The Global Milk Market

Introduction

Global dairy markets move on a narrow base. Seven percent of the world’s milk crosses a border in any meaningful form, concentrated in a few storable product categories, produced by five exporting regions, and bought in volume by a handful of importers. That structural concentration, not the size of global milk output, drives international dairy prices. This paper provides a framework for reading global supply and trade signals. The framework rests on four elements: the distinction between production scale and export relevance, the exporter complex, the role of China, and the price architecture that connects commodity markets to farmgate milk checks. The 2025 and early 2026 period is used for illustration, and the framework is intended to help producers, lenders, and industry audiences interpret market conditions.

Scale Versus Trade

A central concept for reading global dairy signals is the distinction between milk production scale and export relevance. The two are not the same, and they are not closely correlated. World milk production reached 950 million metric tonnes in 2024, according to the Organisation for Economic Co-operation and Development and Food and Agriculture Organization (OECD-FAO) Agricultural Outlook (OECD/FAO, 2025). India alone accounted for 227 million tonnes, the European Union 162 million tonnes, the United States 226 billion pounds (102 million tonnes), and Pakistan 66 million tonnes. Together, those four producers represent well over half of the world’s milk output. The ranking shifts when the question becomes “who supplies the international market?” India and Pakistan export little dairy products. The EU, the United States, and New Zealand together account for 70 percent of global dairy exports (OECD/FAO, 2025).

The mechanism is structural. Consumption in India and Pakistan is dominated by fresh and fermented products produced and consumed locally through smallholder supply chains. Milk that becomes paneer or dahi in a city two hundred kilometers from the farm is not physically available to become whole milk powder for shipment abroad. The EU, United States, New Zealand, and Australia, by contrast, have processing capacity built for storable, exportable categories, and a large share of their output flows into those categories. The practical implication is that world milk production growth and export-relevant supply growth can diverge. A strong year in India lifts the world total but does little to the international market. A weak year in New Zealand barely moves the world total but tightens exportable powder supply.

Table 1 places the main milk-producing regions on a common quantitative footing. Definitions vary across sources. Eurostat reports raw milk production on farms; USDA reports cow milk only; OECD-FAO estimates cover total milk, including buffalo, sheep, and goat milk where those matter. Shares are sensitive to these definitional differences; relative scale is reliable.

Table 1. Annual milk production by region, 2024

Two caveats follow from the table. First, the OECD-FAO outlook projects that more than half of global milk production growth through 2034 will come from India and Pakistan, with relatively little of that supply reaching international markets (OECD/FAO, 2025). Second, production is not the same as deliveries. Of the EU’s 161.8 MMT of raw milk production in 2024, 150.8 MMT reached dairies (Eurostat, 2025); the remainder was consumed on farm or processed on farm. In the United States, essentially all commercial milk moves through inspected processing, so production and marketings are close to identical. In New Zealand, milk collection is highly seasonal, peaking in the southern hemisphere spring, and that seasonality shapes the timing of global powder availability.

What Actually Moves in International Trade

International dairy trade is concentrated in a small number of product categories because physics and cost structure select for storability. Fluid milk is almost 90 percent water, which makes it expensive to ship relative to its value, and it spoils quickly. The bulk of global dairy trade is instead concentrated in products where water has been removed, fat has been concentrated, or the product is inherently shelf-stable. Five categories carry most of the trade. Whole milk powder (WMP) is the leading product in trade into China and Southeast Asia, with New Zealand the largest exporter. Skim milk powder (SMP), also reported as nonfat dry milk, is used more broadly in food manufacturing, recombination, and feed; the United States and the European Union are the two largest exporters (OECD/FAO, 2025). Cheese moves in large volume, with the EU as the largest exporter. Butter and butterfat products move in smaller volumes at higher per-unit values. Whey and whey protein products round out the list, with growing relevance in sports nutrition and infant formula.

Because trade concentrates in storable products, changes in the mix of what exporters produce matter more than changes in total milk output. A processor deciding whether to direct a given volume of milk into cheese or into powder is making an allocation decision that shapes global trade availability. The European Union’s 2025 pattern illustrates the principle. Total milk collection rose modestly, but the output mix shifted noticeably: butter and skim milk powder production rose faster than cheese production, while whole milk powder output fell (European Commission, 2026). Processors were reading price signals and reallocating milk solids toward categories with stronger expected returns.

For an exporter to move product into a given market, its price must clear the landed price of competing supply: the delivered cost a buyer pays after transportation, tariffs, and other transaction costs are added to the origin price. A US product priced above the EU or New Zealand equivalent on a landed basis will not move volume into a contested market, even when headline US prices appear competitive at the plant. In 2025 and 2026, US nonfat dry milk was priced above EU and New Zealand skim milk powder in several months, and USDA projected that this gap would constrain US export volume despite ample supply (USDA FAS, 2025c). The competitive variable is the delivered price relative to other origins, not the absolute domestic price.

