Dear Dairy, post #105

The Global Dairy Trade (GDT) Event 394 closed 2025 with a sharp decline, signaling a shift in the dairy market that cannot be ignored. Prices dropped 4.4%, averaging $3,341 per metric ton, with whole milk powder (WMP) falling 5.7%. This downturn has turned the once speculative talk of a sub-$9 payout in New Zealand into a reality.

And again, my "Dear Dairy" linkedIn poll has been accurate again, correctly voting and essentially predicting the market, for 9 months now, running....

As I write this from Bangkok, where the mood on U.S. dairy is mixed, the message from major importer is clear: "without a trade deal, or a semblance of it, U.S. supply to Thailand, faces hesitation, especially when Oceania offers better prices."... Hard to argue with him. But as I always say...“A wise man does not wait for peace to build. He builds during storms, for that is when the foundations matter most.” Sebastian 9:14

Global Dairy Prices Take a Hit

The latest GDT results reveal a market under pressure. The 4.4% drop in prices at Event 394 is significant, especially with WMP leading the decline. This commodity is a key indicator for dairy payouts in New Zealand, and the fall below $9 per kilogram signals tighter margins for farmers. The market’s reaction reflects broader concerns about oversupply and shifting demand patterns.

In the U.S., the situation is complex. Class IV milk futures have reached record average daily volumes, supported by strong cheese production and steady butter demand. Whey exports to China continue, but appetite across Asia is changing. Importers express caution, waiting for clearer trade agreements before committing to U.S. supply, as Oceania remains more competitive.

Divergence Between Regions Widens

The dairy market is no longer moving in unison. Instead, regional differences are growing, creating a patchwork of supply and demand dynamics.

• European Union

Spot prices are falling rapidly. Cream prices dropped from 26.3 PLN/kg to 17.0 PLN/kg in just two weeks. Skimmed milk spot prices fell to 0.50 PLN/liter (about €0.11/l), and raw milk prices crashed to 1.17 PLN/liter (around €0.26/l). This sharp decline reflects oversupply and weaker demand in the EU market.

• United States

Milk futures are strong, with Class IV hitting record trading volumes. Cheese production remains high, butter prices are supported, and whey exports to China continue. Yet, demand in Asia is shifting, and importers remain cautious without a trade deal.

• New Zealand

Production remains robust. Fonterra’s warning about an $8 payout is now widely accepted, signaling that lower prices are becoming the norm. This outlook affects farmer confidence and investment decisions.

Fundamentals and Risk Management

The dairy market is no longer just about milk production and prices. It is increasingly about managing risk in an uncertain environment. Oversupply is expected to persist through the first quarter of 2026, even EU processors acknowledge this reality. This means that producers and buyers must adjust their strategies to cope with ongoing volatility.

Risk management now involves:

• Monitoring global supply trends closely

• Understanding regional demand shifts

• Preparing for price corrections in the near term

• Diversifying markets and products to reduce exposure

  
  

Those hoping for a quick return to stable prices may find themselves behind the curve. The market’s new normal requires proactive planning and flexibility.

What to Expect in Early 2026

Milk production continues to increase globally:

• EU production up 4.2%

• U.S. production up 3.7%

• New Zealand production up 3.4%

  
  

Despite this growth, buyers in the Middle East and North Africa (MENA) remain cautious but active. The market for skimmed milk powder (SMP), lactose, and sweet whey is weak, while butter prices are softening. Risk premiums are growing as uncertainty rises.

If U.S. milk prices stay high while demand stagnates, a sharp correction in the first quarter of 2026 is likely. This could lead to price adjustments that impact producers and buyers worldwide.

Positioning for the Next Market Move

The key question is who will be ready to benefit when the market shifts. Early positioning can make a significant difference in managing risk and capitalizing on opportunities.

Producers and buyers should:

• Stay informed on global market trends

• Use futures and contracts to hedge price risks

• Explore alternative markets to balance demand fluctuations

• Invest in efficiency to maintain margins during price downturns

  
  

At Kudron Dairy, we track global dairy markets so you don’t have to. From North America to Europe to MENA and Asia, we provide timely insights to help you anticipate changes before they affect your bottom line.