The first quarter of 2026 saw steady milk flows from most of the top dairy exporters as global milk production remained elevated year over year. The situation continued to put pressure on commodity prices, with fat markets (-40%) and whole milk powder (-30%) the most affected in the period from September to February. Meanwhile, protein-based commodities such as skimmed milk powder, cheese and whey remained more resilient but still declined by 15% in the period.
After six months in positive territory, the global dairy trade index turned negative this month – with butter (-8.1%) and anhydrous milk fat (-7.1%) recording the steepest falls.
All major exporting regions except Australia (where milk production is expected to finish at -1% in June 2026) have recorded increases in output this quarter.
The US is a key growth driver, Rabobank notes. US production is set to remain elevated through the year, with analysts predicting a 2% growth during this season. In February alone, production rose almost 3% YoY. The US dairy herd has reached more than 200,000 cows – its highest level since the 1990s – with higher yields per cow and increased fat and protein yield to boot.
In Europe, volumes hit record highs, rising nearly 6% in December; around 5% in January, and less than 2% in February as good forage levels and low input costs supported production. Volumes are expected to contract 0.9% in the second half of the year.
New Zealand collections are also strong and expected to grow by 2% towards the end of this season and into next. Output in Brazil and Argentina is also set to increase, by 1% and 2%, respectively.
Australia is the only major exporter that’s recorded a contraction this season due to weather conditions and high culling rates, with production shrinking -1.2%. However, the country has ramped up its whey imports – which have increased 76% due to high-protein demand.
Overall, global milk production is forecast to end at 0.2% year over year, far below the increase of 2.6% in 2025.
A prolonged conflict in the Middle East could exacerbate the contraction and lead to lower volumes in 2027, particularly if fertiliser shipping remains constrained.
Around a third of fertiliser trade and its raw materials flow through the Strait of Hormuz, where cargo traffic remains limited despite the temporary ceasefire announced by the US and Iran. Agriculture producers typically buy fertiliser in advance, meaning that while the immediate impact of elevated prices and availability would be limited, most producers would be looking to secure fresh volumes in the summer and autumn.
Trade bodies globally have already called on governments to stand ready to intervene if supply becomes restricted. “If the situation persists or further exacerbates, EU institutions should consider reinforcing aid and assistance to European farmers, while supporting the resilience of Europe’s fertilizer industry,” Fertilisers Europe said in a statement. “Ensuring farmers’ access to fertilizers goes hand in hand with maintaining a stable, competitive European production base that can serve agriculture in the long-term.”
The US-based Fertilizer Institute notes that the full extent of impacts to the US fertilizer industry remains uncertain.
