NZX milk futures break over $10/kg on China demand

Milk price futures went past $10/kg this week, driven by an increase in demand for dairy from China. Photo / NZME

NZX milk futures broke over $10 per kg of milksolids for the current season this week, driven by a resurgence in demand for dairy from China.

If prices hold, dairy farmer margins will be the best they have been in seven seasons, Cristina Alvarado, NZX’s commercial manager – data and insights, said.

Earlier this month, Fonterra lifted its full-year 2025 milk price forecast to a mid-point of $9.50/kg from a previous forecast of $9/kg.

The co-operative also announced a narrowing of the forecast range from $8.25-$9.75/kgMS to $9-$10/kgMS.

Some banks are already forecasting a $9.75/kg milk price.

NZX milk futures last went over $10/kg in 2022, when they hit $10.67.

“So far, from what we have seen from demand at GDT [Global Dairy Trade], China has come back to buy whole milk powder in the last couple of months,” Alvarado said.

“But there is also demand from Southeast Asia and the Middle East, and there are also supply constraints around the world.”

In Europe, the weather has proven challenging for dairy production, as has an outbreak of the cattle disease blue tongue.

In the United States, there has only been a slight increase in dairy production over the past couple of months.

“There has been a number of factors that have played into this but altogether the market has improved, and it’s favourable for New Zealand,” she said.

In addition, New Zealand domestic production has been running strongly.

Latest data from the Dairy Companies Association of New Zealand showed production, on a milk solids basis, was up 5.2% in September on the same month a year ago.

NZX’s milk production calculator for the current season is up 1.4% versus last season and 2% against the 2022/23 season.

Farmer margins are also looking strong.

The difference between DairyNZ’s $8.15/kg estimate of breakeven and the NZX milk futures price of $10 is $1.85/kg, which would be the largest margin in percentage terms (22.7%) of the past seven seasons if it comes to pass.

Last season’s margin was 16.6%.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.