Rabobank Reports Cautious Recovery in Global Dairy Prices Amid Supply Surplus

Sydney - Global dairy commodity prices have staged a rally this quarter, fueled by strong gains in recent auctions, though analysts warn the recovery remains fragile as worldwide milk production continues to outpace demand.

In its first quarter, Global Dairy Quarterly report released Monday, agribusiness specialist Rabobank noted that sentiment in the sector has been lifted by consecutive increases in Global Dairy Trade (GDT) auctions.

The price recovery is particularly evident in products of Australian and New Zealand origin, providing a reprieve after a sustained period of decline in late 2025.

The bank’s RaboResearch division however cautioned that the upward movement may not yet be structurally stable.

Global markets remain heavily supplied, bolstered by low livestock feed prices that have incentivized production across most major exporting regions.

"Current supply data does not yet indicate that the recent upward move in dairy markets is structurally stable," the report stated, citing significant production growth in the European Union, United States and South America.

Adding to the uncertainty is heightened geopolitical volatility.

Michael Harvey, Senior Dairy Analyst at RaboResearch, pointed to recent conflicts involving Iran as a potential disruptor for trade routes and import demand, particularly for milk powders and evaporated milk.

"At the current time, it remains highly volatile and difficult to predict what will happen," Mr. Harvey said.

The report highlighted a divergence in product performance.

While fats and whole milk powder saw declines in the final quarter of 2025, protein-based markets, including skim milk powder (SMP) and cheese, remained more resilient.

Notably, whey prices continued to climb, driven by robust demand for high-end protein products.

For the Australian market, the outlook is more constrained. Local milk production is trailing last year's levels, down 1.2 percent season-to-date as of January.

RaboResearch expects the Australian season to conclude on June 30 with a total production decline of 1.0 percent.

Regional disparities are evident, with falls in western Victoria and South Australia partially offset by production increases in New South Wales and Tasmania.

However, persistent soil moisture deficits and low irrigation water storage levels, the lowest since 2020, continue to cloud the production outlook for the 2026/27 season.

"There is likely to be some downward pressure on Australian farmgate milk prices if commodity prices in Australian dollar terms remain below prior-year levels," Mr. Harvey noted, though he added that intense competition for supply among processors may provide a floor for local prices.

On the retail front, Australian consumers face a 3.1 percent year-on-year inflation rate for dairy products as of January 2026.

While the drinking milk market has contracted by 0.5 percent in volume, flavored milk remains a standout performer within the category.

Looking ahead to the remainder of 2026, Rabobank forecasts a gradual tightening of the global market.

Production growth among the "big seven" exporters is expected to slow to just 0.2 percent above prior-year levels, a sharp deceleration from the 2.6 percent growth recorded in 2025.