The Exporter Complex

The export-relevant supply of global dairy is produced by five regions. The European Union supplies one-quarter of the total by volume, weighted toward cheese. The United States supplies one-fifth, weighted toward skim milk powder, whey, and cheese. New Zealand supplies a share out of proportion to its total milk volume, concentrated in whole milk powder and butter. Australia is a smaller regional supplier into Asia. South America, led by Argentina and Uruguay, contributes a growing share.

Because these regions are few, their production can rise or fall together or move in opposite directions, and the aggregate effect on exportable supply depends on which pattern prevails. When several regions expand at once, the combined effect can move global prices even when world milk production is changing little, as occurred in 2025. USDA and the European Commission reported broad-based output growth across the major exporters in the second half of 2025, followed by slower growth into 2026 (USDA FAS, 2025a, 2025b; European Commission, 2026). Table 2 summarizes the pattern.

Table 2. Milk supply in major exporting regions, 2024 to 2025

This alignment is not coordination. Each region responds to its own input costs, weather, herd dynamics, and farmgate prices, which can point in the same direction at the same time. The regions also share global markets for feed, energy, and fertilizer and observe the same demand signals, which can push them toward similar decisions in the same period.

The Role of China

On the demand side, China is the largest single importer of dairy products, including whole milk powder, skim milk powder, cheese, and butter (OECD/FAO, 2025). Its share of world dairy consumption is modest relative to its population because most consumption is met by domestic production. It accounts for a large share of internationally traded powder, so changes in its import volume have an outsized effect on powder prices. Chinese domestic production is below domestic consumption, and because consumption is weighted toward fluid milk and infant formula, imports lean toward whole milk powder and, secondarily, skim milk powder. New Zealand, which produces more powder than its domestic market absorbs, is the primary supplier of China’s whole milk powder imports (The Cattle Site, 2024).

When Chinese import demand is strong, New Zealand powder prices tend to rise, Fonterra’s farmgate forecast tends to follow, and the effect carries into EU and US powder markets. When it weakens, as it did through most of 2024, the direction reverses. The OECD-FAO outlook reported that world dairy trade declined in 2024, largely because of smaller import demand from China for skim and whole milk powder, which increases from Saudi Arabia, Algeria, Indonesia, and Mexico did not offset (OECD/FAO, 2025). At the February 3, 2026, Global Dairy Trade (GDT) auction, the overall price index rose 6.7 percent, with skim milk powder up 10.6 percent and whole milk powder up 5.3 percent; trade reporting attributed the move to Chinese buyers returning after a period of light purchasing (NZ Herald, 2026). Supply had not contracted; buyers with low inventories had resumed purchasing.

The historical record shows how large these swings can be. In 2013, China accounted for 20 percent of global milk powder trade by volume, importing more than 850,000 tonnes, and its sharp pullback in 2014 contributed to a decline in world milk prices (Michigan State University Extension, 2014). Whole milk powder imports illustrate the later pattern: they averaged 670,000 tonnes per year from 2018 through 2022, then fell to 430,000 tonnes in 2023, a decline of 36 percent from that average, as domestic production growth and stock drawdowns reduced import need (The Cattle Site, 2024). Because New Zealand supplies most of China’s whole milk powder, a change of this size in Chinese purchasing moves a large volume of product onto world markets in search of other buyers.

Chinese buying is therefore one of the variables that determine whether a given level of exportable supply meets firm or soft prices. Strong exportable supply paired with strong Chinese demand can clear at stable prices; the same supply paired with weak Chinese demand can produce surplus and lower prices. A GDT result is more informative when read alongside data on Chinese import volumes than on its own.

The Price Architecture

Dairy prices exist at several layers simultaneously, and confusion between layers is a routine source of interpretive error. International commodity prices are set in reference auctions and wholesale markets. The GDT auction, held twice each month out of New Zealand, is the most widely cited reference for powders, butter, and some cheese categories, although most physical trade moves outside the auction at prices that track it with a lag. CME (Chicago Mercantile Exchange) spot markets in the United States, EEX (European Energy Exchange) dairy futures in Europe, and the FAO (Food and Agriculture Organization) Dairy Price Index offer additional reference points. These prices are quoted in US dollars per metric tonne of product, not per hundredweight of milk, and they update on cadences ranging from daily spot trading to the twice-monthly GDT auction.

