Fonterra’s milk price outlook has shifted notably over the course of the season, underscoring the volatility of global dairy markets and the growing impact of supply-side pressures. The season initially opened with a forecast range of $8–$11 per kgMS, fuelling hopes of another double-digit payout. However, expectations were gradually tempered as market conditions softened.
Mid-season, the co-operative revised its guidance, narrowing the forecast and lowering the midpoint to $9/kgMS. This followed a further adjustment in late December, when the forecast range was reduced from $9–$10/kgMS to $8.50–$9.50/kgMS, reflecting mounting global milk supply and easing commodity price momentum.
Oversupply Dampens Market Optimism
Earlier projections of a double-digit payout were supported by firm dairy commodity prices and resilient demand signals. However, increased milk output from key exporting regions has shifted the balance. The resulting supply surplus has placed downward pressure on international dairy prices, eroding confidence in achieving the upper end of earlier forecasts.
This transition highlights how rapidly dairy economics can pivot. The strong farmgate returns of the 2024–25 season now contrast sharply with a more cautious outlook for 2025–26, reinforcing the sensitivity of milk prices to global production cycles and trade flows.
Farmers Adjust to a More Conservative Outlook
Federated Farmers Dairy Chair Karl Dean has noted that many producers have already recalibrated their expectations, effectively ruling out a repeat of last season’s historically high payout. The shift in sentiment reflects a pragmatic response to prevailing market realities rather than short-term volatility alone.
For farmers, the change signals a return to more typical payout levels after an exceptional year. While current forecasts still point to comparatively solid returns, the absence of a double-digit figure alters financial planning, debt management and reinvestment decisions at the farm level.
Market Signals for the Season Ahead
The evolving forecast reinforces a broader market narrative: supply growth remains the dominant force shaping dairy price trends. Unless production moderates or demand strengthens unexpectedly, milk prices are likely to remain under pressure. In this environment, efficiency gains, cost control and risk management will become increasingly important for dairy producers navigating a period of tighter margins.
