Dairy Downturn: Fonterra Slashes Milk Price Forecast Again as Global “Wall of Milk” Suppresses Prices
By Lions Roar News Agricultural Correspondent
HAMILTON, NZ – December 18, 2025 – New Zealand’s dairy sector, the backbone of the national economy, is facing a pre-Christmas reality check. Dairy giant Fonterra has today announced its second downward revision to the Farmgate Milk Price forecast in just over a month, citing a surge in global production and a relentless slide in international commodity prices.
The cooperative has lowered its forecast range for the 2025/26 season to $8.50–$9.50 per kilogram of milk solids (kgMS), down from the $9.00–$10.00 range set in November. The midpoint, which farmers use for their critical cashflow budgeting, has been slashed by 50 cents to $9.00 per kgMS. This marks a full $1.00 drop from the optimistic $10.00 midpoint that characterized the start of the season.
📉 The Global “Wall of Milk” Hits Home
The primary driver for the price correction is a rare and powerful phenomenon: simultaneous production growth across all major global dairy basins. Traditionally, when New Zealand production is high, other regions might be experiencing a lull. In late 2025, however, the world is awash in milk.
Fonterra CEO Miles Hurrell noted that with half the season still to complete, the sheer volume of supply is overwhelming current demand.
“We continue to experience strong milk flows both in New Zealand and globally, particularly out of the United States and Europe,” Hurrell stated. “This ‘wall of milk’ is keeping global inventories high and preventing a price floor from forming.”
Recent data confirms the scale of the surplus. Production in the European Union rose 4.2% in September, while U.S. output climbed 3.7% in October. Domestically, favorable spring weather has seen New Zealand production tracking 3.4% higher season-to-date.
📊 Forecast Evolution: 2025/26 Season
| Date | Forecast Range (per kgMS) | Midpoint | Change |
| May 2025 (Opening) | $8.00 – $11.00 | $10.00 | — |
| November 2025 | $9.00 – $10.00 | $9.50 | -50c |
| December 18, 2025 | $8.50 – $9.50 | $9.00 | -50c |
📉 GDT Meltdown: Nine Straight Declines
The announcement follows a brutal final Global Dairy Trade (GDT) auction for 2025, which saw the price index tumble by 4.4%. It was the ninth consecutive decline in the index, a streak of weakness not seen in several years.
Of particular concern is Whole Milk Powder (WMP), the product that most directly influences the farmgate price. WMP prices plummeted 5.7% to an average of US$3,161 per metric tonne. This represents a staggering 28% decline from the price peaks seen in May 2025. Other key products also suffered:
- Anhydrous Milk Fat: Down 5.2%
- Butter: Down 2.5% (now 37% off its peak)
- Skim Milk Powder: Facing similar downward pressure due to U.S. competition.
Compounding the problem is a rising New Zealand dollar, which has appreciated against the greenback since November, eating further into the returns Fonterra can bring back to its Kiwi farmers.
🚜 Farmer Impact: Navigating the Breakeven Point
While a $9.00 payout is historically high compared to the averages of the last decade, the context of 2025 makes it a challenging figure. Rapidly rising on-farm inflation over the last two years has pushed “breakeven” costs significantly higher.
DairyNZ estimates the current national average breakeven price at roughly $8.50 to $8.66 per kgMS. With the midpoint now at $9.00, the margin for profit has narrowed considerably. For many high-debt or less efficient farms, the new forecast is uncomfortably close to the cost of production.
Federated Farmers Dairy Chair Karl Dean says the news, while expected, will force many to tighten their belts.
“Farming is cyclical, but seeing $1.00 stripped off the forecast in a matter of weeks is a bitter pill. Farmers will be looking at their late-season spending—deferred maintenance and capital upgrades will likely be put on hold as we watch the market through the summer.”
💰 The Silver Lining: Dividends and Divestments
Despite the price drop, Fonterra shareholders have a significant financial cushion coming their way. The cooperative is in the final stages of divesting its global consumer businesses (including the Mainland and Anchor brands) to French giant Lactalis.
The sale is expected to trigger a significant capital return of $2 per share to shareholders by early 2026. Additionally, Fonterra’s earnings remain strong, with forecast earnings per share for the season holding steady at 65–75 cents.
“The capital return is going to be the ‘sugar hit’ that saves many balance sheets this season,” says ANZ agricultural economist Matt Dilly. “It effectively offsets a large portion of the milk price drop for those who are shareholders.”
🔭 The Outlook for 2026
The immediate future remains bearish. Analysts at BNZ and ASB have warned that if the current momentum in global supply continues, the midpoint could yet test the $8.50 mark before the season ends in May.
“Demand remains fragile,” says Rabobank senior analyst Emma Higgins. “In the absence of a supply shock—such as a major drought in the Northern Hemisphere—we expect weak pricing to persist well into the first half of 2026.”
For now, Fonterra says it is focused on “optimizing product mix” and “operational efficiencies” to extract every cent of value from the milk. But for the 10,000 farmers across New Zealand, the message this Christmas is clear: the boom times of early 2025 have officially transitioned into a season of caution.
