El Niño’s impact on global dairy supply and trade

Operational uncertainty for global dairy supply due to ‘El Niño’ patterns is threatening pasture and water security across major Southern Hemisphere exporting countries. These climate changes are combining with broader farmgate margin squeezes and rising input costs, such as energy and fertilizer used for raw milk yields. According to Rabobank’s Global Dairy Quarterly, global milk production growth is slowing sharply from its peak of 5.2% Y-o-Y down to a projected 1.6% contraction by the fourth quarter.El Niño creates dry spells and heat stress that degrade pasture conditions, and dairy operations need to rely on buying external supplementary feed. This increases on-farm feeding costs since feed supplies tighten and global geopolitical disruptions push up freight and energy expenses. According to DairyNZ, farm working expenses, such as supplementary feed, fuel, and fertilizer, have raised milk price to $8.79 per kgMS. Producers are increasing strategic herd culling, limiting total animal headcount and regional milk supply growth.Major Indian processors Amul and Mother Dairy are issuing 2.5-3.5% retail price hikes in May 2026 due to higher procurement and feed expenses. In New Zealand, stable pasture conditions brought June 2026 milk solids up to 5.6% Y-o-Y, sustaining international WMP and SMP pricing on the Global Dairy Trade platform. On the other side, in South America, USDA forecasts for Argentina indicate milk output recovering 2% to 1.72 MMT in 2026 after the past regional flood disruptions. In Australia, milk production is also recovering by 1.4% to 8.6 MMT, though high feed and operational costs keep export growth from growing.According to the USDA and NASS 2026 reports, the US dairy herd remains at approximately 9.33 million head, down Y-o-Y due to tight replacement heifer supplies and strong beef crossbreeding returns. Despite that, US milk production is projected to grow by 0.8% in 2026, driven by record milk yields per cow and higher fat and protein component tests. This volume growth supports newly expanded domestic cheese and high-protein manufacturing plants, which continue to absorb available milk solids. As a result, the United States could not function as a global swing supplier for WMP and SMP deficits from the Southern Hemisphere.New Zealand accounts for 30% to 35% of global dairy trade due to its production volumes. Official 2026 reports from New Zealand’s Ministry for Primary Industries and the USDA confirm that New Zealand achieved a record 2.026 billion kgMS (22.1 million metric tons) in the 2025/26 season, up to 4.5% Y-o-Y, driven by favorable pasture conditions and strong farmgate returns. Dairy export revenue reached a record $28.6 billion. As short-term weather anomalies and seasonal shifts can cause price volatility on the Global Dairy Trade platform, New Zealand’s export capacity remains ample to prevent any upcoming structural deficit.Major processors are using financial and operational hedging to manage global commodity price volatility. For the end of the 2025/26 season, Fonterra held its Farmgate Milk Price at NZD 9.70 per kgMS within a NZD 9.60 to 9.80 range. For the 2026/27 forecast in July 2026 to NZD 9.25 per kgMS in a range of NZD 8.00 to 10.50. This reflects a soft international demand, an 11% drop in GDT prices, and a rising global output. Latin American and Oceanic processors are enhancing logistics flexibility, feed budgeting, and domestic fodder reserves to protect efficiency and herds against potential weather disruptions later in the season. Procurement teams should adopt a structured hedging strategy across multi-quarter horizons. With global dairy commodity prices shifting around long-term averages, buyers should leverage seasonal pricing dips during peak production. Operational teams should also maintain long-term flexibility by evaluating fat and protein alternatives in case of future changes in component costs.