Global milk production may be starting to lose momentum after a prolonged stretch of expansion. Early signals suggest the market could be moving into a more balanced phase as supply growth cools across major exporting regions and analysts point to dairy markets adjusting to softer fundamentals.
Rabobank dairy analyst Lucas Fuess says growth across the world’s major exporting regions has now clearly peaked.
“Global milk production growth has finally begun to slow into Q2 following four consecutive quarters of expansion above 2% across the Big-7 production regions,” Fuess says.
Those Big-7 regions include the U.S., European Union, New Zealand, Australia, Brazil, Argentina and Uruguay. Together, they shape global exportable milk supplies and have been the main driver of the recent supply surge. That surge peaked late last year.
“Year-on-year output growth peaked at a 5.2% in Q4 2025, one of the steepest growth increases on record,” Fuess notes.
Now, the curve is starting to bend. Global supplies are still expected to run slightly ahead of year ago levels in early 2026, but momentum fades quickly as the year progresses.
“The production contraction into Q4 would be the first negative quarter since Q2 2024 and helps to build the case for a rebalancing of global milk supplies following several quarters of intense output growth,” Fuess says.
On a full year basis, Fuess says the slowdown becomes more obvious, with growth easing sharply heading into 2026 and 2027.
“On a calendar-year basis, 2026 milk production is estimated to rise 1%, following a 3.1% increase in 2025, while our initial projections for 2027 point to a 0.2% drop the first annual contraction since 2022,” he says.
U.S. Remains a Growth Engine
While global growth is cooling, the U.S. continues to run counter to that trend and remains one of the strongest contributors within the Big-7. U.S. milk production rose 2.7% year-over-year in April, extending a run of strong growth that has now lasted more than a year. RaboResearch expects gains to continue through 2026, with total U.S. milk output projected to rise another 2% versus 2025.
This growth story is being driven by two main factors, a larger herd and higher output per cow.
U.S. dairy cow numbers have expanded for nearly two years, reaching 9.645 million head in April, the highest level since the 1990s and up 190,000 head from a year earlier. That expansion is tied to strong margins, ongoing processing capacity growth and continued profitability from beef-on-dairy cross calves, which has encouraged producers to retain cows longer.
Milk per cow is also edging higher, with output up 0.7% year-over-year in April. At the same time, rising component levels are boosting total milk solids, with butterfat tests averaging 4.39% in March.
Even with some seasonal moderation expected ahead, the U.S. supply picture remains firmly ahead of demand in many regions.
Fuess notes that strong milk-over-feed margins have helped support expansion, with the Dairy Margin Coverage benchmark at $9.57 per hundredweight in March reached the highest level since late 2025. That level remains above the indemnity trigger, signaling continued profitability for producers, albeit moderate in the months ahead.
European Union Leveling Off
Milk supply across the EU-27 and United Kingdom remains relatively strong but is clearly moving into a more stable phase after earlier gains. Growth is no longer accelerating, with output beginning to level off at elevated production levels.
Lower milk prices are helping to support underlying demand, preventing a sharper pullback in production. At the same time, protein continues to outperform across the region, with cheese and whey streams maintaining strong utilization even in the absence of meaningful price incentives.
The result is a more balanced production environment, where supply is steady but not expanding at the pace seen in prior periods. Farm-level decisions are increasingly influenced by margin pressure and input costs, which are limiting further upside potential.
China Moves Into Stabilization Phase
China’s dairy sector is settling into a more stable pattern, with milk production holding relatively steady and demand gradually improving. The combination of more consistent supply and a slow recovery in consumption is helping restore balance to the domestic market.
Rather than sharp swings in either direction, the sector is now defined by incremental adjustments in both production and demand. That shift is expected to support a modest increase in import needs through 2026.
For global markets, China’s more stable footing points to a steadier but still important import profile, with changes in domestic balance rather than rapid expansion driving trade flows.
South America Faces Margin and Weather Pressure
Milk production in South America is expected to come under pressure in the third quarter as low margins continue to weigh on producer incentives. Input costs remain elevated relative to milk prices, limiting the ability for sustained production growth.
