Fonterra's Milk Price Forecast Brings Hope Amid Challenging Seasons for Dairy Farmers
The dairy industry is abuzz with optimism as forecasts for the upcoming seasons indicate strong financial returns. As the 2024-25 season approaches its end, Fonterra’s milk price forecast mid-point sits at an encouraging $10.25/kgMS. This demonstrates a positive outlook for the dairy industry, which has faced several challenging years due to high interest rates, inflation, and low payouts.
Last week, Westpac provided an early forecast for the 2025-26 season, predicting milk prices could also reach $10/kgMS. This projection is welcomed by dairy farmers, with Federated Farmers dairy chair Richard McIntyre expressing the relief that such payouts could offer to struggling farmers.
“Another year or two of a $10-plus payout is welcome news,” McIntyre told Dairy News. Such financial stability could allow many farmers to reduce their debts and catch up on essential maintenance that has been deferred due to cash flow issues.
While the current outlook is optimistic, Westpac’s senior economist, Michael Gordon, has advised caution. He noted that Fonterra might opt for a more conservative opening forecast later in May. Nevertheless, Gordon believes that the future looks promising, with the futures market aligned with Westpac’s $10/kg prediction following recent market movements.
Shifts in global dairy trends and challenges, such as dealing with disease outbreaks in the US and Europe, could affect global supply and prices. However, Gordon expects world dairy prices to ease as China’s buying patterns stabilize. In addition, the current high prices provide significant incentives for major exporters to increase production, impacting the overall market dynamics.
Westpac's predictions come as music to New Zealand farmers like Matthew Zonderop, Waikato sharemilker and Feds Waikato dairy president. With a potential $2–$2.50/kgMS profit above breakeven levels, farmers could see substantial profitability.
“A $10/kgMS payout allows farmers to strengthen their businesses, repay debt, and reinvest in their operations,” Zonderop notes, highlighting the potential for increased profitability and operational improvements.
The broader economic impact is significant as well. A record milk price not only boosts farm profits but also invigorates regional economies. It causes increased demand for local businesses and offers wage growth and employment opportunities.
The projected financial windfall will also likely influence the rural property market, driving up land values and presenting challenges for new entrants but benefiting current landowners.
