Global milk production is forecast to increase by 2.2% in 2026, supported by stronger-than-expected milk collection across several major dairy-producing regions. However, emerging drought conditions in Europe and uncertainty surrounding the potential effects of El Niño could moderate supply growth in the coming months, according to Ornua’s October Global Dairy Market Report.
The report estimates that worldwide milk supply increased by approximately 1.4% in August. Despite this expansion, the pace of growth is expected to slow during the fourth quarter as weather-related disruptions and economic uncertainty influence dairy farming and processing.
Global milk production growth is projected to ease to approximately 1% in 2027. Ornua cautions that the full impact of El Niño remains uncertain, while higher oil prices, inflation and interest rates continue to create risks for dairy producers, processors and international markets.
European Milk Production Remains Resilient Despite Dry Conditions
Milk production across the European Union increased by 1.1% in September, down from 2.5% in August. Nevertheless, collection volumes remained above expectations despite dry weather, prompting Ornua to restore its annual EU production growth estimate to 1.9%.
The latest figures indicate that European dairy production has remained relatively resilient, although the effects of prolonged drought could become more visible later in the year. Water availability, pasture conditions, feed costs and heat stress remain important factors influencing farm productivity.
The European market has also demonstrated stability despite strong global milk availability. For dairy processors, continued production growth could support raw milk procurement, while changing weather conditions may create greater uncertainty around seasonal supply and production costs.
United States and New Zealand Support Global Supply Expansion
In the United States, milk production increased by 1.7% in both July and August. Ornua has maintained its annual growth forecast at 2.2%, supported by high beef prices and newly available cheese-processing capacity.
High cattle values can influence dairy farmers’ herd-management decisions and the relative economics of keeping animals for milk production. Meanwhile, additional cheese-processing infrastructure can provide an outlet for milk supplies, supporting production expansion where farm economics remain favourable.
New Zealand recorded a 2.4% increase in milk flows and a 3.4% rise in milk solids. If the current momentum continues, annual production growth could reach 4% or more, according to the report.
Milk solids are particularly important to New Zealand’s dairy export sector because they influence the production of concentrated dairy ingredients, including milk powders, butter and cheese. Stronger milk flows could therefore increase export availability and influence international dairy ingredient prices.
Major South American producers, including Argentina, Brazil and Uruguay, have also experienced favourable production conditions. Their expanding milk supplies add to global availability and reinforce the importance of monitoring regional production trends when assessing dairy market movements.
Weather Risks and Economic Uncertainty Cloud the 2027 Outlook
Although production has exceeded expectations in several regions, the report warns that the effects of weather-related supply disruptions may not become fully apparent until early 2027.
Drought can reduce pasture growth, increase reliance on purchased feed and raise the cost of maintaining milk yields. El Niño-related weather patterns could further complicate production planning, although their eventual regional effects remain uncertain.
Economic pressures add another layer of risk. Higher energy and transportation costs can increase the expenses associated with milk collection, processing, refrigeration and international distribution. Inflation and elevated interest rates may also affect farmers’ investment decisions and processors’ working capital.
For dairy businesses, these factors make supply forecasting and procurement planning increasingly important. Processors may need to balance current milk availability against the possibility of slower production growth and higher input costs in the months ahead.
Butter Markets Reflect Strong Supply and Firm Trade
European butter production increased during July and August, while exports remained firm. Demand from the United States, China and Turkey provided support, alongside seasonal market activity and historically low prices during August and early September.
In the United Kingdom, butter production slowed in recent months, but steady exports continued to support the market. Meanwhile, US butter availability remained strong, with domestic consumption and exports helping keep inventories low.
These developments highlight the importance of distinguishing between milk production growth and the supply-demand balance for individual dairy products. Greater milk availability does not automatically translate into weaker prices across every category, as processing capacity, consumer demand, inventories and export activity can influence market performance.
Dairy Industry Outlook
Global milk production is expected to continue expanding, but growth is likely to moderate as weather risks and economic pressures develop. The projected slowdown from 2.2% in 2026 to 1% in 2027 signals a potentially more uncertain supply environment for dairy farmers, processors and exporters.
Monitoring drought conditions, milk solids, processing capacity, butter inventories and international demand will remain essential for businesses managing procurement and trade exposure.
For the global dairy industry, the key question is whether current production momentum can be sustained as weather-related risks intensify. The answer will influence raw milk availability, dairy commodity prices and export opportunities over the coming year.
