But if that scenario pans out, then 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, DairyNZ estimates.
“It’s very strong at the moment if you are a dairy farmer in New Zealand, with milk price futures sitting at $10/kg,” NZX derivatives sales manager James Atkinson said.
“A lot of dairy farmers - if not all - will be making a profit at that level, so that’s a really good sign,” he said.
Driving the milk price futures higher have been Global Dairy Trade prices for the two pivotal products, wholemilk powder and skim milk powder.
Indications from the smaller “pulse” auctions - which occur between the GDT auctions - point to another increase at the next auction on August 6.
“Overall, demand has been pretty sticky and robust over a period of time when volumes are increasing in New Zealand,” Atkinson said.
“There is a lot more volume coming on going into spring, and Fonterra is putting volume on the GDT platform, but prices are managing to stay at historically high levels.”
NZX’s head of dairy, Cristina Alvarado, said global production trends look to be running in New Zealand’s favour.
“We know that production in Europe has not gone well for the key countries, Germany and France, with the little ones keeping it afloat,” she said.
“Production in New Zealand has been doing well, but the fact that the other key regions are not doing that well keeps up interest in demand,” she said.
Production in the US is also increasing, but the imposition of world trade tariffs is adding an element of uncertainty to that market.
Meanwhile, domestic dairy production in China was declining while demand had remained steady, she said.
Atkinson added a steady New Zealand dollar at around US58c to US61c had probably helped keep milk price futures at the $10/kg mark.
Further out, NZX futures for the 2027 season point to $9.50/kg.
ANZ’s latest agri report said good pasture growth over winter meant there was no shortage of feed.
The bank said a surge in imports of the feed supplement, palm kernel expeller (up 34% in the past year) should provide extra support.
Last season’s milk production was up 3%, the largest year-on-year gain since 2014-15.
“It is hard to make large gains two years in a row, but, with the stars aligning, growth of 1-3% should be attainable in 2025-26 if the weather cooperates,” 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.
