What's going on in the dairy world? Last summer, the €60 per 100 kilo milk price threshold seemed within reach, but the harsh reality now is that 2026 will start with a thirty-year-old who, moreover, intends to downsize further. The market is still rife with negativity due to a milk surplus, both in Europe and beyond. The question is: where did it all go wrong? After all, payout prices below €40 were never going to return, right?
The weeks surrounding the holidays are often incredibly bad for spot milk prices, but this year, it's particularly bad. The DCA quotation for Dutch spot milk has plummeted to a new low of €4,50 per 100 kilos. By comparison, during the same period last year, the spot market held steady above €50. In Germany, prices are even lower than here. Some processors there even had to pay negative prices to get rid of surpluses. A new perception in the market.
A 'three' for the milk price
Meanwhile, payout prices have dropped back below €40. FrieslandCampina is the first to go. And once one sheep crosses the dam, more will follow. In this case, other processors are very willingly following the market leader. Because although milk prices have already fallen significantly in recent months, they are still tight. In the most favorable scenario, the raw material value of milk will be just above €35. In other words: further reductions are likely in the first quarter. This level has already been reached in Ireland. 2026 is already shaping up to be a lean year for dairy farming, with yield prices well below cost.
The question is: where did it all go wrong? Surely the chance of the milk price rising to one euro was greater than a drop to 30 cents? The thinking was that spot milk prices could consistently exceed payout prices in the coming years. Or has the market been overhyped by a looming milk shortage or a surplus of stainless steel? Perhaps the dairy farming industry has become too convinced that nothing could go wrong anymore.
No guardrail
Whatever the case, dairy farmers across Europe have been producing like crazy. The record-high milk supply figures are testament to this. The high milk price of recent years prompted a drastic increase in production. Substantially lower feed prices and a productive growing season did the rest. And then there was the disrupted calving pattern due to bluetongue, resulting in a later-than-usual peak in production. There's no safety net to cushion the spiraling European milk production. After all, the milk quota was abolished in 2015, leaving the free market in charge.
It's clear that volatility in the dairy market has increased significantly since the coronavirus pandemic. The war in Ukraine added insult to injury, causing the milk price to nearly double to €60 in 2022, only to fall back below €40 six months later. History then repeated itself, and by early 2026, the milk price was back to square one. Reaching the top is one thing, but staying there is another. It turns out that's not so simple after all. Higher prices simply lead to lower prices, as has been proven in agricultural markets for centuries.
Like a bouncing ball
The milk price is bouncing around. Dairy traders are also experiencing the increased volatility. A 10-cent price increase used to take nearly six months for Gouda cheese prices to rise. Now, these fluctuations can sometimes be achieved within a week. How is this possible? The fear of missing out is high, causing uncertainty premiums to quickly creep into the market. These can quickly disappear if the ferry is delayed. The role of dairy traders in this should not be underestimated. These companies thrive on volatility and can make or break the market. For example, last summer, due to large volumes of butter... to import from New Zealand and the United States.
Little outside support
What's next? The milk surplus in Europe and on the global market will continue into the first half of 2026. The market will have to consider the consequences of a structurally stronger euro, which is not conducive to exports. European exporters have become competitive again due to the recent price crash. Chinese trade tariffs are also looming large. The provisional tariffs are expected to be converted into lower, definitive levies in February 2026.
If pork goes as planned, that will be for a period of no less than five years. Fortunately, exports won't be hit midship. China is currently ignoring milk and whey powder, which are by far the largest European export flows. The oil price isn't offering milk prices a ride either. Further price declines are expected in 2026, due to a combination of oversupply and weak demand caused by faltering economies.
Bottoming out
To provide farmers with cost-covering milk prices again, the milk price must find its own way back up. For now, the dairy market is still bottoming out and showing no signs of recovery. Only the sharply depressed spot milk prices could recover somewhat in the new year, although they won't exceed payout prices for the time being. For that to happen, milk must first be removed from the market.