Global Milk Oversupply Pushes Dairy Rebalancing into Late 2026

Global dairy markets are struggling to regain balance as milk production growth continues to run far above historical norms. As of early 2026, price declines seen through the second half of last year have yet to trigger a decisive supply response from producers. Instead, elevated output across major exporting regions is prolonging the adjustment cycle. The result is a fragile pricing environment where short-term rallies coexist with unresolved structural pressure.

Nate Donnay, Director of Dairy Market Insight at StoneX, has analysed international dairy supply chains for two decades, advising stakeholders from farm operators to food manufacturers and financial institutions. His applied research background gives him a system-level view of how farmer behaviour, processing capacity, and margin signals interact to delay market rebalancing.

Key Themes from the Discussion

• Global milk production growth reached approximately 5.5 percent year on year in late 2025, far above the long-term average.
• Falling dairy prices have not yet translated into rapid production cutbacks due to lagged farmer responses.
• Expanded processing capacity and lower feed costs continue to incentivise high output levels.

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Milk Production Growth Delays Dairy Market Rebalancing

Milk production growth across the United States, the European Union, New Zealand, and Argentina is delaying any meaningful dairy market rebalancing in 2026. Donnay notes that "long run average milk production growth across the major exporters is about 1.4% per year", yet output surged roughly 5.5 percent in the fourth quarter of 2025. This excess supply is preventing price signals from translating quickly into reduced production. Consequently, dairy prices remain vulnerable to renewed downside even when short-term strength appears.

Producer Incentives Keep Global Milk Supply Elevated

Producer economics continue to support high milk output despite declining farmgate prices. Donnay explains that margins were strong from mid-2024 through much of 2025, which "has encouraged dairy farmers to produce more milk" while lower feed costs and improved animal health reduced operational friction. Expanded processing capacity in the United States has further reinforced these incentives by absorbing additional volumes. As a result, supply adjustment is unfolding slowly, extending the period of imbalance for global dairy markets.

Frequently Asked Questions

Why have lower dairy prices not reduced milk production yet?

Dairy farmers typically respond slowly to price declines because cattle are expensive, rations are stable, and short-term volatility is common. Sustained low prices over several months are usually required before production decisions change.

When could global milk production start to slow?

According to Donnay, production growth is likely to decelerate later in 2026 as lower farmgate prices persist, though the exact timing remains debated between the second and third quarters.

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--- Written by Frédéric Guétin, StoneX TV Producer

--- Expert: Nate Donnay, Director of Dairy Market Insight, StoneX