On March 10, DairyNZ, the industry organisation representing New Zealand’s dairy farmers, released an updated forecast for the 2025-26 season.
The economic update signalled that dairy farmers were on track for a strong revenue season.
Additionally, the preliminary forecast for 2026-2027 also pointed to favourable outlooks.
A major factor in the forecast was the Fonterra divestment, which will see the sale of its consumer business to Lactalis for NZ$3.845bn (US$2.27bn).
The sale is expected to trigger a major capital return of NZ$2.00 (US$1.18) per share, a move overwhelmingly backed by 98.85 per cent of voting farmer shareholders and contingent on completion of the sale.
“Importantly, this season is not just about operating cashflow. The planned Fonterra divestment represents a substantial one-off tax-free cash injection into the sector,” said DairyNZ head of economics, Mark Storey.
Storey emphasised that the way farmers allocated this capital would influence farm resilience and regional economies over the next one to two years.
“The key question is how farms will use this one-off cash injection. Debt reduction, infrastructure upgrades, environmental investment, land development, and off-farm diversification are all potential uses. How farmers allocate this capital will shape both farm resilience and regional economic activity over the next 12-24 months.”
DairyNZ Chair Tracy Brown added that the strong payout was encouraging, but “cost control and efficiency” remained crucial.
“Farmers deserve all the success coming their way. It’s been a tough couple of years for some, and many regions are still fighting back from the effects of recent extreme weather. Regional feedback suggests farmer sentiment is positive but we’re all aware of how quickly international markets can turn,” she said.
“It’s a good time to be a dairy farmer. Collectively we’re working well to grow our sector, but there’s more work to do.”
Strong prices with rising production
The organisation projected strong milk prices and rising production levels.
For 2025–26, DairyNZ estimates an average milk payout of NZ$9.92 (US$5.87) per kilogram of milksolids. With a breakeven milk price of NZ$8.36 (US$4.94)/kgMS, pointing to an average surplus of around NZ$1.56 (US$0.92)/kgMS.
Production performance is also exceeding last season’s pace, with total milksolids production for June 2025 to January 2026 up 3.3 per cent year‑on‑year.
This growth was largely driven by the South Island, where Southland and Otago are collectively 7.9 per cent higher than the previous year and Canterbury is up 3.1 per cent. The North Island is showing steadier progress, with Waikato up 1.7 percent and Taranaki up 1.9 percent.
“The combination of relatively high payout expectations and strong production means many farms are tracking towards a very solid revenue season. For many farms margins will be comfortably above breakeven levels, despite increases in farm working expenses,” said Storey.
Looking ahead, DairyNZ expects the average payout received in 2026–27 to be slightly lower but still strong.
Key farm costs are forecast to ease marginally, resulting in a slightly lower breakeven price of NZ$8.31 (US$4.91)/kgMS. The projected surplus remains healthy at NZ$1.07 (US$0.63)/kgMS.
However, Storey noted global volatility could pose risks to the sector.
“There are a lot of unknowns on the horizon on the global front that have the potential to adversely impact farmers. Rises in oil prices or shipping costs flow through into fertiliser, transport and on-farm input prices and this is something to keep a close eye on. I’d advise cautious optimism,” says Mark.
