European milk volumes continue to pressurise markets

Key points:

• Milk volumes in Europe have surged to record highs, with Germany leading the way.
• As we approach the flush, volumes are pressurising commodity markets.
• The escalation of geopolitical tensions and changes to global trade flows are creating added volatility.

Milk volumes climb to new highs

Milk volumes in Europe have continued to rise through late 2025. According to CLAL, December 2025 volumes were ahead of year ago levels by 5.8% and January 2026 at 4.9% growth, while the provisional February estimate has slowed to 1.7%. Similarly to production patterns seen in GB, constituents have also been breaking records.

In February, the greatest year-on-year volume increase was from Germany (the largest milk producer in the EU), up 169.1 million litres (+7%), followed by France, up 111.8 million litres (+6%), and the Netherlands, up 58.2 million litres (+5%), reported by Eurostat. Overall volume growth for the month was restricted by a decline in Irish production, likely to be driven by lower milk prices.

Disease recovery, low input prices, good forage quality and elevated milk prices for most of the year boosted volumes. But, like GB, production has continued to rise despite significant falls in milk price, with talk of a record flush on the cards for 2026.

Alongside the fall in milk price and recent rise in input costs, a Rabobank report looks ahead, noting additional pressures from rising regulatory costs, squeezing margins further. As a result, Rabobank forecasts a 0.9% contraction in the second half of the year.

Pressure on wholesale prices

Strong milk volumes have been adding pressure to commodity markets, and product stocks strengthened in 2025. Fats continue to decrease in price, while powders have increased in February’s EU wholesale price report. More recent commentary suggests that these trends have continued.

Cream in particular, has been hit, with spot milk prices quoted as low as 8ppl and large cream stocks. The crash has reduced the gap between butter and cream prices. Cheaper cream has made it possible to process further to butteroil to fetch better prices, but the market has been affected by the outbreak of war which has made this a less attractive option. The EU butter price remains lower, due to large volumes in stock.

European dairy fat prices were competitive to Oceania which drove some trade earlier in March but again conflict in the middle East has made transport more expensive and logistics more difficult.

SMP has seen impressive strength. Despite strong milk volumes, global stocks of SMP are lower than originally thought, as milk has been diverted to higher value streams and consumer demand for dairy protein has been significant.

Global trade adds complexity

The EU–Mercosur trade deal comes into force in May 2026. The deal is set to improve market access for EU exporters, a welcome development declared by the European dairy trade association, Eucolait.

However, the EU is facing added pressure as a result of China’s tariffs on EU cream and cheese, following an anti-subsidy investigation.

Current geopolitical escalations in the Middle East are adding another layer of complexity and volatility to commodity markets. The EU is the main supplier of dairy products to the Middle East, mostly in the form of powders and cheese. The geopolitical tensions to have significant impacts on logistics, costs and demand. The International Farm Comparison Network (IFCN) suggests that the disruption may lead to stockpiling and increased demand for long-life products, such as powders.

Implications to UK farmgate

Volatile EU market movements have influenced UK wholesale prices. An overall increase was seen in the latest March survey. Movements have implications to boost the value of milk at the farmgate, though movements have not been linear enough yet to set a clear direction.

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