Economists are sticking with their farmgate milk price forecasts of around $10/kg of milksolids for the current season, despite another weak Global Dairy Trade auction.
Fonterra’s milk price forecast for 2025/26 is in a wide $9.00-$11.00/kg range and a number of bank economists have predicted a $10kg-plus milk price.
At the auction, the Global Dairy Trade (GDT) price index fell 1.6%, driven by falls in most of the products on offer.
Weighing on the market is very strong milk production so far, and October – the season peak for New Zealand – is proving no exception.
Whole milk powder prices – which have the greatest bearing on Fonterra’s farmgate milk price – fell by 2.3% to an average US$3696 per tonne, continuing its slide from US$4036/tonne on August 20.
Skim milk powder, another key product, eased by 0.5% to US$2599/tonne, having fallen from US$2805 on August 6.
In the other Fonterra reference products, butter prices fell by 3.0% to US$6712/tonne and butter milk powder eased 2.3% to US$2768/tonne.
Running against the trend was anhydrous milk fat, which firmed 1.2% to US$6916/tonne.
NZX Dairy data show New Zealand milk production for August was up 1.8% year-on-year (up 2.5% on a milksolids basis).
Production in the season-to-date was up 3.2% (up 4.2% on a milksolids basis).
Westpac chief economist Kelly Eckhold said the auction result was better than expected, given the extra supply coming on board.
“Production is running quite a bit ahead of last year’s levels, so the market has started to adjust to that,” Eckhold said.
“Prices are back, and whole milk powder was down just over 2%, which is probably not a bad outcome,” he told the Herald.
China took up over half the whole milk powder on offer, which suggests demand is still there, Eckhold said.
“We think prices are still consistent with the $10/kg forecast we’ve got for the current season,” he said.
“We’ve actually built in a bit of downside there for that, so the prices could go down a bit further and still be consistent with that forecast.
“And the exchange rate is actually supportive for the New Zealand dollar prices that farmers are receiving.
“Volumes have actually increased a little bit earlier than usual this year because growing conditions have been excellent, and also the volumes have been improving in some of the other producers around the world as well.
“There is a general sense there that the supply is a bit more ample than perhaps it has been for most of the last year or so.”
ASB is also sticking with its $9.75/kg milk price forecast.
“Despite recent deceleration, dairy prices remain at a relatively lucrative price point, and we have already accounted for this retracement in our forecasts,” the bank said.
NZX Dairy said the global milk production picture remains strong for this time of year, with recent data out of New Zealand, the United States, the European Union and Argentina showing robust year-on-year growth in both tonnage and milksolids.
This had naturally put downward pressure on milk powder pricing, NZX Dairy said.
Westpac’s $10/kg forecast assumes dairy prices will continue to ease somewhat over the remainder of the 2025/26 season as global production increases.
“By contrast, beef export prices are likely to remain elevated, mainly because of ongoing supply constraints and still-strong demand for high quality proteins, particularly in the US and in Europe,” the bank said in a report.
“That said, with real export prices for beef sitting at or close to record highs, we think that further gains will be limited.”
Westpac said lamb prices should remain well supported, with production in New Zealand and Australia still constrained.
Likewise, kiwifruit and apple prices will remain elevated over the coming year, with strong demand underpinning higher prices despite increased production.
Log prices should rise gradually over the coming year.
“But while low port inventories suggest some upside potential, the fortunes of China’s presently moribund property sector and the impact of US tariffs on China’s manufactured goods will weigh heavily on prices,” the bank said.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.