Ornua’s October report points to continued supply expansion, while drought, possible El Niño effects and macroeconomic uncertainty cloud the outlook.
Global milk production is forecast to increase by 2.2% in 2026, although growth is expected to moderate to around 1% in 2027, according to Ornua’s October Global Dairy Market Report. Despite drought concerns in Europe and uncertainty surrounding the potential effects of El Niño, milk collection has exceeded expectations in several major producing regions.
The report estimates that global milk supply increased by approximately 1.4% in August. However, production growth is expected to slow in the fourth quarter as weather-related pressures begin to affect output. Ornua said the full impact of El Niño remains uncertain, while higher oil prices, inflation and interest rates continue to pose considerable macroeconomic risks.
EU milk production remains above expectations
Milk production in the European Union increased by 1.1% in September, compared with growth of 2.5% in August. Despite dry weather conditions, output remained stronger than anticipated.
In response, Ornua restored its annual EU milk production growth estimate to 1.9%, returning it to the level forecast before drought concerns intensified.
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The report noted that the effects of adverse weather may take time to become fully apparent, meaning production trends could change as the season progresses.
US output supported by processing capacity and beef prices
In the United States, milk production grew by 1.7% in both July and August, with the annual growth forecast remaining at 2.2%.
Ornua identified high beef prices and newly available cheese-processing capacity as key factors supporting the expansion. These conditions are contributing to production growth even as global dairy supply remains strong.
New Zealand and South America record stronger flows
New Zealand recorded a 2.4% increase in milk flows and a 3.4% rise in milk solids. If the current pace continues, annual growth could reach 4% or more, according to the report.
Production conditions have also been favourable in major South American dairy-producing countries, including Argentina, Brazil and Uruguay, contributing to the broader increase in global milk availability.
Ornua expects global milk flows to continue expanding, but at a slower rate in the fourth quarter. The full impact of weather-related supply disruptions may not become clear until early 2027.
Butter markets reflect regional differences
European butter production increased in July and August, while exports remained firm, supported by demand from the United States, China and Turkey. Drought concerns, historically low prices and seasonal market activity also supported butter markets during August and early September.
In the United Kingdom, butter production slowed in recent months, although steady exports provided some support.
The US butter market presented a different picture. Availability remained strong, but domestic consumption and exports helped keep inventories low.
Weather and market uncertainty remain key factors
The outlook points to continued global milk supply growth in 2026, followed by a more moderate expansion in 2027. However, the trajectory will depend on weather conditions, production responses across major dairy regions and wider economic developments.
For dairy processors, traders and ingredient buyers, regional differences in milk availability and butter production will remain important to procurement and market planning. The pace at which drought and potential El Niño effects influence production will be a key factor to monitor as the industry moves into 2027.
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