Canadians want more dairy — particularly yogurt and butter.

That's according to Farm Credit Canada's (FCC) latest dairy sector report, which says yogurt consumption increased 34.2 per cent between 2005 and 2014, while butter demand went up 11 per cent. And that's expected to grow further, as the report cites Agriculture Canada's projections for Canadian fluid milk consumption to increase almost seven per cent by 2024.

FCC chief agricultural economist JP Gervais says while this demand is good, it creates an imbalance between butter fat and solid non fats.

"When you produce milk, you end up with mostly two components, one is butter fat, so for example butter is made mostly of butter fats, but there's also other solid non fats called proteins that end up being in a bit of a surplus situation in the Canadian market for a number of different reasons," he says. "So at the same time as there are some really positive trends, there are some challenges to address in the dairy sector."

FCC's dairy report expects Canadian dairy producers' profitability to be tight but steady for 2016, noting world dairy prices are expected to eventually pick up this year.

Gervais says people often overlook how much world dairy prices affects our domestic markets in Canada. He says about 10 to 20 per cent of milk marketed in Canada can be priced based on world markets.

"Right now we do have low world prices for dairy products and I think perhaps we're going to continue to see that weakness for most of 2016, and perhaps just toward the end of the year we'll probably see some sort of rebound," he says. "There's a bit of a surplus of dairy products in the world market so that's going to take a little bit of time."

The report says Canada's dairy market is evolving, so efficiency will remain key for producers going forward.