British dairy farmers may be feeling the first signs that falling prices are easing, but new analysis warns the recovery will be slow and dependent on curtailing milk supplies.
AHDB’s latest Dairy Agriculture Market Outlook, published on Tuesday (27 January), suggests commodity prices may have hit rock bottom after months of decline.
However, the report stresses that stabilization should not be mistaken for a recovery, as surplus milk continues to weigh on the market and farmgate prices remain under pressure.
AHDB has shown tentative signs of support, noting that wholesale markets for skim milk powder and cheddar cheese will improve in early 2026.
However, fat remains under severe strain due to oversupply, and Farmgate milk prices are expected to remain under pressure until at least mid-2026.
The outlook comes as some producers have already confirmed price cuts of up to 15p a liter, underscoring how prices remain exposed as the industry heads into the spring flush.
AHDB predicts moderate growth in value-added dairy products in retail. Cheese sales are expected to increase by 3%, supported by demand for premium private label products and cottage cheese, while demand for yogurt is expected to increase by 7% as consumers continue to focus on health, protein and affordable luxury.
Whey is also expected to experience strong growth globally due to increasing demand for protein-rich diets, including from consumers using GLP-1 weight loss drugs.
Overall domestic retail demand is expected to remain broadly stable after total dairy volume declines by 1% in 2025, primarily due to lower consumption of liquid milk.
Household budgets remain tight and shopper confidence remains low, continuing to impact food and grocery spending.
Nevertheless, demand for block butter remains strong and could grow further if prices ease to reflect consumers’ shift to less processed foods.
Susie Stannard, lead dairy analyst at AHDB, said supply remained the biggest barrier to a sustained price recovery.
“Given the amount of milk in the system, oil and fat prices remain under pressure, meaning any recovery to farmgate price increases is likely to take time,” she said. “Slowing down production is critical to securing the future of this sector.”
He expected UK milk production to stabilize in 2026, growing by just 0.3%, but warned that this was from a high starting point.
Therefore, we expect capacity to remain tight and farm-level price caps to continue during the spring flush period.
Mr Stannard said that while the short-term outlook remained challenging, the report also identified long-term opportunities for the sector domestically and internationally.
“The report highlights some important growth opportunities for the dairy sector through 2026 and beyond,” he said, adding: “Despite current challenges, the long-term outlook for the sector is positive.”
The dairy agriculture market outlook is the first in a series of AHDB reports examining supply, demand and pricing across agriculture, with outlooks for other sectors expected to follow in the coming weeks.
