Excess milk supply postpones price recovery until the end of 2026

The global milk and dairy products market is expected to go through a period of greater pressure throughout the third quarter of 2026, due to an imbalance between supply and demand. The assessment is part of StoneX's Perspectives 2026 report, prepared based on Market Intelligence analyzes led by Nate Donnay, which indicate that the recovery in dairy prices should be slower than expected.

At the end of 2025, global supply increased by around 5.5% in the annual comparison, a pace considered high for the sector's history. Even with the drop in international prices, producers did not quickly reduce production, a movement mainly influenced by the reduction in animal feed costs and the expansion of processing capacity.

According to StoneX's analysis, this excess supply should prolong the adjustment period and delay market rebalancing until the end of 2026. With more milk available, international prices tend to remain under pressure for much of the third quarter.

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Among the world's largest suppliers, the United States is already feeling the effects of this scenario. The drop in prices for products such as butter and cheese has reduced the margins of North American producers to levels below the break-even point, increasing pressure on farm profitability.

In the European Union, milk prices also fell significantly, which should impact payments received by producers in the coming months. Despite this, a later calving cycle should keep European production expanding until mid-2026, making it difficult to reduce supply more quickly.

In New Zealand, the world's main dairy exporter, production grew by 4.2% in the first months of the season. The increase occurred despite climate challenges and was accompanied by record use of palm kernel expeller, a co-product of the processing of palm oil used in animal feed.

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The movement indicates that New Zealand producers sought to sustain the volumes produced, helping to keep the global market supplied.

Scenario in Brazil

For the Brazilian market, the external environment mainly influences price prospects and export opportunities. The greater global availability of milk tends to limit a more consistent recovery in international prices, while producers remain attentive to production costs and the behavior of domestic consumption.

StoneX's expectation is that the market will go through a prolonged phase of adjustment, with the resumption of balance between supply and demand only occurring closer to the end of 2026. Until then, the sector must live with pressured prices and tighter margins for producers in different regions of the world.

Demand loses strength

On the consumption side, the scenario is also one of slowdown as the demand for cheese in Europe, which had been one of the main points of support for the market, has lost strength in recent months. The same movement was observed for products such as butter and anhydrous milk fat, known by the acronym AMF.

Another sign of less dynamism is in the skimmed milk powder market. Global imports of the product have been on a downward trend for two years, indicating more comfortable stocks or less need for purchases by the main importers.

With more cautious consumers and high stocks, global demand has not advanced at the same pace as production, widening the imbalance between supply and consumption.

Tensions in the Middle East

In addition to market fundamentals, the sector also monitors geopolitical impacts on supply chains. According to StoneX, approximately 6% of international dairy trade passes through the Strait of Hormuz, a strategic route affected by tensions involving Iran.

Instability in the region has increased logistical complexity, with increased costs related to freight and maritime insurance.

The impact already appears mainly in the Persian Gulf countries, where dairy consumption was affected by greater operational difficulties.

On the other hand, the interruption of Iranian exports of powdered milk removed part of the supply available on the international market, functioning as a partial compensating factor given the reduction in regional demand.

Milk market in Brazil seeks gradual price recovery in 2026

Source: CNN