Rabobank has forecast Fonterra to open the new dairy season with a farmgate milk price between 9.50 and 10 dollars per kilogram of milksolids, a robust opening payout that would extend two strong seasons in a row for the country’s largest export industry. The forecast was released this week as the 2025/26 season heads into its final days on 31 May, with the bank saying that season is on track to become the largest milk production season on record.
The new opening forecast sits just below the 9.70 dollar midpoint that has powered the current 2025/26 season’s exceptional profitability for farmers. Production through to April 2026 ran more than 4 percent ahead of the previous year, surpassing the all-time record set in the 2020/21 season. Rabobank senior dairy analyst Emma Higgins said the industry may be entering a new structural phase with a higher baseline output level than the country has seen before, with potential for a modest further production lift of up to 1 percent in 2026/27 if weather cooperates.
But the bank’s outlook is also a warning. Higgins said farmer margins will be squeezed in the new season as costs catch up with the strong milk price. The ongoing closure of the Strait of Hormuz, now approaching four months, has driven up diesel and fertiliser prices and pushed industrial input costs higher across the board. Higgins described the situation as creating conditions reminiscent of past stagflationary shocks, and said farmers should be doing wider than usual scenario planning across both costs and revenues.
The Strait of Hormuz carries roughly a fifth of the world’s oil shipments and a similar share of liquefied natural gas. Its closure following the broader Iran conflict has fed through to fertiliser feedstocks, shipping rates and the diesel that powers tractors, irrigation pumps and milk tankers across the country. New Zealand farmers have already absorbed a steep jump in fuel costs over the past two months that has rippled through tourism, road freight and primary production.
Despite the cost pressures, Rabobank’s analysis suggests demand fundamentals remain supportive for New Zealand dairy. Global Dairy Trade auctions have delivered strong results through the early part of 2026, and the bank notes that prolonged supply chain disruption could paradoxically increase global food import demand as countries look to lock in food security. Weakening consumer sentiment in some markets is a watchpoint but has not yet meaningfully dented dairy demand. Fonterra’s competitive position in those export markets remains the key driver of the farmgate price it can pass back to suppliers.
Fonterra itself enters the new season in unusually strong financial shape. The cooperative returned 3.2 billion dollars of capital to shareholders during the current season after the sale of its consumer businesses, and paid 700 million dollars in ordinary dividends along with a 24 cent interim dividend. That capital return, layered on top of the 9.70 dollar milk price, has given farmer shareholders one of the best cashflow seasons in the cooperative’s history.
The dairy sector accounts for around a quarter of New Zealand’s goods exports and remains the country’s single biggest export earner. A 9.50 to 10 dollar opening forecast translates into roughly 14 to 15 billion dollars flowing back into rural communities from Fonterra alone, before counting the major independent processors such as Open Country, Synlait and Westland. Provincial economies in Taranaki, Waikato, Southland and Canterbury feel that money through farm services, contractors, rural retail and local government rates.
The risks Higgins flagged sit in two main buckets. The first is weather. An El Niño pattern is starting to develop in the Pacific and could deliver dry conditions to the eastern dairy regions through summer, dragging on the production growth the forecast assumes. The second is the cost base. If diesel prices stay elevated and fertiliser costs continue to rise, the margin compression Rabobank is projecting could deepen even if the milk price holds. Farmers entering the new season will be making spending decisions, including fertiliser orders and supplementary feed bookings, in conditions where input prices are still moving.
Fonterra typically releases its formal opening forecast for the new season in late May or early June. The 2025/26 season closes on 31 May, with the cooperative’s announcement of the 2026/27 opening number expected in the following days.
Read more analysis at interest.co.nz and the NZ Herald.
What does the new dairy season look like from where you are sitting, farmer, supplier or rural community? Drop your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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