“We don’t have a symmetrical spread on the range this year. We have $11/kg MS at the top end and $8/kg MS at the bottom, which signals there’s probably more downside risk than upside on that $10 – just because of some of the geo-political issues we are seeing.

“It’s not a midpoint but we do still feel confident with $10/kg MS.”

For the current season, the $10/kg MS milk price equated to around $15 billion into the New Zealand economy.

The majority of this flows into regional, New Zealand where it plays a strong role helping to sustain local communities, Hurrell said.

Demand for dairy is still outstripping supply and the global surge in milk production that historically has followed high dairy prices has yet to occur.

“We are not seeing that supply turn on. The environmental pressures in the northern hemisphere – Europe in particular – we are not seeing the milk supply out of Europe as we may have seen historically.”

Producers can no longer simply turn on supply like they could have in the past because of the environmental constraints they are under.

Any milk supply growth in the United States market is being consumed domestically and herd numbers are still recovering from the effects of bird flu, he said.

“Both of those things we don’t see changing in the near term. Hence the reason we feel confident in that $10 opening [forecast].”

The downside risk is the geo-political environment, he said.

“They are the things we need to watch.”

All three of Fonterra’s business channels – ingredients, consumer and foodservice – are performing above expectation, he said.

There has been some re-emergence in the Chinese market although it is not quite at demand levels seen previously for core products.

“But there’s still strong demand for foodservice in particular in China and we’re seeing more growth from that market from a volume perspective.”

The US market is also performing well, and that economy is in good shape despite the uncertainty created by US President Donald Trump’s tariff war, he said.

While it is difficult to put a number on it, the grass-fed, low carbon footprint of New Zealand dairy has also influenced the strong milk price.

“There are customers now that are specifically paying for our carbon efficiency and we’re paying farmers back for that.”

Waikato Federated Farmers dairy chair and Fonterra supplier Matthew Zonderop called the forecast “bloody marvellous”.

While many will use the high income to focus on debt reduction, he said, he would not be surprised if some used the extra income to take advantage of the government’s new 20% tax deduction announced in the Budget.

“There could be a strong Fieldays for tractors and machinery.

“We’re getting a good incentive now to replace some of that machinery instead of battling with some of the old stuff.”

The new advanced payment rates also pleased him, with the July retro payment lifting from $8.50 to $9 and the retro payments through spring staying high at a time when farmers allocate much of their expenditure for the season.

“It improves everybody’s cashflow across the whole agricultural economy, which as we know flows into town.”

It is also a good silver lining after many North Island farmers endured a tough, drought-stricken summer.

“We’ve got grass in front of us, the cows are in good condition, we’re going to hit the ground running.”

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