Two consecutive $10 milk forecasts are set to inject billions into the South Island economy, but consumers shouldn’t expect to see cheaper dairy products at the supermarket.
Economist Benje Patterson says strong international demand is driving dairy returns , but it won’t necessarily lower prices for New Zealand consumers.
Supplied
Two consecutive $10 milk forecasts are set to inject billions into the South Island economy, but consumers shouldn’t expect to see cheaper dairy products at the supermarket.
Economist Benje Patterson said the current $10 milk forecast by Fonterra reflects firm demand for New Zealand dairy products overseas, but cautioned but it won’t make cheese or butter more affordable.
“We’re unlikely in the short term to see any relief to what we’re paying for dairy products in New Zealand supermarkets,” he said.
“It’s going to be based on competition between producers and retailers. That’s likely to be the only thing that drives any price relief,” he said.
Still, the robust milk price is pumping billions of dollars into regional economies.
With the South Island producing just under half the country’s milk, a $10 payout equates to roughly $9 billion to $10b in farm revenue for the island, according to economist Benje Patterson
For the 2025/26 season, Fonterra has set a forecast range of $8 to $11 per kg of milksolids (the protein and fat content of milk), with a midpoint of $10, matching the current season’s midpoint.
Economist Benje Patterson says strong international demand is driving dairy returns , but it won’t necessarily lower prices for New Zealand consumers.Supplied
The forecast reflects strong global demand but also ongoing uncertainty in international markets, meaning the final payout could shift significantly as the season unfolds.
The milk price forecast is the amount Fonterra expects to pay farmers for their milk in the coming season. It’s a key financial signal that affects farm income, rural spending, and the wider economy.
Patterson said if prices reach the top of the forecast range, $11, it could inject a further $1b.
“It’s absolutely fantastic, not only for farmers who had a tough couple of years with higher interest rates and lower payouts a couple of seasons ago, so they’re beginning to rebuild their own balance sheet, but then that money does flow through into local economies.”
Patterson predicts the trend may continue.
“We’ve had a sustained period now where global dairy prices have been at an elevated level, and it’s not showing any signs at present of letting up.”
North Canterbury Federated Farmers president Karl Dean says farmers are cautiously optimistic, but holding off on major spending until forecasts firm up.Supplied
Federated Farmers North Canterbury president Karl Dean said the price was welcome news.
“It’s relatively positive. We’re looking at potentially two years in a row at $10, which is good news.”
“If we do have two up years in a row, it would be quite a relief and would allow farmers to pay down a bit of debt.”
He said the $3 spread in the forecast was a concern, and most farmers would likely be cautious with spending until more certainty emerges later in the season.
“Since the 2014/15 price shock, they’ve got very, very good at holding on to their purse strings and just waiting until that forecast becomes a little bit tighter.”
Despite the favourable price environment, both Dean and Patterson agree there is unlikely to be a resurgence in dairy conversions.
“The limit for dairy conversions is pretty limited in terms of what land is available and suitable,” said Dean.
Patterson agreed, citing productivity gains over expansion.
“While we’re producing as much milk as we ever were, we’re doing that with a smaller footprint of farms and fewer cows, so we’re actually doing things much more productively at a farm level.”
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