The global dairy market is entering a turbulent phase as rising milk output across key producing regions outpaces demand, driving prices downward. The imbalance is now threatening Fonterra Co-operative Group’s forecast farmgate milk price of NZ$10 per kilogram of milk solids (kgMS) for the 2025/26 season, a level that once looked attainable amid strong global demand.
Oversupply Weakens Market Confidence
Following favourable weather, lower feed costs, and improved margins in 2024, farmers in New Zealand, Europe, and the United States expanded production significantly. The resulting oversupply has seen Global Dairy Trade (GDT) prices decline for six consecutive auctions, particularly affecting whole milk powder, the key driver of Fonterra’s payout model.
Analysts now expect the cooperative to revise its price forecast to the mid-to-high NZ$9 9/kgMS range, reflecting weakening export returns and the burden of global surplus.
Farmer Margins Under Pressure
For New Zealand farmers, even a modest price cut could squeeze already tight profit margins. Rising input and compliance costs, coupled with stronger domestic competition from processors such as Open Country Dairy and Olam Foods, are compounding financial stress across the sector.
Strategic Focus on Value-Added Growth
In response, Fonterra continues to prioritise its Ingredients and Foodservice divisions, while expanding its high-margin presence in Greater China. Analysts believe this strategic pivot could provide resilience amid commodity volatility.
While long-term dairy demand remains steady, the immediate challenge lies in rebalancing supply and sustaining profitability. For Fonterra and the wider dairy sector, cost discipline, innovation, and market diversification will determine how well they weather this supply-driven downturn.
