Decline of dairy prices: summary
- Dairy prices have declined globally for three consecutive months
- Increased milk output in the US, EU, UK, New Zealand and South America has outstripped demand
- US national herd size is at its largest since the 1990s
- Cheese and whey markets remain bearish
- However, prices for dairy are still above 2024 levels
Dairy prices have shown soft but consistent decline over the past few months, as weak demand has clashed with strong production.
Why are prices declining?
The dairy price decline has been mild but consistent. According to the UN’s Food and Agriculture Organisation (FAO), prices have been on the same trajectory for three months now.
“Over the past few months, the dairy market has undergone a shift in production trends following a period of stagnation and weak demand caused by elevated prices,” explain dairy analyst Brittany Feyh and senior commodity insight analyst Jose Saiz at market intelligence company Expana.
“This change has been driven by rising milk output across major exporting regions, including the US, EU-27, the UK, New Zealand, and South America, leading to an imbalance between supply and demand.”
In particular, high farmgate prices, cheap feed, good weather and a decline in cases of the disease blue tongue has allowed European milk production to rebound.
Meanwhile, in the US, the national herd is at its largest since the mid-1990s. US farmers have increased the levels of milk butterfat (the fatty component of milk) to levels which the cheese sector cannot absorb. This has led to lower cream and butterfat prices.
“The US continues to capture more global market share on the back of competitive pricing.”
Consumer demand is not as significant a factor as high production, according to Saiz and Feyh, although demand has weakened in some areas, such as in the hotel, restaurant and catering sector.
Furthermore, low competitiveness in the international market for European dairy products has led to declines there.
Despite all these factors, dairy prices remain high compared to 2024, an FAO spokesperson explains, around 9% above their level this time last year.
Why Are Dairy Prices Declining?
Understanding the Decline in Dairy Prices
In recent years, consumers and producers alike have noticed a downward trend in dairy prices globally. This shift is influenced by a complex interplay of supply, demand, market dynamics, and external economic factors. Understanding why dairy prices are declining involves analyzing these variables in detail.
Key Factors Driving Dairy Price Declines
1. Increased Milk Production and Supply surpluses
One of the primary reasons dairy prices are dropping is the increasing volume of milk production worldwide.Advances in dairy farming technology, better feed efficiency, and improved herd management techniques have boosted milk output significantly. When supply outpaces demand, it creates surplus stock, putting downward pressure on prices.
2. Changes in Global Demand and Consumer Preferences
Demand shifts greatly influence pricing.In many markets, changing dietary preferences, including reduced consumption of customary dairy products and growing interest in plant-based alternatives, are contributing to softer demand.Moreover, health trends emphasizing low-fat or alternative dairy items impact the overall demand for conventional dairy products.
3. Economic and Trade Policy Influences
Trade policies, tariffs, and import-export restrictions can cause price fluctuations.For example, subsidies or import quotas in dairy-exporting countries can flood some markets with low-cost products, driving prices down universally.Currency exchange rates and tariffs also influence international price competitiveness.
4. Rising Costs of Production vs. Falling Prices
Despite falling prices, many dairy farmers face rising input costs such as feed, fuel, and labor. This squeezing of profit margins sometimes leads to adjustments in production scale or efficiency, but in the short term, price declines continue due to supply volume.
Market Trends and Data on Dairy Price Changes
Analyzing recent market data highlights the trend of declining dairy prices:
| Year | Global Milk Production (Billion Liters) | Average Milk price (USD per liter) | Demand Growth (%) |
|---|---|---|---|
| 2021 | 850 | 0.47 | 2.5 |
| 2022 | 880 | 0.44 | 2.2 |
| 2023 | 910 | 0.40 | 1.8 |
| 2024 | 940 | 0.37 | 1.5 |
Benefits of Lower Dairy Prices for Consumers
Although declining dairy prices can strain producers, consumers may enjoy several benefits:
- Enhanced affordability: Lower prices make dairy products more accessible to a wider demographic, promoting better nutrition.
- Increased consumption opportunity: With price relief, consumers might purchase a greater variety or quantity of dairy products.
- Access to full-fat and specialty dairy: Recent nutrition guidelines suggest that full-fat dairy can be part of a healthy diet, and price drops may encourage consumption of these beneficial products [[3]].
Challenges for Dairy Producers Amid Declining Prices
Farmers and dairy producers face multiple challenges as prices dip:
- Reduced profit margins: As selling price decreases, operational costs may remain constant or rise, pressuring profitability.
- Investment strain: Lower returns limit ability to invest in technological upgrades and sustainability practices.
- Market volatility: Unstable prices make forecasting and planning difficult for producers.
Strategic Tips for Dairy Producers to Navigate Price Drops
- Optimize herd management: Improve milk yield per cow to maximize output efficiency.
- Diversify product offerings: Shift focus towards value-added dairy such as cheese, yogurt, or fermented products that frequently enough command higher prices and steady demand.
- explore direct-to-consumer sales: Reducing intermediaries can increase profit margins despite low wholesale prices.
- Invest in sustainability: Sustainable practices may attract premium prices and appeal to environmentally conscious consumers.
Why the Future May See Further Price Fluctuations
Dairy pricing is subject to ongoing change driven by:
- Climate change impacts: Extreme weather can affect feed supply and production costs.
- Global economic shifts: Inflation,fuel prices,and labor costs can alter production expenses.
- Consumer health trends: Emerging studies and new dietary guidelines may further shift demand patterns [[2]].
- Technological innovations: Advances in dairy farming could continue to influence supply capacity.
Case Study: The Impact of Production Surges in Key dairy Regions
Consider New Zealand and the European Union, two major dairy exporting regions:
- New Zealand: favorable weather and improved feed supply led to record milk production in 2023, contributing to global oversupply and price drops.
- european Union: Policy reforms and investment in dairy technology increased efficiency, resulting in surplus milk production that pressured global prices.
How Consumers can Benefit and support Sustainable Dairy
Consumers can leverage declining prices while supporting the dairy industry’s sustainability by:
- Choosing locally produced dairy to reduce carbon footprints.
- Supporting dairy brands with clear and ethical farming practices.
- Incorporating diverse dairy products,including fermented items,which are easier to digest and nutritionally beneficial [[3]].
- Remaining informed about dietary guidelines and health research to make balanced dairy consumption choices [[2]].
This time of year usually brings with it more supply and less demand, explains the FAO spokesperson. Milk production in the Southern Hemisphere is boosted by warmer temperatures, and cooler temperatures in the Northern Hemisphere also boost production. Meanwhile, demand for foods such as ice-cream often declines as summer ends.
As farm milk prices are profitable, suggest Expana’s Feyh and Saiz, milk production should continue to grow into 2026.
Which areas of dairy have declined the most?
Prices have been different for different dairy products. Butter prices fell by 7% this month, due to diminished cream availability as demand for ice-cream in the Northern Hemisphere declined. On the other hand, supply is due to increase due to high production expectations from New Zealand.
Skim milk powder prices declined by 4.3% and whole milk powder by 3.1%, due to softer demand.
Cheese remained relatively stable, declining only slightly. Cheese has high supply and low demand, according to analytics company Vespertool. “There’s a limited number of buyers out there, while almost every supplier has cheese to sell”, it said in a report.
Demand for whey is slightly higher, but prices have still gone down.
According to Vespertool, the markets for both cheese and whey are bearish in the short term.
Meanwhile, the price of protein-based dairy products has remained firm, Expana’s Feyh and Saiz explain, due to high demand for protein-dense food, especially in fortification and sports nutrition.
