What is next for dairy markets?

British dairy farmers have had a tough year with commodity prices followed by farmgate prices plummeting since August 2025 as a response to global milk oversupply.  Average farmgate prices have fallen to 34ppl, with many well below that, meaning income will be well below the cost of production for many farmers on market related price contracts.  But where are markets now and what can we expect in the months ahead?

We are currently in the quiet part of the summer for markets where many European traders are away. We are awaiting their return in September for a clearer sense of direction. However, there are several factors could support milk prices over coming months:

Repeated heat waves have causes milk supplies to fall

GB has had an exceptionally hot summer with heatwaves beginning late May, late June and continuing through July and into August with only brief periods of respite for many parts of the country. 

This has caused milk supplies to falter, June was behind last year by 3.1% and July to date (to 25 July) is behind by 2.6% with signs of an acceleration in the last week. 

The weather in Europe has been even more challenging, with France seeing successive days of over 40C, and many countries seeing falls in milk volumes as a result. 

Pressure on input costs

The weather has not only been hot but also dry with the Met Office reporting the driest July since records began.  This has meant that many farmers have already had to begin feeding sileage put away for winter.  This could cause difficulties through the winter season and farmers may need to manage numbers accordingly.

The war in the Middle East has also caused prices for fuel, fertiliser and energy to rise with ongoing cost rises in labour and taxation still posing an issue. 

Disease threats

Bluetongue virus has become an increasing threat with reports of many cases in the West Country and estimates of vaccination uptake remaining at minimal levels.  Whilst less severe in dairy cows than sheep, bluetongue can cause a drop in milk production and impact on fertility and cause foetal malformations. 

Market response

Fears of compromised milk supplies are encouraging some response in the markets.  Spot milk has risen into the 40-50ppl range, cream up to £1.53/kg on average in July although as high as £1.70 at points and cheddar gaining 6% in our latest dairy wholesale survey for July.  Whilst more milk is being diverted to fresh and liquid, a high amount of butter stocks still weighs heavily on markets. European (and British) produce is still being heavily undercut by cheap US exports which is limiting export demand although UK exports have actually performed very well this year.

At the same time, whilst Europe struggles with heat other markets are still producing a lot of milk.  The Southern hemisphere is still seeing strong growth, although El Nino could be a factor later on in the year.

The US have been producing strongly although they are starting to report impacts from hot weather as well. 

Demand globally could be compromised by economic uncertainty caused by the ongoing conflict in the Middle East. 

The global picture therefore remains uncertain and the latest GDT numbers suggested that with a steady index of 0.1%. However, that figure belied a negative movement on the fats side (-2.3% for butter, -0.8% for AMF) and more positive moves on protein (SMP +1.2%, Cheddar +3.8%, Mozzarella +1.0%). 

Milk prices

Amidst this backdrop then, processors have been forced to make a call – safeguard milk production by raising milk prices, but risk commodity markets not moving accordingly. Many will be eager for the clarity that Autumn could bring. 

September price announcements have been largely positive – with 1 or 2ppl on top of 1 or 2ppl for August being fairly typical.  There are still question marks over whether that gets close to the breakeven point.

With Autumn calving about to kick off, many farmers will be in search of clues as to how the rest of the milking season will pan out. Should they dig in, cut costs and prepare for another difficult year or gamble that markets may improve as milk supplies fall?

However, the current situation is unpredictable and highly dependent on weather and disease progression. Fortune may favour the bold but prudence could live to see some fight another day. 

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