The global dairy industry is navigating a period of imbalance as milk production surges across key exporters while demand remains steady but insufficient to absorb excess volumes. This oversupply has triggered a sustained decline in Global Dairy Trade (GDT) prices and heightened the risk of downward revisions to farm-gate milk forecasts, particularly for New Zealand’s Fonterra Co-operative Group Limited (NZX: FSF).
Improved margins in 2024 and favourable feed costs encouraged herd expansion in Europe, the US and New Zealand, where output is tracking about 3 % ahead of last season. Supportive weather, healthier herds and new processing capacity, especially in the US cheese sector, have further boosted global milk solids production.
By contrast, demand growth, though positive, remains moderate. Urbanisation, population growth and rising health awareness continue to support consumption in Asia and Africa, yet not fast enough to absorb the flood of milk. Foodservice recovery in China and growing interest in functional dairy products help, but the imbalance persists.
For Fonterra farmers, analysts now expect the 2025/26 milk-price forecast to be trimmed from NZD 10/kg MS to the mid-to-high NZD 9 range, reflecting global commodity weakness. Competitors such as Open Country Dairy and Tatua are intensifying competition for milk supply, squeezing Fonterra’s domestic share. Still, its strategic pivot toward ingredients and foodservice, and the sale of its global consumer business to Lactalis, may cushion earnings volatility.
The situation reflects a familiar dairy cycle: high prices spur expansion, leading to oversupply and correction. Prolonged low prices could pressure farm incomes and export revenues, but they may also encourage industry consolidation and investment in value-added, sustainable production.
While 2025 looks challenging, long-term fundamentals, population growth, emerging-market demand and product innovation offer optimism. The pace of adjustment in supply and the success of strategic pivots by major processors like Fonterra will determine how swiftly the market rebalances.