Dublin, Ireland – December 8, 2025 – The global dairy industry is on the cusp of a significant downturn, with forecasts pointing to a challenging 2026 driven by a persistent 'glut' in the international dairy market. The prediction of a 37c/L base price for milk, highlighted by market analysts and corroborated by a negative outlook from Teagasc’s Annual Review, signals a period of severe financial pressure for dairy farmers and a ripple effect across the entire supply chain. This anticipated price drop, often below the average cost of production, is set to redefine profitability and operational strategies for many in the sector.

The looming crisis stems from a "tsunami of milk" overwhelming global demand, leading to rapidly accumulating inventories of dairy products worldwide. As of late 2025, major dairy-producing regions are experiencing surging production, while key markets, notably China, have reduced imports due to increased domestic self-sufficiency. This imbalance has already triggered consecutive reductions in the Global Dairy Trade (GDT) index, marking the worst decline since 2018, and setting the stage for a prolonged slump well into the latter half of 2026.

Global Oversupply Triggers Alarms as 2026 Approaches

The global dairy market is ending 2025 in a state of pronounced oversupply, a situation that has steadily intensified over recent months. Milk production in the "Big-7" export regions (including the US, EU, and Oceania) has reached its highest level in a decade, with a combined growth of 7.1 million metric tons projected over 2025 and 2026. Eurostat data from September 2025, for instance, indicated a 6.0% year-on-year increase in European milk production, with Ireland and Poland being significant contributors. Similarly, the United States has seen production gain pace, with a 3.4% year-over-year jump in July 2025.

This surge in supply is meeting a weakening global demand. Consumer confidence remains sluggish in many major economies, and the ongoing cost of living crisis has led to reduced discretionary spending. Crucially, China, once a voracious importer, has significantly reduced its reliance on foreign dairy, achieving 85% self-sufficiency, effectively removing substantial annual demand from the global market. This imbalance has led to sharp declines in commodity prices for butter (down 30% since June 2025), cheese (down 30%), and skimmed milk powder (down 15%).

The timeline leading to the 2026 prediction saw 2025 start as a profitable year for many dairy farmers, but a "drastic reduction" in milk prices began around mid-year due to the unforeseen oversupply. By late 2025, co-operatives were implementing consecutive price cuts, and Rabobank's Q3 2025 report warned of increasing exportable surpluses through the end of 2026, predicting "serious downward pressure on global prices."

Key players like Teagasc, Ireland's Agriculture and Food Development Authority, have been vocal about the looming challenges. In its "Outlook 2026: Economic Prospects for Agriculture report," published on December 2, 2025, Teagasc forecasts a staggering 42% decrease in the average Irish dairy farm income for 2026, from an estimated €137,000 in 2025 to approximately €80,000. They predict an annual average milk price of around 42.4 c/L for 2026, a more than 20% decrease from 2025 levels, emphasizing that lower prices will persist through Ireland's peak milk production season. Dairy co-operatives, both in Ireland and globally (such as Fonterra (NZX: FSF) in New Zealand), have already begun revising their farmgate milk price forecasts downwards, reflecting the intense market pressure.

Initial reactions from the industry and farmers are characterized by deep concern. With average production costs ranging between 37-42c/L in 2025, a base price of 36-37c/L or potentially as low as 34c/L means many dairy farmers will be operating below their cost of production. Financial advisory firms like Ifac are urging farmers to undertake immediate and detailed cashflow forecasting and engage proactively with banks to secure working capital. The focus is shifting from profit maximization to survival, emphasizing cost control, optimizing concentrate usage, and maximizing home-grown forage.

Public Companies Brace for Impact: Winners and Losers in a Depressed Market

The predicted 37c/L base price for milk in 2026 will create a clear divide between potential winners and losers among public companies operating in the dairy processing, food manufacturing, and agricultural supply sectors.

Potential Winners: Food Manufacturers and Value-Added Processors

Companies that utilize dairy as a raw material for diversified, value-added products are generally poised to benefit from lower input costs.

