New Zealand: Fonterra’s recent reduction in its forecast milk price is expected to be short-lived, with the final payout for the 2026/27 season potentially moving closer to NZ$10 per kilogram of milk solids (kg MS), according to RaboResearch senior agricultural analyst Emma Higgins.
Fonterra reduced its midpoint milk price forecast by 50 cents in July to NZ$9.25/kg MS. However, Higgins expects stronger market conditions to support a recovery towards NZ$10/kg MS by the end of the season. Such a price level would help sustain on-farm profitability, provided farmers maintain control over production costs.
The outlook comes as RaboResearch assesses global dairy market conditions in its Q3 Global Dairy Quarterly report.
New Zealand Milk Production Continues to Set Records
New Zealand’s milk production is expected to increase marginally during the 2026/27 season. Production reached a record 2.027 billion kg MS in the previous season, becoming the first time the country crossed the 2-billion-kg MS threshold.
Momentum has continued into the new season. According to Higgins, both June and July 2026 recorded monthly production records, exceeding the production levels recorded during the corresponding months of the previous year.
RaboResearch currently forecasts New Zealand milk production to grow by approximately 1% during 2026/27. However, the forecast could change as the impact of El Niño becomes clearer.
Farmer Margins Face Growing Pressure
Despite strong milk price expectations, New Zealand dairy farmers are facing increasing pressure on profitability.
Higher on-farm costs and rising interest rates are narrowing the margin between milk revenues and input expenses. While producer returns remain positive across most regions, the profitability buffer has become less secure than earlier in the year.
This could also influence farmers’ expansion decisions. With margins becoming tighter, producers may become more cautious about increasing herd sizes or making major investments.
| Key Indicator | Current Outlook |
|---|---|
| Fonterra midpoint price | NZ$9.25/kg MS |
| Potential final price | Near NZ$10/kg MS |
| Previous season production | 2.027 billion kg MS |
| 2026/27 production growth forecast | Around 1% |
| June–July production | Monthly records |
| Major weather risk | El Niño |
Global Energy Costs Remain a Concern
The global dairy outlook is also being influenced by geopolitical developments. The continuing conflict in the Middle East and disruptions to oil flows through the Strait of Hormuz remain important risks for dairy producers and supply chains.
RaboResearch expects elevated energy, freight and fertiliser costs to persist into 2027. Continued pressure on global fuel inventories, high diesel crack spreads and constrained refining capacity could increase operating costs throughout the agricultural supply chain.
For dairy farmers, higher fertiliser, fuel and freight expenses could further reduce margins even if farmgate milk prices remain relatively strong.
Consumer Demand and Asian Markets in Focus
Consumer demand is another important factor for the global dairy market. Despite higher living costs, demand has remained more resilient than expected.
However, RaboResearch is monitoring whether consumers begin changing their spending patterns as living costs remain elevated. A decline in consumer confidence could affect dairy demand, particularly in major importing markets across Asia.
New Zealand has benefited from strong demand from Indonesia, Malaysia, the Philippines and Thailand during 2026. This demand has helped New Zealand farmgate milk prices remain comparatively stronger than those in the Northern Hemisphere.
Milk Powders Lead Dairy Market Gains
Milk powder markets have emerged as a major source of strength during the third quarter.
The latest two Global Dairy Trade auctions, events 410 and 411, delivered significant gains in powder prices. Skim milk powder prices increased by more than 10% across the two auctions, while whole milk powder prices rose by nearly 3%, despite substantial volumes being offered.
Other major factors being monitored include Europe’s structural supply constraints and the potential impact of El Niño on production.
Overall, the New Zealand dairy outlook remains relatively positive, supported by strong production, resilient international demand and improving milk powder markets. However, rising input costs, interest rates, geopolitical risks and weather uncertainty could determine whether farmers can fully convert stronger dairy prices into sustained profitability.