Tensions in the Middle East impact the dairy market

The advance in the dairy market continues. On the Global Dairy Trade (GDT), skimmed milk powder rose yesterday to its highest level in over three years. Whole milk powder, butter, and mozzarella are also on the rise. These are signals that Asia has returned as a buyer in the global dairy market. The price increase cannot be separated from the rapid rise in oil prices. GDT continues to rise sharply The GDT index increased by nearly 6% to $4,301 per tonne. For the fifth consecutive auction, prices were significantly higher. Skimmed milk powder led the way with an increase of 9.1%, surpassing the psychological barrier of $3,000 per tonne. New Zealand's product from Fonterra was sold for the highest amounts, but European products from Arla and Solarec were also sold at prices well above the current listing level. The price increases are not limited to the protein side of the market. Butter, mozzarella, cheddar, and whole milk powder are also making significant gains. Just under 20,000 tonnes were traded on the GDT yesterday. Although the volume is relatively limited compared to total world trade, markets often react strongly to the outcomes of the auction. The price increases are striking and do not seem to match the fundamentals directly. In Europe and the United States, there is ample supply available, and in New Zealand, the supply figures are above last year's level. Nevertheless, the GDT is making significant strides at the beginning of 2026, surprising many market participants. A possible explanation is that China is active in the market again. The Chinese often use the GDT to fill internal shortages, particularly for milk powder. New Zealand especially benefits from this. Skimmed milk powder follows oil prices The rise in oil prices is also supportive. Since mid-December, the oil price has been on the rise, driven by increasing tensions in the Middle East. Since then, the sentiment in the skimmed milk powder market has turned. In periods of rising oil prices, support is often visible in the milk powder market. While there is no perfect correlation, the coincidence of movements is notable. In oil-producing countries, purchasing power increases with higher oil prices, which strengthens the import capacity for dairy. The situation in the Middle East has now also had direct consequences for dairy trade. Due to the Iranian announcement of a blockade of the Strait of Hormuz, Iraq, Kuwait, Bahrain, Qatar, and the United Arab Emirates are no longer reachable by ship. The EU exports €410 million worth of dairy to these countries annually, about 2% of total European dairy exports, reports Rabobank. European export figures indicated an increasing demand from the Middle East by the end of 2025. Since October, sales figures to Algeria, the largest importer, have been above last year's level again. In November and December, the EU exported 13,904 and 11,095 tons respectively, the highest levels for those months since 2017 and 2018. For all of 2025, sales to Algeria were still nearly 20% below the 2024 level, although that was a record year. Outlook diffuse For the time being, the situation must further crystallize. Is China really back as a structural buyer? How will the conflict in the Middle East develop further and what does that mean for oil prices? These are questions that linger over the market, amid a persistently ample milk supply in Europe. The milk price seems to have found a bottom around mid-March, earlier than expected. However, there is still no talk of rising milk prices, despite the rapid increases on the Global Dairy Trade. There are still ample dairy stocks in Europe, particularly for butter. This situation, combined with high milk supply, makes companies cautious.