• Nestlé S.A. (SWX: NESN): As a global food and beverage giant, Nestlé relies on vast quantities of milk for its infant formula, powdered beverages, and other dairy-containing products. Lower raw milk prices will directly reduce its cost of goods sold, boosting profitability. Its strong brand portfolio and focus on premium products could allow it to maintain retail prices and expand margins.
• Danone S.A. (EPA: BN): A leader in fresh dairy products (e.g., Activia, Alpro), Danone's largest business segment will see significant cost relief. Historically, falling milk prices have boosted Danone's adjusted operating profit and fresh dairy segment profitability, and a similar scenario is expected.
• Saputo Inc. (TSX: SAP): This major global dairy processor, producing cheese, fluid milk, and dairy ingredients, sees raw material prices account for up to 85% of its costs. Lower farmgate milk prices are expected to improve profitability, particularly in its international division. However, its exposure to highly commoditized products means sustained low selling prices could still pressure overall revenue.
• Unilever PLC (LSE: ULVR): With brands like Ben & Jerry's and Magnum, Unilever's ice cream and other dairy-containing products will benefit from reduced input costs, directly improving profitability within these segments.

Potential Losers: Agricultural Suppliers and Dairy Cooperatives (Indirectly)

Companies directly serving dairy farmers or heavily exposed to commodity liquid milk sales will face significant headwinds.

• Origin Enterprises plc (ISE: OGN): As a leading agronomy and agri-tech services company supplying fertilizers, seeds, and crop protection to farmers, Origin Enterprises will likely see reduced demand. Dairy farmers facing severely squeezed incomes will cut back on discretionary spending on inputs and services, impacting Origin's revenues and profit margins.
• Dairy Co-operatives (e.g., Arla Foods, FrieslandCampina): While not publicly traded in the conventional sense, these farmer-owned entities face immense pressure. Their primary objective is to maximize returns for farmer-members. When farmgate prices are low, co-operatives struggle to pay sustainable prices, leading to farmer dissatisfaction and potential shifts in milk supply. Although lower raw milk costs could improve their processing margins, the cooperative structure means these benefits are often intended to be passed back to farmers, which becomes challenging in a downturn.
• Kerry Group plc (ISE: KRZ) & Glanbia plc (ISE: GLB): These Irish nutrition and food ingredients giants have diversified portfolios. While their dairy ingredients segments could benefit from cheaper raw materials, their consumer foods divisions might face pressure to pass on savings to retailers. Glanbia's focus on premium, science-backed nutrition products might offer some insulation, but overall low commodity prices could still impact the selling price of some dairy ingredients.

Wider Significance: A Structural Reset for the Dairy Industry

The predicted 37c/L milk price in 2026 is more than a cyclical dip; it represents a structural reset for the global dairy industry, accelerating existing trends and forcing profound adaptations.

Broader Industry Trends: This downturn will undoubtedly accelerate consolidation within the dairy sector. Less efficient farms, unable to withstand prolonged periods of below-cost production, will be forced to exit, further concentrating milk production among larger, more resilient operations. This trend has been observed historically, with a continuous decline in the number of dairy farms in many developed nations. The economic pressures also complicate sustainability efforts. While the industry is committed to ambitious environmental goals, the financial strain makes investments in methane reduction technologies, precision feeding, and manure management harder to justify, potentially slowing the adoption of crucial sustainable practices.

Ripple Effects on Competitors and Partners: Dairy farmers are the most immediate and significant losers, facing financial distress and difficult decisions regarding herd size. Dairy processors, while benefiting from lower raw material costs, must manage surplus volumes, which can lead to increased storage costs or discounted offloading. Retailers and food manufacturers, on the other hand, stand to benefit from lower wholesale prices for dairy products, which can either boost their margins or be passed on to consumers to drive sales. Agricultural input suppliers, such as feed, equipment, and veterinary service providers, will experience reduced demand as farmers cut back on spending.

Regulatory and Policy Implications: The crisis highlights the critical role of government intervention. In the EU, policies under the Common Agricultural Policy (CAP) designed to support farmers and address market imbalances (e.g., public intervention for butter and skimmed milk powder) will be tested. However, ongoing environmental regulations, such as the European Green Deal, are simultaneously increasing production costs, leading to farmer protests across Europe. There are growing calls for dairy policy reform, particularly in the U.S., where past policies aimed at boosting production have coincided with significant consolidation and hardship for family farms. Trade agreements and potential tariffs also remain crucial factors influencing market access and price stability.

Historical Precedents: The current global milk glut shares striking similarities with past dairy market downturns, most notably the 2015-2016 EU crisis. In both instances, oversupply from major exporting regions and weakening global demand led to collapsing wholesale prices. However, the present situation is characterized by an unprecedented "wall of milk" where major exporting regions simultaneously expanded production, exacerbated by China's reduced import reliance. This prolonged period of oversupply, with a significant production adjustment not expected until well into 2026, suggests a more protracted and impactful downturn than previous quick market dips.

