Dairy Sector Faces Pressure From Supply and Costs

The global dairy sector is facing a rapid shift from strong profitability to mounting financial pressure. Milk prices have declined sharply following a surge in production across key exporting regions, while energy-related costs have risen at speed. This combination is creating a margin squeeze that is being felt most acutely at farm level. The current environment reflects a fast-moving adjustment where both supply dynamics and cost structures are shifting simultaneously.

John Lancaster, Head of EMEA Dairy and Food Consulting at StoneX, has extensive experience analyzing European dairy supply chains and price cycles. His direct exposure to market movements across Ireland and broader export markets provides a detailed view of how production trends and input costs interact to shape farmer profitability.

Key Themes from the Discussion

• Milk production increased 5 to 6 percent across Europe in late 2025, with similar gains in the United States and New Zealand.
• Diesel costs rose by around 60 percent, creating an immediate and significant cost shock for farmers.
• Milk prices in Ireland fell from close to 50 cents per litre to around 33 to 35 cents within months.

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Global Dairy Supply Growth Drives Price Declines

Global dairy supply expansion is pushing milk prices lower as production outpaces demand across major export regions. John Lancaster highlights that "Europe was up 5 to 6% during Q4, but the U.S. was also up similar types of percentages", underscoring how synchronised growth has emerged across key producers. This level of supply growth exceeds the typical threshold that global markets can absorb, resulting in downward pressure on commodity prices.

Energy Costs Increase Pressure on Dairy Margins

Energy costs are intensifying the financial strain on dairy farmers as input prices rise across multiple areas of production. John Lancaster notes that "the increase in prices effectively increased it by about 60%" when referring to agricultural diesel, highlighting the scale of the cost shock. These higher energy prices are feeding through into fertilizer, feed, electricity, and processing costs, amplifying their overall impact. As a result, the combination of falling milk prices and rising input costs is compressing margins and increasing the risk of unprofitable operations for higher-cost producers.

Frequently Asked Questions

Why are milk prices falling in global dairy markets?

Milk prices are falling because production has increased significantly across major exporters such as Europe, the United States, and New Zealand. This surplus supply requires lower prices to stimulate demand and rebalance the market.

How are energy prices affecting dairy farmers?

Energy prices are affecting farmers through higher diesel, fertiliser, and electricity costs. These increases raise overall production costs and reduce profitability, especially when milk prices are declining.

What does this mean for dairy farmer margins in 2026?

Margins are expected to decline significantly compared to 2025, with estimates suggesting a drop of 40 to 50 percent. Higher-cost producers may face zero or negative margins under current conditions.

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--- Written by Frédéric Guétin, StoneX TV Producer

--- Expert: John Lancaster, Head of EMEA Dairy & Food Consulting, StoneX