Global protein boom: Why Fonterra milk prices may stay near record highs
A shift towards protein is helping to underpin dairy prices, DairyNZ chief Campbell Parker says.
Consistently high farmgate milk prices could become a reality if strong demand globally for protein is anything to go by, Dairy NZ’s Campbell Parker says.
Fonterra last season paid its farmers $10.16 per kg of milksolids – a record high.
The midpoint of its range for the current season is $9.50/kg – still firm – while NZX milk price futures point to $9.68/kg.
Further out, futures market pricing suggests $9.50/kg could be on the cards for the 2027 season and $9.00/kg in 2028.
Fonterra’s latest forecast and futures market pricing compares with DairyNZ’s $8.50/kg estimate of break-even.
Consistently firm milk prices have been elusive over the years because a season of strong prices usually prompts higher milk production, prompting weaker prices.
However, this season has been unusual in that prices have gained despite very strong production domestically and overseas.
“There have been a couple of very strong seasons in a row, and that’s underpinned by demand for global protein, naturally produced,” Parker told the Herald.
Has there been a paradigm shift in demand for protein?
“Certainly, if you look through what’s happening globally, there is.
“One of the unique traits of dairy and of milk is that it can be turned into lots of products right up the value chain, so that’s where the real value of dairy comes in.
“Whether that’s into food services business or its ingredients, certainly there are a lot of products that milk ends up in,” Parker said.
New Zealand milk production for the 12 months through January was up 1.8% (up 2.4% on a milksolids basis), according to NZX Dairy.
Parker noted Global Dairy Trade prices had risen by 18% so far this year after falling sharply towards the end of 2025.
He said the surge – against the backdrop of high production – served to highlight the strength of demand.
A strong milk price this season, a $2 per share capital repayment from Fonterra arising from the sale of Mainland to Lactalis, a 14c to 18c special dividend, on top of the co-op’s normal dividend payments, will provide a meaningful boost for farmers, he said.
Forsyth Barr senior analyst Matt Montgomerie said that, in aggregate, the capital return, plus the special dividend and Forsyth Barr’s full-year dividend estimate of 46c, implied $4.2 billion of distributions to farmers this financial year.
In terms of where the cash is likely to end up, Parker expects the trend of farm aggregation to continue.
“I think you will see some upgrades of technology, and investments into technology definitely, and then there will be some that also expand their businesses.
“Some may well look for off-farm investments as well.
“That money will stimulate not only the primary sector, but those rural communities and ultimately the cities.”
Parker noted that herd numbers continue to drop, but the number of cows remained quite constant.
“That says that farmers are producing more from less, and that aggregation is still happening, but they’re not all just big corporates, multiple landownings across families, and what I would still describe as family farms.”
In the 2024/25 season, dairy companies processed 21 billion litres of milk containing 1.94 billion kilograms of milksolids.
In that season, milk volume was up 2.3% and milksolids were up 2.9% (an extra 55 million kg) – indicating high milkfat content. This was despite cow numbers being down 0.5% to 4.68 million.
The lift was driven by record high production per cow, with the average cow producing 414kg of milksolids, which is up 14kg from last season, DairyNZ said in its State of the Dairy Nation Pulse Report.
Average milksolids production per hectare of dairy farm increased to 1137kg/ha, matching the previous record 2020/21 season, it said.
The 2024/25 period saw more activity to improve herds, with farmers continuing to invest in data and genetics to support long-term gains.
The total number of herds has steadily declined by around 190 herds per year, since 2015/16, reaching 10,370 in 2024/25.
However, the average herd size has shown a steady upward trend over the years, reaching 451 cows in 2024/25.
In the June 2025 year, New Zealand exported a record $27.15b of dairy products, a 16.87% gain on the year prior, after soft milk production in the United States and the European Union contributed to tight global supplies and strong dairy prices.
The value of dairy exports has risen 42.5% (or $8.1b) in the five years to June 30, 2025.
Dairy generates more than one in every four dollars of New Zealand’s foreign exchange receipts from goods and services exports, according to DairyNZ.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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