Reading Time: 3 minutes By Cristina Alvarado. Alvarado is NZX’s head of dairy insights. The dairy industry entered May facing growing uncertainty linked to escalating geopolitical tensions in the Middle East, particularly the economic implications of the conflict involving Iran. While the direct impact on dairy trade has so far remained limited, the conflict has contributed to greater volatility across commodity and freight markets, influencing buyer behaviour and purchasing patterns globally. Despite the uncertainty, demand for dairy protein products has remained strong, continuing to support
international dairy prices. This ongoing appetite for protein has driven noticeable shifts in product demand and pricing structures throughout the month, particularly in milk powders. New Zealand milk production has continued to perform strongly. March collections reached record levels and, with April collections also expected to maintain positive year-on-year growth, the current expectation is for New Zealand’s 2025/26 season to finish approximately 4.1% above last season. However, the outlook for the coming 2026/27 season is becoming more cautious at farm level. While milk price expectations
remain supportive, farmers are beginning to face increasing cost pressures. Palm kernel expeller (PKE) prices have continued strengthening since April, while imported fertiliser prices have also continued moving higher, shifting underlying farm economics heading into the new season. Globally, milk supply continues to expand across most major exporting regions. Argentina recorded milk production growth of 7.9% year on year (YoY) in March, while Uruguay rose 11.3%, the United States increased 2.3%, Australia lifted 2.8%, and European milk collections were up 4.4% in February. In contrast,
China’s milk production declined 5.3% YoY in February. Although supply growth has been broad based, global production remains largely in line with market expectations, suggesting the dairy market is still relatively balanced overall. One of the clearest market trends in recent months has been the divergence between dairy fats and proteins. While global supplies of butter and other fat products have become more available, demand for dairy proteins continues to strengthen, supported by growing consumer interest in high-protein products across several markets. This shift has
been clearly reflected in Global Dairy Trade (GDT) auctions and Pulse events during the month. At GDT Event 403, the overall GDT Price Index increased 1.5% after two consecutive declines. Gains were led by whole milk powder (WMP), which rose 3.0%, and skim milk powder (SMP), up 2.2%. Most other products also recorded gains, while butter and cheddar declined -2.6% and -3.6% respectively. Event 404 broadly followed a similar pattern, with the overall index rising 0.6%, supported by gains in WMP, SMP and butter, while
AMF and cheddar softened. WMP increased 1.2%, SMP edged up 0.2%, and butter lifted 2.5%. Trade data also continues to point towards solid underlying dairy flows globally. New Zealand dairy export volumes increased 16.4% YoY in March, reaching 386,616 metric tonnes. Export values also strengthened, rising 6.7% YoY to US$1.53 billion for the month. For the season-to-date, New Zealand dairy export volumes are now tracking 3.2% above last year, following slight revisions to February figures. Import demand from China also showed some improvement, with total
dairy import volumes rising 3.7% YoY in March. Elsewhere, dairy export volumes increased 12.3% YoY in the US, 35.7% in Argentina, 1.3% in Australia, and 6.9% across Europe. Looking ahead, market direction will remain closely tied to geopolitical developments and their influence on energy, freight and input costs. Demand fundamentals for dairy products remain relatively stable, but elevated costs and uncertainty are likely to keep buyers cautious and contribute to ongoing price volatility in the near term. For New Zealand farmers, the 2026/27 season is
still shaping up on firmer footing than many competing export regions. If weather conditions remain favourable, milk production is expected to continue at healthy levels. However, farm margins could come under greater pressure if input costs continue rising or if global demand softens later in the year. At the time of writing, the NZX Milk Price forecast for the 2026/27 season is sitting at $9.98/kgMS, reflecting continued confidence in underlying global dairy demand, particularly for protein products, despite an increasingly uncertain global economic backdrop.
dairy markets, protein demand, milk powders, Global Dairy Trade, New Zealand dairy exports, NZX Milk Price forecast, geopolitical tensions, farm costs