Dairy Markets: Why Butter, Cheese and Milk Powder Move Together - and Sometimes Apart

Published September 25, 2026

Raw milk spoils within days, so very little of it crosses borders. What the world actually trades are the products made from it: butter, cheese, milk powder and whey. Their prices are where dairy markets are really decided - and in the end they also set what farmers are paid for milk.

One milk, several products

Milk is essentially water, fat and protein. A dairy separates the cream to make butter and dries the skimmed milk into skimmed milk powder; dried without separating, whole milk becomes whole milk powder. Cheese uses both fat and protein, and the liquid left over from cheesemaking is whey, which is dried into whey powder. Because processors can steer their milk toward whichever product pays best, these prices are tied together. In Germany the link is even formalized: the Kiel raw milk value (Kieler Rohstoffwert) calculates what a kilogram of milk is worth from current butter and skimmed milk powder prices.

When fat and protein go separate ways

The link is not a lockstep, because fat and protein have different buyers. The clearest example came in 2016-17: the EU reference price for butter rose from about 204 euros per 100 kg at its 2016 low to about 653 euros at its 2017 peak, as demand for butter and cream revived. At the same time, protein was plentiful - after the end of EU milk quotas in 2015, public intervention had bought up several hundred thousand tonnes of skimmed milk powder, which weighed on powder prices for years. A dairy's milk value depends on both halves, so a butter boom alone does not mean a milk boom.

The slow supply side

Dairy supply reacts slowly. A cow needs roughly two years before she gives milk, so herds cannot grow or shrink quickly. Milk output also follows the seasons: pasture-based systems peak in spring - in Europe around April to June, in New Zealand from September to November - and a drought that burns off grass cuts milk quickly. Policy matters as well: when EU quotas ended in April 2015, output rose, prices fell through 2016, and the EU paid farmers to produce less in the final months of that year. Feed costs link dairy to the grain market too, as with all livestock.

Where the world price is set

The EU, New Zealand and the United States are the largest dairy exporters. The most-watched global signal comes from New Zealand's Global Dairy Trade platform, which holds auctions twice a month, above all for whole milk powder - China's import demand for powder weighs heavily there. EU prices, like the weekly reference prices shown on this site, reflect the European market; the two can diverge for weeks when supply or demand shifts in only one region.