Q3 2026 dairy market review

Key points

• GB milk supplies have continued to contract, even as heat pressures ease due to rising costs and disease
• Markets responded to local tightness of milk but oversupply globally keeps a lid on movements
• Milk prices rose late summer to secure milk supplies but ahead of commodity values
• Protein is driving more value than fat currently

Milk production

GB milk deliveries through Q3 fall further into deficit as relentless heatwaves continued through July and August and September stayed warm.   

July saw -3.1%, August -4.4% and September -2.3% year on year meaning the calendar year to date is now behind by 0.5%. The milk year is declining by -2.5% however. 

The milk to feed price ratio hit the contraction zone in August but has since uplifted slightly in response to rising milk prices.  However, this is not yet reflective of a negative outlook for feed costs which are rising in response to dry conditions in growing regions and difficulties exporting grain from Russia and the Ukraine. 

GB milk production for the 2026/27 season is forecast to decline to 12.73bn litres, 2.2% lower than the previous milk year according to our October forecast update.

This will be driven by the following factors:

• Herd numbers down 2%
• Low forage stocks (although this is regional, and has been mitigated by September grain and a rebound in grass growth)
• Increased costs of production across fuel, fertiliser, forage, straw and labour
• Increased disease risk from bluetongue virus which has spread across the country

The GB milking herd totalled 1.57 million head as of July 2026, the lowest seen and a 2.2% decline from the same month the previous year with a decline across all age groups with the exception of 4–6-year-olds.

The 2.2% decline in under two-year-old dairy females presents a challenge over the availability of dairy replacements going forward. We highlighted that there could be shortages of available heifer replacements as the growth in beef/dairy crosses continues earlier this year. 

GB organic milk deliveries were also affected by the heat and forage shortages, seeing a deep decline in August. However, production began to run ahead of last year in September and is now more in line with the 5-year average.

Global milk production averaged 793.7 million litres per day in July, an increase of 17.8 million litres per day (+2.3%) across the selected regions, compared to the same period last year. All regions, with the exception of the UK, recorded an increase.

US rose by 1.7% in July driven by herd size to fulfil a large increase in production capacity. Despite margin pressures, high beef prices have supported continued strong production. NZ grew by 7.4% year-on-year due to favourable weather, good margins and technology uptake. Australia grew by 6.6% driven by high milk prices and favourable weather.  Argentina also grew by 3.2%.    

Milk deliveries in the EU averaged an estimated 404.3 million litres per day in July, an increase of 10.4 million litres per day (+2.6%) compared to the same month of the previous year.

The greatest year on year volume increase was from Germany, up 155 million litres (+5.8) for the month of July.

According to Rabobank, milk production growth among the 'Big 7' exporters is forecast to slow to 0.5% in H2 2026, down from 3.1% in 2025, with the sharpest contractions being driven by the EU and coming in Q4 ’26 and Q1 ’27. Drought has caused reduced milk yields, lower feed quality, increased feed costs and encouraged herd reductions.

European milk supply is shifting from expansion towards gradual constraint with margin pressure, regulatory measures targeting emissions and a demanding 2025 comparison base expected to curb further growth.

Wholesale markets

Q3 brought some optimism on commodity pricing in response to tightening mik supplies as a result of the heat. However, the UK was more of an outlier on this and EU pricing has dragged more heavily. Volumes of milk in the market and levels of butter and other commodities in stock remain a modifying factor to market performance. 

• In September, the cream price rose £101/t due to heat-related lower milk volumes
• Butter strengthened £90/t to £3,540/t as supplies tightened marginally
• Mild cheddar prices moved upwards by £270/t to £3,330 as supplies tighten but still not enough to underpin planned milk price moves
• SMP performed strongly, gaining £260/t over the month for an average of £2,730

The next set of wholesale market figures will be published on 23 October.

The GDT auction showed continued pressure on the fats market with butter falling another 0.3% and AMF (Anhydrous Milk Fat) falling 1.1%.  Conversely protein in the form of SMP (Skimmed Milk Powder) rose sharply by 4.3% and is now more valuable than WMP (whole milk powder).

Farmgate milk prices

The latest published farmgate price was for August and was 36.89ppl, up 1.4 pence (4.0%) on the previous month's price of 35.47ppl. Latest announced farmgate prices were largely positive in October.

Aligned liquid contracts held mostly steady. Waitrose increased their price by 1.00ppl. Sainsbury’s made the only price reduction for another month and price declined by a scant 0.06ppl.

Non-aligned liquid contracts were all positive. Crediton Dairy made a positive announcement for another consecutive month, increasing their price by 1.50ppl. Muller and Payne’s Dairies increased their price by 0.50ppl and 3.00ppl respectively. Pembrokeshire Creamery increased their price by 0.69ppl. This is the second consecutive month of increases in price.

Cheese contracts on the AHDB League table continued the growth this month. Price increases varied between 1.00ppl to 2.25ppl. South Caernarfon Creameries announced the largest increase of 2.25ppl for the month. Belton Cheese, First Milk Manufacturing and Leprino Food increased their price by 2.00ppl each. Lactalis made a positive announcement of 2.07ppl while Barbers have increased their price by 1.50ppl. Saputo and Wensleydale Creamery made a positive announcement for the fourth consecutive month increasing their price by 1.00ppl and 1.83ppl respectively.

