Falling milk prices leave UK dairy sector under pressure

Dairy producers are feeling the squeeze after a recent downturn in dairy commodity markets prompted a series of sharp price cuts.

Farmgate milk prices are now trading in the region of 35p/litre to 45p/litre, however the inclusion of autumn seasonality payments has helped ease the impact for some producers.

Dairy consultants say farmers supplying on manufacturing milk contracts have been hit hardest by the recent price changes, while those on retail-linked contracts are expected to remain more resilient.

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Milk supplies are outweighing demand and spot milk prices have plummeted as a result.

Daily GB milk deliveries have consistently been above last year’s levels throughout the current milk year and were 7% higher during early October compared with the same time last year.

Diarmaid Mac Colgáin, founder of Concept Dairy, told Farmers Weekly that previous high prices had encouraged farmers to produce more milk which had led to oversupply in the market.

He added that the collapse of the butter price, particularly in Europe, had also put pressure on prices.

Mr Mac Colgáin stated that more than half of UK milk is supplied into liquid milk markets, which have not been as exposed to the price drops as experienced in commodity markets.

However, he noted that cheaper imported dairy commodities could enter the UK market for use as ingredients in processed foods and by the food service sector.

Wholesale dairy values dropped by a further 1.6% at the latest fortnightly Global Dairy Trade (GDT) auction on 7 October, with prices down again for butter, mozzarella and whole and skimmed milk powder.

Nick Holt-Martyn, principal consultant at the Dairy Group, said: “Milk supply is rising in all the main exporting countries at the same time, well in excess of demand, resulting in weaker markets which are starting to have a dramatic effect on certain farmgate prices.

“The challenge to dairy farmers is to balance the falling milk prices against the rising cost of production.”

The Dairy Group has forecast cost of production at 49.2p/litre for 2025-26.

Mr Holt-Martyn added: “With some farmgate prices falling below 40p/litre already and many more likely to fall towards 40p/litre by the year end, 2026 is looking very challenging unless the cost of production can be reduced to 45p/litre or less.

“This will require close scrutiny of costs to eliminate waste and inefficiency, a greater focus on forage quality and quantity and a renewed focus on feed efficiency.”