Middle East tensions are affecting the dairy market

These are signs that Asia has returned as a buyer to the global dairy market. Moreover, the price increase cannot be viewed in isolation from the rapid rise in oil prices. 

GDT continues to rise sharply
The GDT index rose nearly 6% to $4.301 per tonne. Prices were significantly higher for the fifth auction in a row. Skimmed milk powder led the way, rising 9,1% and comfortably surpassing the psychological barrier of $3.000 per tonne.

New Zealand product from Fonterra sold for the highest prices, but European product from Arla and Solarec also sold at prices well above the current price. Price increases are not limited to the protein side of the market. Butter, mozzarella, cheddar, and whole milk powder also saw significant increases. Just under 20.000 tons were traded on the GDT yesterday. Although the volume is relatively small compared to total world trade, markets often react strongly to auction results.

The price increases are striking and seem at odds with the fundamentals. Ample supply is available in Europe and the United States, and in New Zealand, supply figures are also above last year's levels. Nevertheless, the GDT is making significant strides in early 2026, to the surprise of many market participants. One possible explanation is that China is re-entering the market. The Chinese often use the GDT to address internal shortages, particularly for milk powder. New Zealand, in particular, is benefiting from this.

Skimmed milk powder follows oil price
The rise in oil prices is also providing support. Since mid-December, oil prices have been on the rise, driven by increasing tensions in the Middle East. Sentiment in the skimmed milk powder market has also shifted since then. Support is often seen in the milk powder market during periods of rising oil prices. While there isn't a perfect correlation, the convergence of movements is striking. In oil-producing countries, purchasing power increases with higher oil prices, which strengthens dairy import capacity.

The situation in the Middle East is now also having a direct impact on the dairy trade. Due to Iran's announcement of a blockade of the Strait of Hormuz, Iraq, Kuwait, Bahrain, Qatar, and the United Arab Emirates are no longer accessible by ship. The EU exports €410 million worth of dairy products to these countries annually, approximately 2% of total European dairy exports, reports Rabobank.

European export figures already showed increasing demand from the Middle East at the end of 2025. Since October, sales to Algeria, the largest importer, have been above year-on-year levels. In November and December, the EU exported 13.904 and 11.095 tons, respectively, the highest levels for those months since 2017 and 2018. For 2025 as a whole, sales to Algeria were still almost 20% below the 2024 level, although that was a record year.

Prospects are diffuse 
For now, the situation needs to be further refined. Is China truly back as a structural buyer? How will the conflict in the Middle East develop further, and what does that mean for oil prices? These are questions that continue to hang over the market, amidst the continued ample milk supply in Europe.

De milk price The market appears to have bottomed out in mid-March, earlier than expected. However, rising milk prices are not yet evident, despite the rapid increases in the Global Dairy Trade. There are still ample dairy stocks in Europe, particularly for butter. This situation, combined with a high milk supply, is making businesses cautious.