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Prices for Fonterra’s reference products, which set the farmgate milk price, have come down in recent months.
A milk glut around the world shows no sign of easing, putting downward pressure on farmgate milk prices for the next few months.
Since May, Global Dairy Trade (GDT) prices have fallen 11% across the reference products that inform Fonterra's farmgate milk price.
This prompted the co-operative to lower its forecast farmgate milk price by 50c to $9.25/kgMS, with a new range of $8-$10.50/kgMS.
ANZ agricultural economist Matt Dilly isn't surprised by Fonterra's revised milk price forecast at $9.25/kgMS.
Dilly told Rural News that this change brings Fonterra's forecast into alignment with ANZ's forecast of $9.20/kgMS.
"There is indeed a lot of milk being produced in the key exporting countries, and this has been a factor since early 2025.
"We haven't yet seen much evidence of supply contraction in response to lower prices. Milk prices haven't yet been low enough for long enough for farmers to hit the brakes.
"One exception is Europe, where milk prices have been weaker and the hot summer has caused production to slow somewhat."
Dilly expects prices to remain weak for the next few months, in line with a typical seasonal pattern, before recovering later in the season.
Fonterra chief executive Richard Allen says the change to the 2026-27 forecast reflects softer-than-expected demand at a time of strong global supply.
Allen expects a strong start to the season in New Zealand, noting the potential for the El Niño weather pattern to impact global supply as the season progresses.
"It's very early days in terms of the proportion of our FY27 sales book that has been contracted, so we face significant changes in commodity prices."
Allen says the co-operative continues to focus on maximising returns for its farmer shareholders.
"As the seasonal supply picks up, our plan will ensure to shift milk into the products and markets where we can get the best returns for our farmers' milk."
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