Farmgate milk prices are what producers actually receive. The US All-Milk Price is quoted in dollars per hundredweight. European farmgate prices are quoted in euros per 100 kilograms. New Zealand farmgate prices are quoted in New Zealand dollars per kilogram of milk solids. Converting across these units requires both a weight conversion and an exchange rate, and milk composition standards differ, so cross-region comparisons should be treated as order-of-magnitude. Table 3 shows recent values on a common basis.

Table 3. Recent farmgate milk price indicators, USD per hundredweight

The 2025 to 2026 Period in the Framework

This period through early 2026 exercises every element of the framework. On supply, four of five major exporting regions moved into positive year-over-year growth in 2025. US production finished 2025 at 232 billion pounds, up 2.6 percent from 2024, with growth accelerating to the 3 to 4 percent range by early 2026 (USDA NASS, 2026). EU milk collection rose modestly through the year with a pronounced late-year acceleration (European Commission, 2026). New Zealand opened its 2025/26 season at a record pace. Only Australia stayed constrained. On demand, Chinese import appetite was weak through most of 2024 and much of 2025 before recovering in late 2025 and early 2026. On the processing side, EU product mix shifted toward butter and skim milk powder and away from whole milk powder. In the United States, expanded cheese production capacity and stronger cheese output contributed to larger domestic cheese inventories, which placed relatively more pressure on Class III prices than on Class IV prices.

Prices moved as the framework would predict. International commodity prices fell through much of 2025 as synchronized exporter supply outpaced demand; WMP declined nearly 20 percent from early-year highs by November (NZ Herald, 2025), and Fonterra cut its farmgate forecast twice in that period. The 2026 open reversed sharply as Chinese buyers returned and exporter growth moderated; the GDT price index rose by well over 10 percent across the first several auctions of 2026 (Global Dairy Trade, 2026). US farmgate prices lagged the recovery, weighed down by domestic cheese oversupply, in the familiar pattern where US Class III and Class IV prices diverge from global reference prices when domestic product balances dominate. World milk production growth did not change dramatically across this period; export-relevant supply did, and the strength of Chinese buying was a significant factor in whether that supply met matching demand.

Reading the Signals as a U.S. Producer

For a US producer, especially in the Upper Midwest, the global dairy market is not a separate market from the one that sets the milk check. It is an upstream input to it, mediated by the Federal Milk Marketing Order system and by the structure of US processing. Two channels carry global conditions into the milk check. The first runs through class prices: US Class III and Class IV prices are calculated from USDA-surveyed wholesale prices for cheddar cheese, dry whey, butter, and nonfat dry milk, and those wholesale prices track global commodity markets with some lag and some divergence. When global powder prices fall, US nonfat dry milk prices typically follow; when global butter prices rise, US butter prices usually do too. The second channel runs through export demand for US dairy products, which has grown over the past two decades, particularly for nonfat dry milk, whey, cheese, and lactose. Whether US product moves abroad depends on its delivered price against EU and Oceania supply: when US prices sit below competing origins on a landed basis, US export volume tends to expand and supports domestic prices; when US prices sit above them, as US nonfat dry milk did relative to EU and New Zealand skim milk powder in parts of 2025, exports soften and product accumulates at home (USDA FAS, 2025c). Rising US cheese inventories in 2025 reflected this pattern, with adequate domestic output meeting softer export demand.

For Upper Midwest producers, Class III (cheese) utilization is high in Federal Order 30, which makes regional blend prices more sensitive to cheese price movements than in some other orders. Cheese inventories, Chinese demand for whey, and EU cheese output all feed into the Upper Midwest milk check, whether or not an individual farm tracks the underlying global data directly.

Beyond the price indicators covered in Section 5, a small set of public data series explains most short-run movements in this chain. For export-relevant supply, the European Commission’s Milk Market Observatory, USDA NASS, DCANZ, and Dairy Australia together cover most global export-relevant milk through monthly reports; the year-over-year change in combined exporter supply is a useful derived indicator. For demand, China customs data on dairy imports is published with a one- to two-month lag, and monthly volumes for WMP, SMP, whey, and cheese signal different end-use demand. Monthly dairy product output data from the European Commission and USDA show how milk solids are being allocated across categories. USDA WASDE provides the cost-side updates.

Conclusion

The global dairy market is not a scaled-up version of the largest milk-producing countries. It is a structure in which a small set of exporting regions converts a modest share of their milk into storable products, a small set of importing countries buys those products, and China, as the largest importer, has an outsized effect on powder prices. The indicators that mattered in the 2025 and early 2026 period will matter in the next: combined exporter supply, Chinese import behavior, processing mix shifts, the delivered price of US product against competing origins, and the way wholesale commodity prices flow into the FMMO class-price formulas. A producer, lender, or industry professional who understands this architecture can interpret new market conditions faster than one who reads only the most recent headline.