New Zealand dairy farmers are enjoying a rare sweet spot in the form of mostly favourable weather, strong prices and a fairly tame New Zealand dollar.
Milk production in the season to date is up 2.1% (up 2.7% on a milksolids basis).
Fonterra’s forecast for the current season to May 31 is $9.70 to $10.30/kg, with a $10 mid-point – a record if it came to pass.
Attention now turns to next season and some economists expect a similarly strong milk price for 2025/26 at around the $10/kg mark.
All will be revealed on May 29, when Fonterra is due to announce its third-quarter earnings update and opening milk price for the season ahead.
ANZ this month upgraded its milk price forecasts to $10/kg of milksolids for this season and next.
NZX dairy analyst Rosalind Crickett expects Fonterra to take a conservative approach with a wide $8.75 to $10.25/kg range for 2025/26.
Stu Davison, a consultant at Chicago-based HighGround Dairy, said high prices at the end of the season could be put down to Fonterra offering less product on the GDT platform.
“The kicker there is that prices have probably been artificially high because Fonterra’s offer volumes have been lighter than they have been in five years over April, May and June on GDT auctions,” he told the Herald.
While expectations are running high that farmers could see back-to-back $10/kg seasons, Davison says market dynamics suggest otherwise.
He says a season of very high prices usually prompts an over-reaction in supply, prompting price dilution in the following season.
In March, DairyNZ said the 2025/26 season could be one for the history books if farmgate milk prices stayed around $10/kg for the second time in a row.
If that pans out, dairy’s contribution to the economy would increase by about $10 billion over two years, compared to previous, more moderate milk price outcomes of around $8.50/kg.
NZX’s Crickett said the GDT result was mostly in line with futures market pricing.
She said prices remained elevated because of tight product supply, particularly from Europe, New Zealand and Australia.
“With European milk production reaching its seasonal peak in the next few months, a decrease in purchase volumes came as no surprise,” Crickett said.
Recent dairy manufacturing data out of the US for March had shown a surge in butter and cheddar production of 8.6% and 4.6%, year on year, with competitive prices when looking at cross-exchange commodity comparisons, she said.
“This has raised the question of whether the US is set to become a larger player in dairy exports as the trade war perceivably starts to simmer,” Crickett said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
