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Global dairy markets softened through Q3 2025 and fell sharply in Q4 2025. In Oceania, spot prices (in USD) for the dairy commodity complex remain weak. Butter has led the decline, down 9% since the beginning of October, and 24% below its peak earlier this year. Whole milk powder (WMP) and cheese have followed suit, each 7% down in the beginning of the quarter. Skim milk powder (SMP) prices have held up better, declining a mere 1% from the already low prices felt earlier in Q3. Too much milk for market, combined with strong milk solids growth, has contributed to a sharp decline in commodity prices. The expansion of milk flows emerged from healthy margins and strong farmgate pricing, which peaked in Q4 2024 for Northern Hemisphere producers. Today, margins remain largely positive but are expected to tighten for producers as milk cheques are increasingly pared back in the majority of global exporting regions. In Argentina, margin pressure is clearly pinching, and China’s ongoing downturn in milk price continues to support industry consolidation. Farmgate pricing pain is likely to intensify through Q2 2026. Global milk production growth is on track to finish strong in 2025. While growth is estimated to have peaked in Q3 2025, Q4 will be not far behind. The EU and UK posted their strongest growth since 2017 for the month of October, and surging US milk flows in October posted their fifth consecutive month of growth rates over 3%. Not to be outdone, New Zealand farmers have been setting new milk solid records each month from May to September 2025, peaking in October with the third highest output on record. South America is also shaping up to deliver a significant annual volume increase. Output from the Big 7 is forecast to finish 2025 up 2.2% YOY, before slowing to just 0.12% in 2026, as margin pressure builds. Global dairy markets still face headwinds on the demand side, with low-and middle-income consumers impacted the most. Ongoing sluggishness in demand remains the case across many foodservice channels, while consumer confidence is deteriorating in the US and clearly still struggling in China, with discretionary spending under pressure. The effects of an uncertain macro picture are flowing through to the food markets. Meanwhile, the effects of high commodity prices are still to be fully felt at the retail level. The global dairy market will face a period of weaker commodity prices in the face of ample milk supplies into 2026 and exportable surpluses. Demand remains fragile and – in the absence of any supply shock to impede surplus milk – raises the risk of prolonged weak pricing through mid-to-late 2026 as surplus milk enters the market. Weaker prices should eventually support a gradual recovery in demand, with commodity prices returning to historical averages by year-end 2026.
Growth in global animal protein production will continue to slow in 2026, influenced by both cyclical and structural factors. Seafood will remain the leading contributor to production growth, followed by poultry, while pork and beef will contract, marking the first reduction in global terrestrial species output in six years. While we expect feed costs to remain steady, lower protein supplies, rising volatility and trade costs, and disease pressure will weigh on margins. Processors may face ongoing challenges around capacity utilization, as well as trade disruptions resulting from tariffs and other protectionist measures. All of this could raise costs, pressure demand, and ultimately squeeze margins. In both mature and developing markets, a focus on increasing efficiency and productivity will be critical at the farm and processor level.
With global GDP growth projected to slow in 2026, consumers will remain price-sensitive and shift consumption patterns. Price dynamics within animal protein categories will vary, with price pressures leading some consumers to trade down within categories or switch between proteins. Yet, substitution is not always straightforward, as some proteins are not always considered direct substitutes for more premium products. Despite disruptions, animal protein trade has remained resilient, with strategic front-loading helping sustain volumes amid volatility and shifting tariffs that are reshaping global flows. Meanwhile, supply-demand imbalances continue to seek equilibrium, a trend that is likely to persist in 2026. Geopolitical tensions and evolving trade policies will continue to influence trade, but new trade agreements may provide a boost. Disease outbreaks have also disrupted trade, squeezed margins, and pressured productivity. Beyond recurring threats like African swine fever and avian influenza, diseases like New World screwworm, Bluetongue, foot-and-mouth disease, and lumpy skin disease are emerging. While some outbreaks are short-lived, others persist. This is driving greater adoption of biosecurity measures, and new approaches to managing disease pressure are gaining attention. However, implementing these solutions is complex, as it requires careful consideration of the implications across the supply chain, trade, and society. In this increasingly uncertain operating environment, sustainability-related risks, particularly those linked to climate and nature, can play a role in either exacerbating or mitigating business risks. For animal protein companies, addressing risk holistically is no longer optional. Regulatory momentum, such as the rise in climate-related financial disclosure legislation, is pushing sustainability to the forefront of strategic planning. Technology will also play a pivotal role, helping companies across the supply chain manage operational risks while advancing sustainability goals. However, investment remains weak, though investor excitement in artificial intelligence (AI) may have benefits for livestock producers and processors. While not all AI applications will transform the industry, strategic integration into existing workflows could spark meaningful progress in a sector that is traditionally slow to adopt new technologies. To meet the challenges and leverage the opportunities these evolving market dynamics present, animal protein companies should pursue diversification and consolidation while adapting their portfolios to shifting consumer preferences.
France imposed stricter controls and expanded vaccination zones to contain the spread of contagious lumpy skin disease in cattle amid mounting farmer protests in the southwest against the policy of culling entire herds when outbreaks are detected, reported Reuters. Lumpy skin disease is a virus spread by insects that affects cattle and buffalo, causing blisters and reducing milk production. While not harmful to humans, it often results in trade restrictions and severe economic losses. By December 9, France had detected 109 outbreaks of the disease, according to the ministry's website.
Several outbreaks were confirmed this week in southwestern France, including at a farm with over 200 cows in the Ariege region. Authorities ordered all cows culled, sparking protests from farm unions who called the policy exaggerated and cruel. "It is clear that the State's strategy is not effective, despite the systematic culling carried out as a precaution as soon as an infected bovine is detected in a herd," Coordination Rurale union said in a statement, calling for nationwide protests. France says that total culling of infected herds, alongside vaccination and movement restrictions, is necessary to contain the disease and allow cattle exports. "The depopulation of their herd is a dramatic event, of which the public authorities are fully aware: psychological support is therefore offered to the farmers," the ministry said in a statement on Friday. The head of farm union FNSEA, Arnaud Rousseau, called for calm. In a video on X, he backed government policy, stressing the need to prevent restrictions that could lower meat and dairy prices. The ministry said on Friday it had created a new regulated area covering six departments in southwestern France where movements would be restricted and surveillance enhanced. It has regularly pointed to illegal movement of animals as a likely cause for the disease's spread in France.
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