Fonterra capital return could boost GDP – ANZ Report
The Fonterra divestment capital return should provide “a tailwind to GDP growth” next year, according to a new ANZ NZ report, but it’s not “manna from heaven” for the economy.
While June and July, are the seasonal lows and their milk production numbers don’t typically draw much attention, ANZ agricultural economist Matt Dilly believes the stars are aligning for a strong spring – from August to October – led by a signal from the market that the world needs more milk.
Dilly says high global dairy prices are encouraging farmers to increase production where possible, both in New Zealand and overseas.
Fonterra’s opening milk price is $10/kgMS and falls within a wide forecast range of $8 to $11/kgMS. ANZ is also forecasting a milk price of $10.
The milk production boost is driven by good pasture growth over winter, providing plenty of feed available under foot. This includes a recovery from drought conditions that impacted Waikato and Taranaki from January to March 2025.
Dilly notes that great reproduction metrics, particularly the 6-week in-calf rate, mean more cows ready to be milked earlier in the season.
“The metrics were good last year and even better this year,” he says.
This winter’s dairy cow cull numbers are roughly 8% lower than last year. Farmers have been drying off their herds as late as possible, and they are also likely to keep older cows past their ‘best before’ date to boost production in 2025/26.
Dilly says a surge in palm kernel expeller (PKE) imports - up 34% in the past year - should provide support on the shoulders of the coming season.
“Last season’s milk production was up 3.0%, the largest year on year gain since 2014/15,” he says.
The weather was very good last year despite challenges in Southland, Taranaki, and Waikato.
“The extra feed on hand this year provides a buffer, but the weather tends to drive milk production in New Zealand, says Dilly.
“It is hard to make large gains two years in a row, but with the stars aligning, growth of 1-3% should be attainable in 2025/26 if the weather cooperates. The expansion signal from the market is much stronger this year – recall Fonterra’s opening milk price was just $8/kgMS last year – and Southland should rebound with vigour.
“If this comes to pass, it would be the second straight year of high prices and high output, a rare and very welcome combination for New Zealand’s rural sector.”
