Milk output record in New Zealand risks global pricing

New Zealand has registered its fourth straight month of record milk output. Favorable weather, steady prices, and manageable costs are fueling a strong footing for the milk peak, but global demand signals remain fragile. With China’s imports not yet recovering and other producers expanding production, the balance between supply and demand is at risk.With spring settling in across the Southern Hemisphere, Oceania is heading into what looks to be a remarkable milk flush in October. New Zealand is expected to be the primary driver of this growth, with milk production set to break records for the fourth consecutive month.In August, milk output rose by 1.83% year-on-year, reaching 1.44 million tons. Growth was even stronger in milk solids (MS), which increased 2.46% to 126,874 tons.Cumulative production reflects these monthly gains. As of August, milk output totaled 10.47 million tons of liquid milk and 989,531 tons of milk solids, representing annual growth of 1.4% and 2.3%, respectively.The expanding output has been supported by favorable pasture conditions and manageable feed prices, which have helped offset rising costs in certain inputs such as fertilizer. According to StatsNZ, the main cost pressures for dairy producers in Q2 2025 came from insurance premiums, dairy sheds, and electricity. The steepest increases were seen in electricity (+11%) and livestock purchases (+18%). Overall, DairyNZ estimates the breakeven price of milk for the 2025/26 season at $8.66 per kilo MS, an annual increase of 2.49%.At the same time, firm milk prices are underpinning producer confidence. In July, Fonterra’s milk price averaged €39.03 per 100 kg, up 8.66% from the previous year, though slightly down (-1.84%) compared to the previous month.Moreover, milk prices are expected to remain robust for Fonterra ($10 per kilo MS), Synlait ($10 per kilo MS), and Miraka in Taupō ($9.85 per kilo MS). Combined with relatively contained costs, this is creating a favorable environment for investment and production expansion.Weather conditions are also supportive of productivity. Forecasts for spring are neutral, with a 60% chance of La Niña formation between September and November, before their normalization afterwards. The Northern Island expects normal or slightly above average rainfall, while the Southern Island expects drier and warmer weather conditions. Overall, the climate appears normal and conducive to a strong milk peak, although a risk of volatility and weather swings remains. New Zealand’s remarkable milk output could have significant implications at the global stage. Other global dairy producers are also observing affordable feed and grain prices, supporting output growth across the main global producers. This is compounded by a sluggish demand across low and middle-income consumers and key distribution channels, such as food service, resulting in higher availability of milk and dairy in the international market. China has also reported a slow demand recovery, resulting in stable import projections, according to Rabobank. If excess production in the Oceanian milk peak aligns with excess production in other markets, global dairy prices could face further declines.