The current oversupply is the result of several interconnected and powerful factors. Firstly, improved farmgate prices throughout late 2024, coupled with remarkably affordable feed costs, have significantly bolstered farmer margins in key export regions like New Zealand and Europe, incentivizing production expansion. Secondly, supportive weather conditions across major producing areas have contributed to increased milk yields and healthier herds; for example, New Zealand’s milk production is tracking nearly 3% ahead of the previous season.

Beyond economic incentives, enhanced production efficiency is also contributing to the glut. While total U.S. milk production saw a slight decline in early 2025, milk solids output actually increased due to higher protein and butterfat tests. Furthermore, herd expansion in certain areas, including the addition of 197,000 cows in the U.S. over 14 months, adds to the supply influx. Simultaneously, the commissioning of a record amount of new cheese processing capacity in 2024-2025, particularly in the U.S., has stimulated raw milk demand, further encouraging farmers to expand their output.

This surging supply is overwhelming a global demand that, while remaining generally stable and positive, is simply not strong enough to absorb the ample milk volumes. Demand is underpinned by consistent drivers like global population growth and projected increases in per capita consumption (forecasted to reach 127 kg per person by 2025). Growth in emerging markets, especially Asia (China and Southeast Asia), and the rising popularity of value-added and functional dairy products like high-protein yogurts and lactose-free milk, continue to support consumption, but cannot counteract the current production volume.