The global dairy market is set to face a period of "weaker commodity prices" in the face of ample milk supplies, according to latest research from Rabobank.

Its analysis shows that global dairy markets softened through quarter three and then "fell sharply" in the fourth quarter of this year.

Overall according to Rabobank global milk production growth is on track to finish strong in 2025. 

Meanwhile in New Zealand farmers also set new milk solid records each month from May to September 2025, peaking in October with the third highest output on record.

Outside of this South America delivered a significant annual volume increase.

According to Rabobank output from the Big 7 is forecast to finish 2025 up 2.2% year on year, before slowing to just 0.12% in 2026, as margin pressure builds.

Surplus milk

European dairy farmers found themselves under pressure as the year drew to a close because of "weak product prices" according to Rabobank.

Analaysts detailed that in the Netherlands farmgate prices fell by 17% compared to last year while Irish farmers saw "an even steeper decline of 24%".

This was primarily driven by "weaker commodity prices".

"The unweighted average Irish milk price has come down gradually and consistently from EUR 50.08 in January to EUR 39.17 in October with cuts of two cents or more per month since August," analysts also detailed.

Rabobank has warned that in the absence of any supply shock to "impede surplus milk" there is a risk of "prolonged weak pricing though mid-to late 2026 as surplus milk enters the market".

Analysts have also highlighted that the EU Nitrates Directive and the Water Framework Directive are "playing an increasingly important role" in limiting nitrate emissions from livestock and on dairy farmers.

They found that most European processors - except in Ireland - had delayed lowering milk prices which had resulted in sharp monthly drops and "postponing farmers' supply response".

Analysts have questioned how farmers will react now that prices have fallen substantially and what this will mean for milk supply and slaughter rates in the new year.

According to Rabobank it expects milk production in the EU to "stay above last year's levels" through quarter one 2026.

Analysts believe this is because farmers will "capitalise" on reasonable milk prices, low feed costs and margins that remain attractive, though declining".