Fonterra's Milk Price Cut Is Expected to Reverse
RaboResearch’s assessment of the global dairy market puts the potential final price for Fonterra’s 2026/27 season close to NZ$10 per kilogram of milk solids. Higgins said that level would support farm profitability if producers continue to manage production costs. Fonterra’s current midpoint forecast is NZ$9.25/kg MS.
New Zealand’s milk supply is also expanding. Output reached a record 2.027 billion kg MS in the previous season, the first time national production exceeded 2bn kg MS. Monthly production in June and July 2026 was above the corresponding figures from a year earlier and set records for both months.
RaboResearch expects production to rise by about 1% in 2026/27. That estimate remains subject to revision as the effects of El Niño become clearer. Weather conditions are among the factors being monitored alongside supply developments in Europe.
Costs narrow the margin
Higher farm expenses and increased interest rates have reduced the gap between milk receipts and input costs. Producer returns remain positive in most regions, but the profitability cushion is less secure than it was earlier in the year. Tighter margins could make farmers more cautious about enlarging herds or committing to major investments.
Energy and logistics costs remain another consideration for the dairy sector. RaboResearch expects elevated expenses for energy, freight and fertiliser to continue into 2027. Pressure on fuel inventories, high diesel crack spreads and limited refining capacity could add to operating costs across the agricultural supply chain. Higher fuel, fertiliser and freight bills would affect farm margins even if milk prices stayed comparatively strong.
Demand and powder prices
Demand has held up better than expected despite higher household living costs. RaboResearch is assessing whether prolonged cost pressures will change consumer spending patterns and whether weaker confidence could reduce dairy purchases in major Asian importing markets.
During 2026, New Zealand benefited from demand in Indonesia, Malaysia, the Philippines and Thailand. That demand helped keep New Zealand farmgate prices stronger than those in the Northern Hemisphere. Milk powders also provided support during the third quarter: skim milk powder prices rose by more than 10% over Global Dairy Trade auctions 410 and 411, while whole milk powder prices increased by almost 3%, despite sizeable offered volumes.
The report also identifies the continuing conflict in the Middle East and interruptions to oil movements through the Strait of Hormuz as risks for dairy supply chains and producers. Other monitored factors include Europe’s structural supply constraints and the possible effect of El Niño on output.
