Milk Supply: Strong Volumes, but Not Frictionless

Milk production across the EU and UK has tracked ahead of 2025 levels through Q1, supported by stable farmgate returns and favourable production conditions. This has created a more comfortable supply position compared to last year, but not without constraint.

The industry is now entering the seasonal “spring flush” – the period of highest milk output and greatest imbalance risk. While volumes are clearly building, the ability to process that milk efficiently is becoming a more immediate limiting factor than supply itself.

In the UK, production is also increasing into flush, reinforcing the broader regional supply dynamic. However, this does not eliminate import demand entirely – it shifts it. Buyers may step back in the short term, but underlying structural deficits in certain cheese categories remain.

From an Irish perspective, this environment highlights both opportunity and competition. Increased regional supply creates optionality, but also compresses margins and intensifies competition across export markets.
 

Butter and cream markets have softened from Q1 levels as milk volumes increase and fat availability improves.

This is the most immediate and visible expression of the shift in supply-demand balance. As is typical, fats are leading the adjustment, with cream markets reacting more quickly due to their exposure to short-term supply changes.

However, while direction is clearly downward, the market is not collapsing; prices remain historically firm. The adjustment is better understood as a normalisation from tight conditions, rather than a structural downturn.

In practice, this is already changing buying behaviour. Forward urgency has reduced, and spot and near-term purchasing are becoming more viable, particularly for buyers able to tolerate short-term price movement.

Cheese markets have remained more stable than fats through Q1, particularly in cheddar, where pricing remains firm relative to other cheese categories, particularly in longer-aged product where availability remains tighter, although near-term spot markets are showing more mixed signals. Historically, sustained weakness in fat markets tends to feed through into cheese over time, particularly in more commodity-driven categories.

This reflects both production prioritisation within the EU milk balance and steady demand across export markets.

That said, the category is beginning to show signs of divergence. Mozzarella and gouda/edam are softening as increased milk availability feeds into production, improving spot availability and reducing urgency in forward purchasing decisions.

The key shift here is behavioural rather than purely price-driven. Buyers are taking a more measured and selective approach, which contributes to downward pressure.

At the same time, demand is evolving. Value growth continues to outpace volume, with premiumisation, protein positioning, and application-led innovation playing an increasing role. In foodservice, cheese is less often sold as a standalone product and more as part of integrated flavour systems and menu formats.

This creates a split market:

• structurally supported segments (e.g. cheddar, aged products)
• versus more exposed, shorter-cycle, commodity-driven categories

SMP markets have remained relatively stable, supported by export demand and balanced trade flows.
However, compared to fats, powders appear slower to adjust to increased milk supply. This suggests that the current stability may be temporary, with the category more sensitive to shifts in export demand than domestic production alone.

The risk here is less immediate, but potentially sharper if demand weakens or if supply continues to build.

Global demand remains mixed. China continues to show weaker overall import demand, although cheese remains comparatively more resilient.

EU exports have performed well, particularly in cheese and value-added products⁵. However, across key markets, demand remains price-sensitive and reactive, rather than strongly growth-driven.

In the UK, post-Brexit dynamics continue to shape buying behaviour. Trade flows are more segmented, and regulatory divergence has increased the importance of supplier reliability and compliance.

At the same time, higher domestic milk production during flush periods reduces short-term import urgency, even where structural demand remains. This creates a more complex environment, where demand exists—but is less immediate and more conditional.

Overlaying this is a continued shift in buyer expectations. Sustainability is no longer a differentiator but a requirement, with increasing emphasis on:

• Verified, audit-ready data
• Scope 3 emissions reporting
• Regenerative sourcing and biodiversity
• Full supply chain transparency

These factors are now embedded in procurement decisions alongside price and availability.

Q2 Outlook: Supply-Led, but Not Uniform

The central driver for Q2 is rising milk supply—but its impact will not be uniform.
 
As production peaks:

• Processing capacity will be tested
• Spot availability will increase
• Fats and commodity cheese will remain under pressure
• Price volatility will increase across categories

However, divergence will persist:

• Mature cheddar and longer-aged products are likely to remain more insulated
• Butter, cream, mozzarella, and spot-driven products remain more exposed

The key point is that this is not a single-direction market—it is a segmented one, where different products move at different speeds and for different reasons.

From an Irish perspective, current conditions highlight both structural strengths and competitive realities.
 
Ireland benefits from:

• A pasture-based production system aligned with regenerative principles
• Strong supply chain resilience
• Established sustainability frameworks (e.g. Origin Green)
• Proven export capability into EU and UK markets

In a post-Brexit context, Ireland’s combination of EU alignment and proximity to the UK provides a clear advantage in terms of compliance and logistics.
 
However, this advantage operates within a more competitive environment. When regional supply is high, buyers have more choice, and differentiation increasingly depends on reliability, flexibility, and the ability to meet evolving sustainability requirements—not just price.

Q1 2026 delivered relative stability in cheese markets, but the underlying balance is now shifting. Rising milk supply across both the EU and UK is beginning to weigh on fats and commodity cheese, with broader impacts expected as peak seasonal production is reached.

The market is increasingly well supplied, although this is not evenly distributed across all product categories.

While prices remain at historically firm levels, the market is softening. The pace and extent of that adjustment will depend less on supply itself, and more on the market’s ability to absorb it, through demand, exports, and product mix.

For buyers, this is no longer a market defined by scarcity, but by choice and timing—where outcomes will depend less on access to product, and more on how selectively and flexibly that access is managed.

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Sources
European Commission – Milk Market Observatory (MMO), 2026
AHDB Dairy Market Intelligence, 2026
Rabobank – Global Dairy Quarterly, Q1 2026
USDA Foreign Agricultural Service – EU Dairy Report, 2025/26
Bord Bia – QSR & Foodservice Market Insights, 2026
Bord Bia / Origin Green – Sustainability & Buyer Expectations, 2026