Movements in manufacturing contracts were in line with cheese contracts. UK Arla Farmers Manufacturing increased for the sixth consecutive month and rose by 0.89ppl. Pattemores Dairy Ingredients grew by 2.00ppl. Meadow also continued the positive run and increased their price by 2.00ppl.

Demand

During the 12 weeks ending 5 September 2026, volumes of cows' dairy increased by 0.6% year-on-year. Spend on cows' dairy increased by 2.0% year-on-year, driven by a 1.3% increase in average prices paid¹. Growth in cows' dairy was driven by cheese, yoghurt and yoghurt drinks. These gains helped offset volume declines in milk, butter and cream.

Across dairy, growth remains strongest in categories linked to health, protein and convenience, reflecting broader consumer interest in foods that offer nutritional and functional benefits.

Cows’ milk

Milk volumes declined by 0.3% year-on-year¹, while spend increased by 1.6%, driven by a 2.0% increase in average prices paid.

Declines were seen for semi-skimmed (-1.8%) and skimmed milk (-3.8%). Whole milk continued to outperform the category, with volumes increasing by 3.0%. This growth in whole milk may reflect consumer interest in more natural and less processed products.

Plant-based milk volumes remained broadly stable (-0.1%), while spend increased by 5.3% due to higher average prices.

Cows’ cheese

Cow cheese remained in volume growth, increasing by 2.2% year-on-year¹. Spend grew by 0.2%, despite a -2.0% decrease in average prices.

Volume growth was driven by increases in other cow cheese (+10.6%), specialty and continental (+4.6%) and snacking (+3.0%).

These gains offset declines in cheddar (-1.3%), British regionals (-2.8%), processed (-2.1%) and stilton and British blue (-8.1%).

Cows’ butter 

Butter volumes declined by 2.4% year-on-year¹. Spend decreased by 6.2% due to average prices paid falling by 3.9%.

Block butter remained the strongest-performing butter segment, with volumes increasing by 5.5%. However, this growth was not enough to offset declines in butter spreads, which fell by 6.0%, resulting in an overall decline for the category.

Cows’ yoghurt, yoghurt drinks and fromage frais 

Cows' yoghurt, yoghurt drinks and fromage frais volumes increased by 6.8% year-on-year¹, with spend increasing by 9.4%. Average prices paid rose by 2.5%.

Growth was driven by increased volumes purchased across several yoghurt subcategories. Standard plain yoghurt (+18.4%), healthy yoghurt (+17.5%), fat-free yoghurt (+9.1%) and probiotic yoghurt (+6.3%) were among the strongest performers. Yoghurt drinks also remained in growth (+7.4%), reflecting continued demand for convenient products.

However, some subcategories remained in decline, including split pot (-4.0%) and standard flavoured (-2.9%). This could be a result of consumer health trends and a push for less ultra processed foods.

Cows’ cream 

Cream volumes declined by 0.1% year-on-year¹. Spend increased by 1.4%, while average prices paid rose by 1.6%.

Performance was mixed across the category. Double cream (+2.3%), whipping cream (+2.8%) and sour cream (+1.2%) remained in growth, while declines were seen for single cream (-3.3%) and crème fraiche (-9.1%).

See the full data and these insights visualised on our GB household dairy purchases retail dashboard.

¹ NIQ Homescan POD, Total GB, 12 w/e 5 September 2026 

Trade

UK dairy export volumes in Q2 2025 witnessed the first quarterly decline year-on-year since the decline in Q1 2025 by 25% year-on-year to 277,800 tonnes, driven by milk and cream, yogurt, whey and butter.  However, milk powders and cheese saw an increase.

Exports of dairy products to the EU, saw a major decline of 94,400 tonnes while that to non-EU nations increased marginally by 1,400 tonnes.

Exports of cheese have continued to grow since the second quarter of 2025 and recorded an all-time high in Q2 2026. Export volumes of total cheese increased by 15.3% (+8,000 tonnes) year-on-year.

Value however declined 4% due to a reduction in commodity prices on global markets.

Globally, the biggest increase in cheese volumes were reported to the EU including the Netherlands (+1,800 tonnes), France (+1,600 tonnes), Belgium (+1,000 tonnes), Germany (+600 tonnes), Austria (+300 tonnes), Spain (+300 tonnes), Ireland (+200 tonnes) and Turkey (+200 tonnes).

This was followed by an increase to non-EU nations like Asia and Oceania including China (+1,000 tonnes) and Singapore (+400 tonnes) and North America including Canada (+100 tonnes).

Exports also picked up to the Middle East and North Africa (MENA): Libya (+1,900 tonnes), Bahrain (+1,400 tonnes), Saudi Arabia (+800 tonnes), Egypt (+200 tonnes) and Sub-Saharan Africa including South Africa (+400 tonnes).

AHDB have undertaken a detailed analysis of our export prospects into the MENA and other markets as part of this study: Prospects for UK agri-food exports | AHDB

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