Continuing falls in the prices being fetched for dairy products globally have seen BNZ economists trim their forecast for this season's farmgate milk price to $9.50 per kilogram of milk solids from $10.25.
Dairy prices are coming under increasing downward pressure in the face of surging global supply, with international prices down 18% since May.
Giant co-operative Fonterra's currently forecasting a price of $10 for the season - this being the midpoint of its current wide range of $9-$11. For the 2024-25 season finished in May 2025 Fonterra paid a record $10.16.
Significantly, Fonterra has its update for the first quarter of the new financial year on December 4 and may well revise its milk price forecast then.
BNZ senior economist Doug Steel in an Economy Watch update said dairy prices have been generally strong in 2025 and the national income flows from it have been robust.
"However, the dynamics are changing with the global dairy market now clearly softening. A surge in global milk supply is putting material downward pressure on prices."
Steel said while a lift in global milk production is no surprise, "the pace of it from major producing regions has been rapid and earlier than implicitly assumed in our base case".
Many outcomes remain possible, Steel said, but it is important to acknowledge the current downward pressure on prices and risks from rapidly expanding global milk supply.
"A $9.50 milk price in 2025/26 would be a solid outcome, albeit lower than the prior season’s $10.16. On an inflation-adjusted basis, a $9.50 milk price outcome would still sit above its long-term average."
Steel said the BNZ economists' current "milk price thinking" for the following 2026/27 season remains lower than 2025/26, toward $9.
"This broad view has long been predicated on global supply responding to previous price strength. If global milk supply expansion remains rapid, like it has on occasion in the past, and demand doesn’t strengthen sufficiently, the risk of a sharper drop and sub-$9 milk price next season will increase. Current momentum is in that direction."
Steel said NZ dairy sector revenue this season also looks to be supported by more production.
"Early season NZ milk production has been strong. The prospect of a La Nina weather pattern affecting milk flows is on the risk radar to monitor over coming months. It is one of many on the radar worth watching closely."
This is the dairy industry payout history.
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2 Comments
Which is way you cannot and should not rely solely on exports and your trade balances to fund your government or country. Government must be prepared to use their balance sheets to round out the cyclical nature of trade.
kinda agree with the sentiment but four forty odd years we've simply ignored the trade deficit and relied on private debt expansion while the government sat idly by. I'd bet most people have no idea there's a difference between trade deficit and government deficit.
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