US dairy markets are experiencing significant price pressure, with butter dropping to $1.805/lb and further declines expected as global competition reaches fever pitch across major exporting regions.

The downturn extends beyond butter, with NFDM markets showing their weakest performance in years while whey demonstrates relative resilience amid the broader market weakness.

Production surge meets export dependency

Strong production indicators for 2025 and 2026 are contributing to current price pressures. Favorable weather patterns and herd expansion programs across multiple countries point toward increased milk output, creating a supply-heavy environment.

With production levels exceeding domestic demand, exports have become crucial for price stability. However, export demand remains good but not exceptional, creating fierce competition between the three main dairy exporting regions: the US, Europe, and New Zealand.

European markets crack under pressure

European butter markets maintained very high price levels until late September before giving way in recent weeks. European butter sellers are now actively seeking international buyers, entering competitive territory the US has navigated for approximately a year.

For milk powder, export dependency has created a downward spiral. European SMP currently trades at an unusually large discount compared to New Zealand or US equivalents, indicating particular struggles in the European market to maintain competitive positioning.

Currency headwinds amplify competitive pressure

Exchange rate movements have fundamentally altered competitive dynamics across global dairy markets. The EUR/USD relationship has become a critical factor, with European exporters facing approximately 15% product valuation losses during Q1 and Q2.

This currency headwind creates additional challenges when combined with already difficult market fundamentals. European suppliers are simultaneously managing increased volumes and reduced dollar-denominated revenues, forcing many to accept lower prices to maintain market share.

For US exporters, the stronger dollar provides some domestic cost structure relief but makes products less competitive in price-sensitive international markets. New Zealand exporters benefit from an advantageous middle position, gaining competitive benefits against EUR-denominated products while remaining relatively stable against the USD.

Market outlook and implications

The interconnected nature of global dairy markets means exchange rate movements will continue influencing competitive dynamics alongside fundamental supply-demand imbalances. European processors are implementing more sophisticated hedging strategies to protect against further EUR weakness.

With all indicators pointing toward strong milk production seasons ahead and persistent global competitive pressure, the current downward price trend may continue affecting procurement strategies and margin management across the dairy supply chain.


This is part of a full market analysis. For the full analysis, visit: https://app.vespertool.com/market-analysis/2290