The long-term outlook for dairy markets is positive, as demand for protein continues to grow year on year, according to speakers at a recent StoneX European dairy markets conference in Dublin.

Volatility, however, still remains one of the key issues facing the sector. Currently, outside of cocoa powder, butter and skim milk powder (SMP) are the two most volatile dairy commodities on the market, according to StoneX analysis.

In recent years, butter has swung 26.9% on average, with skimmed milk powder (SMP) close behind at 25.4% volatility. These figures are over one percent higher than crude oil.

The main factors behind such volatility are supply issues such as weather, disease and feed costs, demand factors such as higher domestic GDPs, dietary trends and emerging markets’ purchasing powers.

Trade agreements and environmental policy changes are also causing instability.

Current situation

In recent weeks, dairy commodity prices in Europe benefited from drought-driven supply issues, heat stress and feed deficits; however, this situation is now correcting itself.

Last week was the first GDT auction with a negative index in the previous six auctions, evidence of the stabilising market.

Milk supply across the world is still up in 2026 and StoneX dairy market insight director Nate Donnay expects world production to hold up better than was initially being forecast when the drought began.

He said if real impacts are to be felt, it will be in quarter four of this year or quarter one of next. This is when feed shortages and the expected El Niño weather pattern in the southern hemisphere will play out.

Beef price was established as one of the key reasons for upward production trends as calf values soared and this encouraged farmers to continue milking cows that may otherwise have been culled. Milk price in 2025 was also a big factor that caused farms to hold on to higher cow numbers.