Dairy market analysts are agreed on their forecasts for the farmgate milk price in the 2025 season and dairy farmers can take comfort from their $8-plus predictions.
Four economists and analysts from the big banks along with the computer model of the SGX-NZX dairy insights team have thrown their darts into the range $8.35 to $8.50.
They expect Fonterra to publish its own first, conservative forecast range on May 30 at around $7.30 to $8.50, with a midpoint of $7.90, on which the advance price schedule will begin on June 1.
The recovery in Global Dairy Trade prices during April and May has strengthened the jumping-off point for the new dairy season.
Based on the prices paid in the May 7 GDT for forward deliveries, the farm gate “spot” milk price was $9.25.
That is a milk price derived solely from current dairy commodity prices, compared with the $8.42 generated by the NZX milk price model.
Other forecasters run their own computer models – ANZ has come up with $8.50, ASB $8.35, and Rabobank and Westpac both $8.40.
Models are refined over time and include supply and demand factors, weather forecasts, forward prices, foreign exchange and historical patterns.
One such pattern is the much lower volatility of milk production in the major producing regions that export large quantities – Europe, the United States and New Zealand.
“The US still has the potential to ramp up milk production, but the output of the European Union is no longer artificially boosted by quotas,” ANZ agricultural economist Susan Kilsby said.
“Big producing countries like the Netherlands and Ireland are now constrained by environmental regulations.”
Kilsby said NZ farmers are battling higher input prices such as fuel, fertiliser, insurance and interest rates.
The current break-even figure is $7.75 for both the 2024 and 2025 seasons, according to the DairyNZ economic tracker, updated on March 31.
ANZ also factored in a slowly increasing NZ dollar against the US dollar, forecast to reach US63c by the end of the year.
Fonterra will have foreign exchange hedging in place for a big portion of the new season’s production, along with forward sale contracts, Kilsby said.
Any global milk supply growth is presently elusive, Rabobank senior agricultural analyst Emma Higgins said.
Low profitability has reduced dairy herds in the US and South America, and bad weather has impacted Europe.
“This subdued global milk supply growth should help underpin a continuation of the dairy market recovery and an improvement in milk prices for dairy producers in most regions around the world.”
ASB senior economist Chris Tennent-Brown said the prevailing supply and demand balance looks sufficient for prices to retain reasonable support.
“This means another season where the farmgate milk price will be above its 10-year average of $7,” he said.
Tennent-Brown also expects the 2024 milk price to finish in the top half of Fonterra’s present range, therefore between $7.70 and $8.10.
Westpac senior economist Kelly Eckhold said the current season will end on $7.90 and the new season will begin 50c higher, on $8.40.
“Futures and auction prices have been variable and it is very early in the year.
“However, there could be some upside creeping into our forecast should recent GDT auction prices and exchange rate trends be sustained.”
Market prices for SGX-NZX milk price futures contracts, for 2025 and 2026 seasons, have fallen from $8.60 in January to $8.25 and $8 respectively.
The MKP25 contract trading level is optimistic but slightly behind the NZX model.
This stems from the unexpectedly good outcome of the May 7 GDT auction, when milk powder prices were ahead of where the futures market expected them to be, NZX dairy analyst Rosalind Crickett said.
All analysts will weigh their own forecasts against Fonterra’s more informed, but broad, range due out on May 30.
In Focus Podcast: Dairy season ending on a high
Senior reporter Hugh Stringleman wraps up the dairy commodity season for us, following this week’s GDT auction, the second to last of the season.
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