Weather risk is also increasing heading into the back half of the year. A stronger El Niño pattern raises concerns about significant disruptions to rainfall and temperature patterns, with flooding in southern production regions identified as the primary risk.
Together, tighter margins and weather volatility point toward reduced milk output and more constrained supply conditions as 2026 progresses.
Australia Growth Constrained
Australia enters the new season with steady underlying momentum, but the outlook for meaningful expansion remains limited. While production is holding up early, structural constraints are becoming more apparent.
Tighter farmgate margins continue to cap incentives for growth, while weather remains a key uncertainty. The risk of unfavorable rainfall patterns adds further pressure in a largely pasture-dependent production system.
As a result, milk production is expected to remain relatively stable, with limited upside potential compared to historical averages.
New Zealand Off Peak Levels
New Zealand milk production is coming off a strong 2025 to 2026 season that set a high benchmark for output. Matching those elevated levels in the 2026 to 2027 season, which began June 1, is expected to be challenging.
While the sector remains highly efficient and export focused, softer underlying conditions and more moderate margins are expected to temper production compared to the prior year. Weather variability remains a key factor in seasonal outcomes, adding another layer of uncertainty to the outlook.
Overall, production is expected to remain solid by historical standards but below the exceptional levels seen in the previous season.
Plants Push Record Output
Despite stronger milk flows in the U.S., product markets continue to show mixed signals.
Cheese and butter production both expanded in early 2026 and are expected to post another record year, supported by new or expanded processing capacity. Cheese output rose 1.2% year-over-year in March, while butter increased by the same margin, aided by strong cream availability and higher milkfat levels.
Meanwhile, powder and whey markets are seeing stronger demand signals. Dry whey production rose 3.6% year-over-year in March, while whey protein isolate jumped nearly 12%, reflecting continued strength in protein demand. Nonfat dry milk and skim milk powder production also posted double digit growth, although from historically low 2025 levels that helped tighten supplies earlier this year.
Exports have been a major outlet. U.S. dairy demand rose 4% in the first quarter of 2026, including a 10.6% jump in exports, supported by competitive pricing and strong global buying interest in cheese and butterfat.
Margins, Not Milk Checks, Now Drive the Conversation
Across global markets, the focus is shifting away from production growth and toward what producers actually keep at the farm level. Fuess says margin pressure is becoming a defining theme heading into the second half of 2026 and into 2027, with input costs increasingly in focus.
“Across nearly all regions, the most pressing concern is the potential increase in input costs, which could pressure margins into the second half of this year and into 2027,” Fuess says.
Energy, fertilizer and interest rates remain central risks, with geopolitical uncertainty around the Middle East and the Strait of Hormuz continuing to influence cost expectations. At the same time, milk prices are expected to move into a more rangebound pattern after recent volatility, leaving profitability increasingly dependent on cost control rather than top line milk price gains.
Demand Holds, but Weather Adds New Risk Layer
Demand trends remain mixed but supported by ongoing strength in protein consumption, particularly whey.
“One positive is the continued ‘protein halo,’ which remains strong across many regions and supports dairy demand, especially for whey proteins,” Fuess notes.
However, food price inflation is expected to rise, potentially shifting consumer behavior and putting pressure on retail dairy margins.
Weather is also emerging as a key swing factor, with concerns around a strong El Niño that could disrupt production in South America, Australia and New Zealand.
“Weather is emerging as a critical watch factor as well with concerns of a strong El Niño which could impact milk supply across most parts of South America, as well as in Australia and New Zealand,” Fuess says.
Global Dairy Enters a More Balanced, Complex Phase
Overall, Fuess describes a market moving out of a supply-driven expansion phase and into a more balanced but more complex environment.
“Milk production growth is likely to cease, helping to restore some balance to dairy supply,” he says.
But with the Big-7 still shaping global flows, and the U.S. continuing to expand within that group, the path forward will likely be defined less by steady trends and more by shifting pressure points across supply, demand, costs and weather.
