Milk prices are set to remain under pressure through the first half of 2026 as oversupply continues to squeeze farmgate values, according to new market analysis from levy organisation AHDB.
AHDB said the dairy sector entered the new year facing a supply-driven downturn, with milk volumes running well ahead of demand in both the UK and global markets.
UK production rose sharply through the autumn, with October deliveries almost 7% higher than the previous year. Volumes stayed around 3–5% up through to early January, quickly feeding through into falling wholesale prices.
AHDB said December saw sharp commodity losses, with bulk cream dropping by around a quarter, butter prices falling and skimmed milk powder continuing to slide.
Processors were left struggling to handle the volume of milk coming in, while stocks built up faster than markets could absorb them.
Farmgate prices followed. AHDB said many buyers announced cuts towards the end of 2025 and into the first quarter of 2026, and most indicators suggest margins will remain tight until at least the autumn.
One reason milk continued to flow was strong milk-to-feed ratios, which reached 20-year highs and sent a clear signal to maximise output.
At the same time, cows delivered record levels of fat and protein, meaning more product was coming off every litre of milk.
Production forecasts for Great Britain were revised upwards several times, with AHDB now expecting 2025/26 to be a record year for milk output.
Global conditions have added to the pressure. Prices remained relatively firm until October due to bluetongue-related shortages in parts of the EU, but when those issues eased, countries including the Netherlands, France and Germany saw a second flush of production.
Rabobank figures show the world’s major dairy exporting regions ended 2025 more than 2% up on the year, with output still growing into early 2026.
In the United States, production growth has been driven by around a quarter of a million additional cows supplying new cheese processing capacity, allowing products to be made more cheaply than in Europe.
Across the EU, AHDB said commodity prices have weakened as stocks built up and exports slowed, with analysts expecting markets to remain under pressure until inventories are reduced and demand improves.
Looking ahead, AHDB said the first half of 2026 is likely to remain difficult, particularly with high volumes heading into the spring flush.
Farmgate prices are unlikely to recover quickly, but conditions could begin to stabilise later in the year if several factors align.
These include a slowdown in global milk production, butter and skimmed milk powder stocks starting to clear, and UK output easing back as tighter margins and forage limits take effect.
If that happens, AHDB said butter and cheese prices could steady from late in the second quarter, with scope for modest improvement in the second half of the year.
Unpredictable disruption from weather, disease such as bluetongue, or processing capacity constraints could tighten supply sooner, although AHDB said these factors are difficult to forecast.
For UK producers, recent contract price cuts underline how closely farmgate values are tracking commodity markets.
Aligned contracts and organic producers have so far been more resilient, while most conventional producers face lower prices through the first half of 2026 before any recovery later in the year.
Despite the current pressure, AHDB said there are reasons for longer-term confidence.
Global dairy demand continues to grow, driven by population growth and changing diets, while investment in new UK processing capacity for products such as mozzarella and cottage cheese points to confidence in British milk.
AHDB said the current downturn is driven by excess supply, compounded by high milk solids and full stores.
While volatility remains unavoidable, the organisation said resilience in the months ahead will come from focusing on what producers can control, including getting the most from milk contracts, working proactively with processors and challenging unfair terms where necessary.
