Global Dairy Markets Diverge: US Prices Fall as Europe Surges

Global Dairy Markets Show Regional Divergence as Production Patterns Shift

Key Takeaways:

• US dairy prices keep falling despite bird flu hitting California production, while European prices climb even as milk output grows
• Chinese milk production dropped 5.4% last quarter, but falling domestic prices suggest demand weakness rather than supply shortage
• Supply looks solid across major dairy regions for 2025, but regional demand shifts could keep driving a price divergence

US dairy prices keep falling while European prices climb – a phenomena that's catching market watchers' attention. "Most of my time is spent thinking why in the heck are these prices so weak," says StoneX dairy expert Nate Donnay in regards to the US markets.

The split may not make much sense at first glance. US milk output has dropped as bird flu hits California farms hard – over 30% now have confirmed cases. On that supply factor, it would be understandable to expect prices to rise. Instead, they're sliding lower while European prices strengthen – and there, despite steady production growth.

China adds another twist. Its milk production reportedly fell 5.4% last quarter, a surprising drop for a market that has shown steady grows. But Chinese farm prices keep drifting lower, suggesting demand might be the real culprit. "If milk production is down that much and you can't get prices to rise, what does that tell you about demand?" Donnay asks.

Looking ahead, supply growth looks solid across major dairy regions. US farmers have enjoyed strong profits, which typically leads to more milk. Europe's outlook is bright too, with margins at record highs. New Zealand started its season strong, helped by good weather and pasture growth.

But demand questions linger. US cheese prices sit well below levels that some believe is reasonable given tight inventories. European butter stocks hit record lows for the fourth quarter, pushing prices to €8,000 per ton. Those extreme highs won't last as imports rise and exports drop.

Markets are starting to price in the changes. US butter futures point to prices around $2.30 per pound early next year, down sharply from recent levels above $3. European futures still show high prices, but seasonal pressure could force a "big leg down," Donnay warns.

For dairy buyers and sellers, the message is clear: watch both supply and demand signals. Production might be solid, but shifting demand patterns could keep driving regional price splits.

Click here to watch the full Global Dairy Market Outlook with Nate Donnay.

 

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