Dairy prices stabilise, but analysts warn recovery will be slow
UK dairy farmers may be seeing the first signs that falling prices are easing, but fresh analysis warns that any recovery will be slow and depends on reining in milk supplies.
The latest Dairy Agri-Market Outlook from AHDB, published Tuesday (27 January), suggests commodity prices may have reached a floor after months of decline.
However, the report stresses that stabilisation should not be mistaken for recovery, with excess milk continuing to weigh heavily on the market and farmgate prices remaining under pressure.
AHDB points to early-2026 improvements in wholesale markets for skimmed milk powder and cheddar, offering tentative signs of support.
Fats, though, remain under severe strain due to oversupply, and farmgate milk prices are expected to stay under pressure until at least mid-2026.
The outlook comes as some producers have already seen cuts of up to 15p per litre, underlining how exposed prices remain as the industry heads towards the spring flush.
AHDB forecasts modest growth in added-value dairy products at retail. Cheese volumes are expected to rise by 3%, supported by demand for premium own-label products and cottage cheese, while yoghurt demand is forecast to grow by 7% as consumers continue to focus on health, protein and affordable indulgence.
Whey is also expected to see strong global growth, driven by rising demand for protein-rich diets, including among consumers using GLP-1 weight loss medicines.
Overall domestic retail demand is expected to remain broadly steady after total dairy volumes fell by 1% in 2025, largely due to lower liquid milk consumption.
Household budgets remain tight and shopper confidence subdued, continuing to influence food and grocery spending.
Despite this, demand for block butter has remained resilient and could strengthen further if prices ease, reflecting a consumer shift towards less processed foods.
Susie Stannard, AHDB lead analyst for dairy, said supply remained the biggest barrier to a sustained price recovery.
“The volume of milk in the system means the path back to higher farmgate prices is likely to be a slow rebuild, with fats prices still under pressure,” she said. “Slowing production is vital to safeguard the future of the sector.”
She said GB milk production is forecast to stabilise in 2026, with marginal growth of around 0.3%, but warned this was coming from a high starting point.
Processing capacity is therefore expected to remain stretched during the spring flush, continuing to cap prices at farm level.
While the short-term outlook remains challenging, Ms Stannard said the report also identified longer-term opportunities for the sector at home and overseas.
“The report does highlight some key growth opportunities for the dairy category through 2026 and beyond,” she said, adding that “although times are currently tough, the longer-term prospects for the sector look bright”.
The Dairy Agri-Market Outlook is the first in a series of AHDB reports examining supply, demand and pricing across agriculture, with outlooks for other sectors due to follow in the coming weeks.