What Comes Next: Adapt or Face Extinction

The dairy industry stands at a critical juncture. The predicted 37c/L milk price for 2026 will undoubtedly force both short-term defensive maneuvers and long-term strategic pivots.

Short-Term Possibilities: The immediate future, particularly the first half of 2026, will be defined by severe profitability challenges for farmers. Cashflow management, aggressive cost optimization (especially for feed and operational expenses), and strategic culling decisions will be paramount. High beef prices in late 2025 and into 2026 could offer a small buffer, making culling more financially viable. For processors, managing excess inventory and navigating volatile commodity markets will be key.

Long-Term Possibilities: Beyond 2026, the market is expected to stabilize and potentially see an upturn as global demand for dairy (and "dairy-like" products) continues to grow by approximately 1.5% annually through 2030, largely driven by Asia. However, supply might struggle to keep pace due to stricter environmental standards in major exporting regions and a projected critical shortage of dairy heifers persisting through 2027. This could lead to tighter milk supplies and firmer prices in late 2026 or early 2027.

Strategic Pivots and Adaptations:

• For Farmers: Embrace technology (automated milking, AI-driven herd management) for efficiency, explore diversification into beef production or value-added products, and adopt sustainable practices for long-term resilience and market access. Robust risk management tools, including hedging, will be crucial.
• For Processors: Focus on product innovation, particularly functional dairy (high-protein, probiotic-rich) and hybrid products, catering to evolving consumer preferences for health and ethical consumption. Market diversification into growing global regions and sustainable processing technologies will be essential. Some larger companies may continue strategic refocusing, divesting less lucrative consumer segments to concentrate on core B2B channels and higher-returning products.

Potential Scenarios and Outcomes: Industry analysis suggests scenarios ranging from "Dairy Evolution" (business-as-usual with moderate plant-based growth) to "Green Dairy" (strong socio-environmental restrictions driving massive investments in carbon footprint reduction) and "Brave New Food" (a transformative scenario combining strong socio-environmental pressures and high technological transition). Regardless of the specific path, consolidation is expected to alter the competitive landscape. The challenges of 2026 could ultimately foster a more efficient, adaptable, and resilient dairy sector, better prepared for future market fluctuations.

Comprehensive Wrap-up: Navigating a New Dairy Landscape

The predicted 37c/L base price for milk in 2026 marks a watershed moment for the global dairy industry. It underscores a period of persistent oversupply, dampened demand, and significant margin compression for dairy farmers, with Teagasc forecasting substantial income reductions. This isn't merely a cyclical blip but a structural reset, driven by a "tsunami of milk" and a permanently altered global demand landscape, particularly China's increased self-sufficiency.

Moving forward, the dairy market will be characterized by ongoing pressure through the first half of 2026, followed by a potential stabilization and a gradual recovery in the latter part of the year, possibly extending into 2027 as heifer shortages might constrain supply. The lasting impact will be a more consolidated, efficient, and technologically integrated industry. A higher premium will be placed on operational excellence, value-added products, and genuinely sustainable production methods.

What Investors Should Watch For in Coming Months (December 2025 Onwards):

1. Global Supply-Demand Balance: Monitor milk production figures and exportable surpluses. Any signs of production slowdown or demand pickup will be critical indicators.
2. Input Costs: While current feed costs offer some relief, their volatility requires continuous vigilance. Protection against rising input expenses will be key for maintaining margins.
3. Operational Efficiency: Favor investments in dairy operations and processing companies demonstrating robust strategies for efficiency and aggressive cost control.
4. Strategic Adaptations: Look for businesses implementing dual-purpose breeding programs or diversifying revenue streams, showcasing adaptability.
5. Consolidation: The current environment is ripe for mergers and acquisitions. Identify stronger entities making strategic moves.
6. Sustainable Dairy: The "natural and organic" dairy segment is a growth area. Invest in companies committed to sustainability and transparent practices.
7. Processing Capacity Utilization: Monitor how new, significant processing investments are being utilized; increased demand from these plants could eventually support higher farmgate prices.
8. Heifer Inventories: The anticipated heifer shortage could signal tighter milk supplies and an upward price correction in the longer term.
9. Geopolitical & Trade Developments: Shifts in international trade policies and global economic stability will continue to influence export markets and price dynamics.

In conclusion, the dairy market in 2026 presents a complex landscape of persistent oversupply, muted demand, and significant margin pressure. However, it is also a period of structural adjustment, innovation, and strategic investment, particularly in sustainable practices and processing infrastructure, which could shape a more resilient and differentiated industry in the years to come.

This content is intended for informational purposes only and is not financial advice