\u201cThe story is actually bigger than New Zealand,\u201c Stu Davison, senior manager of global insights at Chicago-based HighGround Dairy, said.<\/p>\n
\u201cGlobally, just about everywhere is growing milk production and so milk supply is now outstripping demand,\u201d he said.<\/p>\n
High prices usually result in increased production, which in turn puts downward pressure on prices.<\/p>\n
\u201cIn other words, the market has reverted to type \u2013 it\u2019s the same old commodity cycle,\u201d Davison said.<\/p>\n
\u201cA view had formed that environmental regulation would keep a lid on farmers\u2019 capacity to expand,\u201d he said.<\/p>\n
But Davison said improved technology in breeding and feeding had helped to deliver production gains in the US, Europe and New Zealand.<\/p>\n
He said the market had started to see the risk of a milk glut.<\/p>\n
\u201cIf farmers globally don\u2019t get the signal to slow down, then we could get to a glut pretty quickly.\u201d<\/p>\n
NZX futures pricing is pointing to a $9.77\/kgMS farmgate milk price for the current season, compared with Fonterra\u2019s forecast range of $9 to $11 (with a $10.00 mid-point).<\/p>\n
Global Dairy Trade (GDT) auction prices have been falling in recent months, which has driven futures market pricing lower.<\/p>\n
At the last sale on November 5, the GDT price index dropped by 2.4%.<\/p>\n
Whole milk powder prices, which have the greatest bearing on Fonterra\u2019s milk price forecast, fell by 2.7% to US$3503 a tonne, making for a near 20% decline since early May.<\/p>\n
If next week\u2019s GDT auction is again weak then futures market pricing would quickly recede further, Davison said.<\/p>\n
\u201cThere\u2019s probably more downside to it than upside at the moment,\u201d he said.<\/p>\n
Agriculture lender RaboBank said \u201cthe global milk faucets are flowing\u201d.<\/p>\n
With global milk supply growth on the rise, the global dairy market looks set to face a period of increasing exportable surpluses which will \u201ctest the market balance\u201d over the year ahead, the bank said.<\/p>\n
In its third-quarter Global Dairy Quarterly Report, Rabobank said the velocity in milk supply growth across most of the key dairy export regions had shifted, outperforming previous expectations.<\/p>\n
July milk production in the US was up by 3.4% year-on-year (YOY) \u2013 the highest growth rate since 2021 \u2013 RaboResearch senior analyst Emma Higgins said.<\/p>\n
\u201cWe\u2019ve also seen really strong New Zealand production following a record start to the new 2025\/26 season.\u201d<\/p>\n
Higgins said improving farm margins, recovery from last year\u2019s disease outbreaks, and the absence of disruptive weather were expected to drive milk supplies higher in the coming months.<\/p>\n
\u201cAcross the big seven exporting regions \u2013 New Zealand, Australia, the EU, the US, Uruguay, Argentina and Brazil \u2013 we\u2019re expecting milk supply growth of 2% YOY for the second half of 2025 before slowing to 0.44% YOY in 2026,\u201d she said.<\/p>\n
Most European and Oceania farmgate milk prices are near record highs, Higgins said.<\/p>\n
\u201cAt the same time, purchased feed prices are expected to be favourable into 2026, as ample supplies keep prices in check,\u201d she said.<\/p>\n
RaboResearch senior analyst Emma Higgins.<\/p>\n
October marks the seasonal peak for milk production in both New Zealand and Australia, but the two countries are experiencing contrasting trends.<\/p>\n
Across the Tasman, production is set to fall again in the current season, as ongoing feed shortages and a smaller milking herd in drought-affected areas continue to have an impact.<\/p>\n
Despite the changing supply and demand fundamentals, RaboResearch still says a New Zealand farmgate milk price of $10.00\/kgMS is possible for the 2025\/26 season.<\/p>\n
\u201cAlthough a gradual recovery in demand should help absorb the additional volume, near-term price softness is likely,\u201d Higgins said.<\/p>\n
One of the key risks to maintaining a $10.00\/kgMS forecast is the potential for increased milk production out of New Zealand.<\/p>\n
\u201cWith broadly favourable weather conditions, strong cashflows and the sun emerging, the 2025\/26 season could see a robust spring flush, adding further supply-side pressure to global markets,\u201d Higgins said.<\/p>\n
\u201cThese dynamics suggest that while $10.00\/kgMS is still possible, it will require a delicate balance between supply growth and demand recovery.\u201d<\/p>\n
NZ dollar weakness<\/p>\n
While dairy prices are under pressure, farmers at least have a weak New Zealand dollar on their side, which helps make exports more profitable.<\/p>\n
The currency last week hit a seven-month low of US56.46c, having traded through a US54.86c to US61.20c range over the course of this year.<\/p>\n
\u201cThere was [a] huge amount of volatility being seen around the US April 2 Liberation Day announcements,\u201d ANZ strategist David Croy said.<\/p>\n
He said much of the currency\u2019s weakness could be put down to falling domestic interest rates.<\/p>\n
The Reserve Bank\u2019s Official Cash Rate now sits at 2.5%, compared with the US Federal Reserve\u2019s fed fund rate of 4% and the Reserve Bank of Australia\u2019s official rate of 3.6%.<\/p>\n
Where to from here?<\/p>\n
\u201cWe\u2019re sort of characterising the outlook as the darkest-before-the-dawn type of thematic,\u201d Croy said.<\/p>\n
\u201cThe Kiwi tends to do well over November and December and that\u2019s a seasonality story.\u201d<\/p>\n
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.<\/p>\n