Arla Warns of Falling Dairy Prices as Supply Surges

European dairy giant Arla Foods has signalled a downward trajectory for global dairy prices in the coming quarters, warning that an ongoing surge in milk supply from major producing regions could outpace current demand and exert downward pressure on commodity values. The company’s latest forecasting commentary reflects tightening dynamics in key segments such as skim milk powder (SMP), whole milk powder (WMP) and butterfat, even as global markets adjust to post-pandemic consumption patterns. (Global Banking & Finance Review)

Arla’s outlook comes against the backdrop of strong milk flows in Europe, the United States and parts of Oceania, where production gains have continued into early 2026. The coordinated expansion in yields and herd efficiencies, coupled with robust weather conditions in spring, has kept milk volumes elevated — a factor that historically correlates with softening dairy commodity values when demand does not absorb the incremental supply. Arla emphasises that inventory build-ups and competitive export pricing could keep headwinds in place for global markets if buyers do not step up purchases. (Global Banking & Finance Review)

The company’s caution echoes broader sector trends observed after recent Global Dairy Trade (GDT) events: although prices rallied in early 2026, notably in powder and fat categories, the recovery has been uneven and may be tempered if production growth outstrips restocking demand. While Southern Hemisphere seasonal tightening provided temporary support, Northern Hemisphere production peaks and ample stocks in intervention regimes could limit sustained price increases. (Sector trend analysis)

Impact of Milk Production Increase

COPENHAGEN, Feb 18 (Reuters) - Denmark-based Arla expects a global milk surplus to drive down dairy prices this year, giving a fresh boost to demand for high-protein products such as whey and cottage cheese that are benefitting from the growing use of weight-loss drugs.

Consumer Trends in Dairy Products

The producer of Lurpak butter and Castello cheese made the forecast on Wednesday after reporting record 2025 revenue and a sharp rise in global milk output.

Revenue Projections for 2026

"What we see in the market right now is still a firm underlying trend and focus on health and healthy nutritious products," Chief Financial Officer Torben Dahl Nyholm told reporters.

High-protein products were in high demand, "because of the general effect, but probably also because of some of the GLP-1 trends that we see," he said, referring to weight-loss drugs such as Novo Nordisk's Wegovy and Eli Lilly's Zepbound.

The cooperative, which competes with the likes of Danone and Nestle, attributed a 2025 surge in milk production to favourable weather and strong forage harvests across Europe, which led to one of the sharpest increases in milk volumes in recent history.

Its total milk production rose to 14.3 billion kilograms in 2025 versus 13.7 billion kg in 2024, with raw milk prices hitting a record 0.56 euros per kg.

"The large increase in supply that occurred in the fourth quarter is expected to continue to affect the market in early 2026 and put pressure on global dairy prices," Arla said in a statement, while projecting "partial normalization" of market dynamics later in the year.

Revenue rose 9% to a record 15.1 billion euros ($17.9 billion) in 2025, driven partly by a global increase in dairy prices. However, the cooperative forecast revenue to decline to between 13.3 billion and 14.1 billion euros in 2026, citing elevated milk supply and continued market volatility.

Lower prices could reinvigorate consumer demand, CEO Peder Tuborgh said, particularly for Arla's premium products, as seen in Denmark, where consumers increasingly opted for higher-priced food items.

"When prices adjust, we expect consumers to return to dairy products with renewed purchasing power, which should drive growth for our strategic brands," he added.

Arla expects its strategic brands segment to grow by 1.0% to 3.0% in 2026 despite challenges to overall revenue, underscoring a consumer shift towards branded, health-focused products.

($1 = 0.8450 euros)

Arla also pointed to sluggish demand growth in key import markets, particularly in East Asia where changing consumption patterns and economic factors have restrained purchases of traditional dairy commodities. Meanwhile, export competition from countries with preferential trade access — such as New Zealand’s agreements in Asia — intensifies pricing pressure for European suppliers in non-preferential markets.

On the demand side, new pockets of sustained growth are emerging, including functional dairy ingredients and fortified nutrition categories that appeal to health-focused consumers in developed economies. Dairy derivatives used in infant nutrition and specialised protein markets continue to demonstrate resilience, but these segments have not yet fully offset the broader supply-led softness in commodity prices.

Short to Medium-Term Forecast

Near term (1–2 months):
Given Arla’s warning and supply data, dairy prices are likely to stabilise or drift slightly lower in commodity auctions like GDT unless restocking demand increases. Seasonal production peaks in the Northern Hemisphere could reinforce supply pressure, particularly for powders.

Medium term (3–6 months):
Price direction will depend on global economic momentum, China’s import behaviour (a historically pivotal factor), and how inventories adjust. If global buyers respond to cheaper prices with expanded coverage, the market could see a modest re-acceleration. However, should supply continue to outpace demand growth, downward pressure may persist into mid-2026.

Arla’s forecast highlights a crucial reality in global dairy markets: price recovery remains fragile when supply expansion outstrips consumption growth, even with intermittent rallies. For exporters and processors — from cooperative chains in India to large multinational players — this underscores the continued importance of value-added products, diversification of export destinations, and risk management strategies to navigate pricing cycles.

Source : Dairynews7x7 Feb 20th 2026 Read Full Story here

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