Fonterra has lifted its forecast milk price for the 2026/27 season by 25 cents, putting a little more money back on the table for New Zealand dairy farmers just two months after it cut the number.
The co-operative told the NZX on Monday 21 September that its forecast midpoint now sits at $9.50 per kilogram of milk solids, up from $9.25. It also lifted and narrowed the forecast range, which moves from $8.00 to $10.50 per kilogram to $8.50 to $10.50. The higher floor matters to farmers and their banks, because it lifts the lowest price Fonterra now expects to pay in a season that still has most of its milk to come.
Chief executive Richard Allen put the change down to stronger prices at the fortnightly Global Dairy Trade auctions. “Since our last update in July, Global Dairy Trade auction results for key commodity products, particularly whole milk powder and skim milk powder, have improved. Globally, we continue to see strength in demand,” he said in the announcement to the NZX.
He was careful not to promise more. “Geopolitical volatility remains and, with only two months complete, previous seasons tell us that things can always change,” Mr Allen said.
The upgrade partly reverses a cut made in the middle of winter. On 13 July Fonterra dropped its forecast by 50 cents, from an opening midpoint of $9.75 to $9.25, and trimmed the top of the range from $11.00 to $10.50. At the time Mr Allen said in a Fonterra statement that auction prices for the products that set the milk price had fallen 11% since late May, while milk production in the big exporting regions was running ahead of the year before. Monday’s revision leaves the midpoint 25 cents below where the season began, but the direction of travel has turned.
The auctions themselves have not been a one-way street. The most recent Global Dairy Trade event on 16 September slipped 1.1%, Farmers Weekly reported, with cheddar up 16.5% but butter, mozzarella and anhydrous milk fat all lower. The milk powders that carry the most weight in Fonterra’s price formula barely moved, with skim milk powder up 0.1% and whole milk powder down 0.8%. The auction two weeks earlier, on 2 September, rose 0.9% on the back of a strong gain in skim milk powder. Fonterra’s upgrade reflects the run of auctions since its July update rather than any single sale.
For farmers, the question is how much of the extra 25 cents survives rising costs. DairyNZ modelling released last week, and reported by Farmers Weekly on 16 September, found the national break-even milk price for an average farm is $8.62 per kilogram of milk solids under normal conditions. A strong El Niño would push that to $8.90, and a very strong one to $9.07, largely because dry weather would cut pasture growth and force farmers to buy in more feed. Under the very strong scenario, feed costs alone rise from $1.56 to $2.02 per kilogram, and farm working expenses climb to $6.78.
Set against those numbers, a $9.50 midpoint still leaves a margin, but a thinner one than the headline price suggests if the summer turns dry. DairyNZ has urged farmers to keep feed budgets up to date and plan for tighter margins. So far the weather has not dented supply. NZX figures quoted by the NZ Herald show production for the season through August was up 3.3% on a year earlier, or 4.3% on a milk solids basis.
The timing of the upgrade is notable. Fonterra reports its full-year result for the 2026 financial year on Thursday 24 September. Earlier this month it said it expected underlying earnings to land at the top of its guidance range of 60 to 70 cents per share, which it said would support a strong full-year dividend.
Thursday’s result will also show whether the co-operative has made good on a promise set out a year ago. At last year’s result, then chief executive Miles Hurrell said the co-operative was targeting a return to its earnings of the time within three years, offsetting the sale of its consumer business, Mainland Group, to the French dairy company Lactalis. The NZ Herald reported that meeting that goal would mean earnings before interest and tax of just over $1.7 billion. “If Fonterra achieves the very top end of its earnings guidance for 2026, it would likely achieve its target this year,” Forsyth Barr analyst Will Twiss told the Herald. He said a weak New Zealand dollar would help the co-operative’s 2026 earnings.
The Mainland sale to Lactalis was completed in March for $4.22 billion and funded a $3.2 billion payment to farmer shareholders and unit holders through a $2.00-per-share capital return. Fonterra is now a narrower business built around ingredients and food service, which is why Mr Allen pointed to its business-to-business operations in explaining the stronger outlook.
The milk price is one of the largest single transfers of money into regional New Zealand. Every movement in the forecast flows through to farm spending on fertiliser, contractors, machinery and debt repayment in towns from Northland to Southland, and it feeds into bank lending decisions over the season. A higher floor on the range gives lenders and farm suppliers a little more certainty than they had in July, when the whole range was shifting down.
Fonterra’s smaller rival Synlait will report its own result on 28 September. It told the NZX in August it expected a net loss after tax of between $70 million and $75 million, with an underlying loss of $19 million to $24 million, according to Farmers Weekly.
For now, the message from Fonterra is cautious optimism. Demand is holding up, powder prices have recovered from their winter slide and the co-operative is heading into its annual result with earnings at the top of its range. But with ten months of the season still to run, an El Niño on the horizon and global markets still jittery, farmers are unlikely to bank the extra 25 cents until the milk is in the vat and the auctions keep holding.
Are you a dairy farmer budgeting on the new forecast, or does the El Niño risk worry you more than the price? Share your view 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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