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While milk production is easing, demand for dairy remains resilient especially across Asia.
This presents upside potential for the New Zealand milk price and a possible $10/kgMS milk price, according to RaboResearch senior agricultural analyst Emma Higgins.
In its Q3 Global Dairy Quarterly, Rabobank notes that global milk production has continued to expand across the major exporting regions through the third quarter of 2026, although the pace has slowed to an estimated 1.4% year-on-year, the weakest quarterly growth since early 2025.
It says the global dairy market is transitioning from a period defined by milk production growth to one increasingly influenced by supply uncertainty, with anticipated slowing production growth, tightening producer margins, structural constraints in Europe and a stabilising Chinese market providing greater support to global dairy commodity prices.
Milk supply remains elevated in the US, New Zealand and, at a headline level, the EU, although north-western Europe is showing clear heat impacts. Production growth in Brazil and Argentina is also moderating due to challenging year-earlier comparisons and heavy rainfall.
Higgins said milk powder markets - which are particularly significant for New Zealand as milk powder makes up just over half of all New Zealand dairy exports - have been the standout performer during quarter three.
While last week's Global Dairy Trade result saw a slight drop in whole milk powder prices, the previous two auctions delivered a significant lift in powder markets. Skim milk powder prices jumped more than 10% across the events, while whole milk powder prices gained nearly 3%, despite the large volumes on offer.
"We've also seen strong demand for New Zealand dairy product from Southeast Asian countries (Indonesia, Malaysia, Philippines and Thailand) throughout 2026, which has helped to ensure New Zealand farmgate prices have held up better than in the Northern Hemisphere," she says.
Higgins says New Zealand farmgate milk price prospects for 2026/27 were weakened when Fonterra's opening midpoint figure of $9.75/kgMS was shifted 50c lower to $9.25/kgMS in July.
"However, RaboResearch thinks this position may be short-lived and we anticipate the final milk price for 2026/27 has room to land somewhere closer to $10 kgMS which would help maintain broad-based profitability for another season if costs are well managed," she says.
The Rabobank report says New Zealand milk production for the 2026/27 season is expected to grow marginally.
"The 2025/26 season closed at a record 2,027 billion kgMS, becoming the first season to exceed the 2 billion kgMS threshold," Higgins said.
"The first two months of the 2026/27 season have confirmed that strong momentum is continuing. June and July 2026 both set new monthly production records, surpassing the highs established in the same months last year."
At this stage, RaboResearch forecasts New Zealand production growth of around 1% in 2026/26, although this outlook is likely to change as the effects of El Niño become clearer.
Margins Under Pressure
As in other regions around the world, New Zealand producer margins are increasingly under pressure, says Higgins.
"Strong milk price forecasts continue to support farmer confidence, but increasing on-farm costs and rising interest rates mean that milk prices and input costs are beginning to move towards each other, reducing the margin buffer that has supported profitability over the past couple of years," she says.
"Although producer returns remain positive in most regions, profitability is less secure than it was earlier in the year, raising the risk that producers may become more cautious about expansion."
