Fonterra has lowered the midpoint of its Farmgate Milk Price forecast once again, reflecting sustained pressure from strong global milk supply and weakening commodity prices. The cooperative reduced its forecast range for the current season from NZ$9–10 to NZ$8.50–9.50 per kilogram of milk solids, bringing the midpoint down from NZ$9.50 to NZ$9.
This marks the second downward revision in recent months, underlining the extent to which global supply dynamics are weighing on dairy markets.
Oversupply Continues to Weigh on Global Prices
According to Fonterra Chief Executive Miles Hurrell, robust milk production in key exporting regions has continued deeper into the season than initially anticipated.
“With half the season still to complete, we continue to experience strong milk flows both in New Zealand and globally, particularly out of the United States and Europe,” Hurrell said, noting that these volumes are exerting persistent downward pressure on global commodity prices.
The price adjustment follows the latest Global Dairy Trade (GDT) auction, where prices declined for the ninth consecutive time, an unusually prolonged losing streak that signals a firmly bearish market sentiment.
Currency Movements Add Further Pressure
In addition to supply-side pressures, a strengthening New Zealand dollar since Fonterra’s previous update in November has further eroded export returns. Currency appreciation reduces the local currency value of internationally traded dairy commodities, amplifying the impact of softer global prices on farmgate returns.
Hurrell emphasised that the revised midpoint remains within the cooperative’s original opening forecast range of NZ$8–11 per kg of milk solids, but acknowledged that market conditions have required recalibration as the season unfolds.
Farmer Confidence Faces Headwinds
ANZ agricultural economist Matt Dilly said global milk production has exceeded expectations, led primarily by Europe and the United States. While he noted that a short-term price bounce is possible after such a prolonged decline, the broader outlook remains challenging.
“It is unusual for prices to fall at so many auctions consecutively, so we could see some stabilisation,” Dilly said. “However, the overall picture points to a bearish dairy market.”
Lower milk price expectations are likely to weigh on farmer confidence, particularly as cost pressures remain elevated across feed, labour and compliance.
Strategic Cushion from Capital Returns
Despite the near-term pressure on farmgate returns, Fonterra shareholders may find some relief from capital returns linked to the cooperative’s move to divest its global consumer brands. Analysts suggest that such returns could partially offset weaker milk price income, helping to stabilise balance sheets.
Hurrell reaffirmed Fonterra’s commitment to maximising total shareholder value through a combination of farmgate milk price performance, earnings, disciplined margin management, product mix optimisation and operational efficiencies.
Broader Market Implications
Fonterra’s revised forecast highlights a broader structural issue facing global dairy markets: production growth has outpaced demand recovery. Until supply tightens or consumption strengthens materially, price volatility is likely to persist.
For the global dairy sector, the current cycle reinforces the importance of cost control, value-added strategies and portfolio resilience in navigating periods of prolonged price weakness.
