How the milk price can go so off track

What is happening in the dairy market? Last summer, the threshold of €60 per 100 kilos for the milk price seemed within reach, but the harsh reality now is that 2026 will start with a thirty-something who also intends to slim down further. The market is still filled with negativity due to a surplus of milk, both in Europe and beyond. The question is: where did it go wrong? Because payment prices below €40 would never return, right? The weeks around the holidays are often terribly bad for spot milk prices, but this year it is particularly severe. The DCA quotation for Dutch spot milk has plummeted to a new low of €4.50 per 100 kilos. For comparison: last year at the same time, the spot market could maintain a level above €50. In Germany, prices are even lower than here. Some processors there had to pay negative prices to get rid of surpluses. A new sensation in the market. A 'three' for the milk price Meanwhile, payment prices have dropped below €40. FrieslandCampina is the first to do so. And once one sheep has crossed the dam, more will follow. In this case, other processors willingly follow the market leader. Because although milk prices have already dropped significantly in recent months, they are still under pressure. In the best-case scenario, the raw material value of milk just exceeds €35. In other words: further reductions are likely in the first quarter. In Ireland, this level has already been reached. 2026 threatens to be a lean year in dairy farming, with yield prices well below production costs. The question is: where did it go wrong? Wasn't the chance that the milk price would go to one euro greater than going back to 30 cents? Spot milk prices were thought to structurally be above the payment prices in the coming years. Or has the market been too much hyped by a looming shortage of milk, or a surplus of stainless steel? The dairy sector may have believed a bit too much that things could not go wrong anymore. No guardrail However it may be, dairy farmers across Europe have gone into production like crazy. Record-high milk supply figures bear witness to this. The high milk prices of recent years encouraged increased production. Significantly lower feed prices and a favorable growing season did the rest. And then there was the disrupted calving pattern due to bluetongue, causing the production peak to occur later than usual. There is no guardrail to catch the out-of-control European milk production, after all. The milk quota was abolished in 2015, giving free market forces the lead. It can be observed that volatility in the dairy market has significantly increased since the onset of COVID-19. The war in Ukraine added to this, nearly doubling the milk price in 2022 to €60, only to drop below €40 again six months later. The history then repeated itself, and by early 2026, the milk price is back to square one. Reaching the top is one thing, but staying there is another. That turns out not to be so easy. Higher prices inevitably trigger lower prices, as has been the case for hundreds of years in agricultural markets. Like a bouncy ball The milk price behaves like a bouncy ball. The increase in volatility is also experienced by dairy traders. Price increases of 10 cents used to take Gouda cheese prices almost six months. Now, movements occur sometimes within a week. How is this possible? The fear of missing the boat is great, causing uncertainty premiums to quickly creep into the market. However, these disappear like snow in the sun when it turns out that the boat is delayed. The role of dairy traders should not be underestimated. These companies thrive on volatility and can both make and break the market. For example, last summer, by importing large volumes of butter from New Zealand and the United States. Little support from outside How will things proceed? In the first half of 2026, the milk surplus in Europe and the global market will persist. The market must also take into account the consequences of a structurally stronger euro, which is not favorable for exports, although European exporters have become competitive again due to the recent price crash. Additionally, Chinese trade tariffs loom over the market. The provisional tariffs are likely to be converted into lower final tariffs in February 2026. If it goes the same way as with pork, this will be for a period of no less than five years. A silver lining is that exports will not be hit hard. China is currently excluding milk and whey powder, which are by far the largest European export flows. The oil price also does not provide the milk price with a wave to surf upwards. Further price declines are expected for 2026 due to a combination of oversupply and weak demand from faltering economies. To provide farmers with a cost-covering level again, the milk price must find its way back up by its own means. For now, the dairy market is still bottoming out and is not recovering at all. Only the significantly slimmed-down spot milk prices may recover somewhat in the new year, although they will not surpass the payment prices for the time being. First, milk must be removed from the market.