocketed by 5.6% to USD 5,625/tonne, widening the EU–Oceania spread.
Source: European Commission
EU cheese prices have also softened in recent weeks, while Oceania and the US have experienced strength. The European Commission reports EU cheese down 9.3% between February 1 and February 15 to USD 4,012/tonne, while Oceania and US cheddar rose by 2.4% to USD 4,738/tonne and 1.2% to USD 3,111/tonne, respectively. US block cheese has shown modest recovery, but remains historically cheap in real terms, reinforcing global cheese headwinds.
Source: European Commission
Powders are emerging as a bright spot. Over the same two-week period, EU SMP rose 5.8% to USD 2,616/tonne, Oceania was up 8.5% to USD 2,863/tonne and the US gained 15.1% to reach USD 3,526/tonne. WMP also posted impressive gains across all regions.
GDT events have recently shown firmer pricing for SMP and WMP, supporting the view that powders may be leading a cautious price floor after sharp declines through late 2025. While fundamentals are still a world that is awash with milk, that milk is going heavily into the cheese/whey stream at present. As a result, there seems to be very little incremental milk available to produce the likes of SMP, which is keeping this market on its bull run.
Source: European Commission
Europe Long, Oceania Competitive
Global dairy trade in February 2026 continues to reflect a world awash with milk, but regional dynamics are becoming more defined. AHDB’s February update shows milk deliveries across major exporters still running more than 4% above last year, reinforcing the structural oversupply shaping global flows.
The EU remains the most aggressively export‑oriented player. Extra‑EU shipments of SMP and cheese are strong, supported by competitive pricing and freight advantages into North Africa and the Middle East. With EU butter and SMP still discounted relative to Oceania benchmarks, European suppliers are increasingly the default choice for price‑sensitive buyers.
The US is also expanding its export footprint. Rising milk production and growing cheese capacity mean more US cheese, whey and SMP are moving offshore, especially to Mexico and Southeast Asia. Competitive US cheese pricing helps, though global oversupply limits any meaningful price lift.
Oceania retains its role as the global reference point for powders, but its traditional dominance is being challenged. Narrow price spreads between Oceania and EU SMP/WMP allow buyers to switch origins quickly, and higher freight and insurance costs—exacerbated by Iran–US tensions—tilt some MENA demand toward closer European suppliers.
Arbitrage And Spot Opportunities Narrow but Present
The modest premium for Oceania butter and powders over EU values creates limited arbitrage into Asia. EU-origin SMP/WMP can undercut Oceania in some tenders, especially where logistics and quality specs allow.
Within Europe, CLAL data show relatively stronger cheese prices (e.g. Gouda around EUR 3.20–3.30/kg) compared with milkfat, while Italian hard cheeses such as Parmigiano Reggiano remain structurally high‑priced.
Source: CLAL
This encourages some diversion of milk away from butter/powder streams into cheese, tightening fat availability at the margin and supporting short‑term butter rallies when fresh cream is tight.
Italian and German spot milk prices on CLAL have eased from 2025 highs but remain above powder‑equivalent in some weeks, signalling that local liquid and cheese demand is still absorbing milk and constraining export‑oriented drying capacity.
Source: CLAL
That dynamic can create short‑lived arbitrage for SMP/WMP exporters when GDT rallies outpace EU spot adjustments.
“Milk Tsunami” Meets Softer Consumption
Global dairy is still defined by heavy milk supply and subdued demand, with only tentative price stabilisation. Rabobank’s latest quarterly flags strong production growth across most major exporters, especially EU, US and New Zealand, keeping a lid on any sustained rally despite some recent firmness in powders and Oceania fats.
Analysts increasingly describe 2026 as a “milk tsunami” year, with structural oversupply rather than a short‑term blip. EU, US, New Zealand and Argentina are all expanding output, while only Australia is consistently down year‑on‑year.
Source: CLAL
Low feed prices and previously high milk checks have supported herd size and yields, though negative milk‑over‑feed margins in the US are now prompting higher culling and may slow growth later in the year.
Meanwhile, global demand remains subdued but resilient. Developed markets are seeing flat to slightly declining per‑capita fluid milk use, but stable cheese and high‑value dairy consumption. Emerging markets in Asia and MENA continue to grow in powders and affordable cheese, but at slower rates than pre‑2020, constrained by weaker incomes and currency pressures.
The net result is a market where supply growth still outpaces demand, keeping inventories comfortable and capping price recovery, especially for fats and commodity cheese.
