Revised Milk Price Forecast Weighed Down by Global Commodity Pressures

Synlait's updated outlook marks a significant step up from earlier expectations. The base milk price forecast for 2025/26 has been revised sharply higher to $10.00 per kilogram of milk solids (kgMS), a 25% increase compared to the $8.00/kgMS opening forecast made for 2024/25. This revision comes after the final 2024/25 pricing was confirmed in September 2025, providing a recent benchmark for accuracy. According to Synlait's forecast, the $10.00/kgMS figure now serves as the key reference point for the upcoming season.

While the higher base rate is welcome, the forecast acknowledges ongoing global challenges. Geopolitical uncertainties remain a significant headwind for the broader dairy market. Nevertheless, management maintains cautious optimism about demand stability, believing the sector can weather these external pressures.

To further support farmer returns, the model assumes additional incentive payments layered onto this base price. These incentives are crucial for maximizing effective farmgate receipts. However, the reliance on both the base rate and supplementary incentives means profitability remains sensitive to the forecasted demand stability and the persistence of these incentive structures. Long-term price trends will continue to hinge on navigating global market conditions and potential policy shifts.

Global Commodity Pressures Weighing on Forecasts

China's dairy import momentum stalled sharply in Q2 2025 after a 6% year-on-year surge in the first half, driven primarily by a dramatic 27% plunge in U.S. Sweet Whey Powder (SWP) shipments. Buyers accelerated purchases ahead of anticipated tariff hikes, according to industry reports. This sudden U.S. withdrawal created an immediate opening for New Zealand exporters, who captured 77% of China's SWP market share by leveraging zero-tariff access under their Free Trade Agreement. The European Union, meanwhile, saw its presence contract to just 9% of SWP imports as buyers sought tariff-free alternatives. While SWP faltered, Skim Milk Powder imports to China still managed 6% growth in H1 2025, with New Zealand again dominating supply, underscoring persistent structural demand for dairy commodities despite the trade turbulence. These sharp shifts reflect how escalating geopolitical tensions are fundamentally reshaping global dairy trade flows and exposing significant country-specific vulnerabilities.

The disruption highlights how policy uncertainty, a recurring theme identified in prior market assessments, remains a potent amplifier of commodity price volatility. New Zealand's market share gains illustrate strategic adaptation, but also create concentrated risk; overreliance on any single market or supply chain becomes costlier when geopolitics shift abruptly. Meanwhile, Synlait's base milk price forecast for the 2025/26 season jumped 25% to $10.00 per kgMS from its earlier projection, signaling producer concerns about input costs and market stability. While this price hike assumes stable demand, the forecast explicitly factors in ongoing geopolitical uncertainties, suggesting that elevated costs may persist if trade conflicts escalate further. For industry players, the combination of shifting trade patterns and higher input costs creates a complex environment where cash flow planning must account for both immediate tariff impacts and longer-term strategic realignments in global dairy logistics.

Regulatory Shifts and Trade Fragility

New Zealand's dairy export policy got a major update this spring. Starting 1 May 2025, the quota system shifted from rewarding milk collected to prioritizing actual export performance. The reform also reserves specific quota allocations for smaller players, including sheep, goat, and deer milk producers. This change aims to boost export value and farmgate returns by making the system more competitive and modern, potentially expanding overall export capacity. According to government announcements, the new rules are designed to support underrepresented producers.

But the new rules don't eliminate deep trade vulnerabilities. New Zealand faces extreme concentration in its biggest market: China bought 77% of its sweet whey powder there in H1 2025, while the EU held just 9% due to regulatory barriers. Industry analysis shows, the EU's complicated rules still block easy access for NZ dairy, creating a structural imbalance. Even as China's overall dairy imports grew 6% year-on-year in the first half of 2025, Q2 growth slowed sharply due to U.S.-China trade tensions that triggered a 27% plunge in American whey shipments as buyers rushed to stockpile ahead of new tariffs. NZ's zero-tariff access under its free trade agreement with China clearly helped it capture that massive 77% market share during the disruption.

While the quota reforms signal progress, the industry remains exposed. Heavy reliance on China leaves NZ highly sensitive to any shift in Chinese demand or new policy moves in either country. The EU's persistent regulatory hurdles also mean NZ can't easily diversify away from this single, volatile customer base. Any major change in China's import appetite or a sudden thaw in EU trade rules could quickly reshape price forecasts and export flows. The reforms offer upside potential but don't erase the fundamental fragility of New Zealand's current trade structure.

Risk Assessment and Downside Scenarios

The recent surge in New Zealand dairy exports to China masks significant vulnerabilities that could undermine growth forecasts. While the NZ-China Free Trade Agreement helped exporters capture 77% of the sweet whey powder market, new quota reforms introduce critical uncertainty. Legislation effective May 2025 shifts allocation from milk collected to export performance, aiming to help underrepresented producers like sheep and goat milk farmers. This system could disrupt established export flows if policy implementation proves inconsistent, particularly since smaller exporters often lack the infrastructure to meet performance-based quotas.

U.S.-China tensions present another immediate threat. The 27% plunge in U.S. whey exports to China during Q2 2025 demonstrated how quickly market shares can shift. If tariff escalations resume, New Zealand exporters who benefited from U.S. declines may face renewed competition. More concerning is China's apparent demand fragility - while dairy imports grew 6% year-over-year through H1 2025, the quarterly slowdown suggests underlying weakness in the world's largest dairy market. This volatility becomes especially dangerous against the backdrop of Synlait's $10.00/kgMS base milk price forecast for 2025/26, which assumes stable demand conditions that may not persist.

The September 2025 pricing benchmark for the 2024/25 season adds another layer of scrutiny. While farmers received incentives beyond the base rate, any disruption to export momentum could force difficult trade-offs between farmgate prices and quota utilization rates. Underperformance in China markets would simultaneously pressure New Zealand's export value and test the resilience of quota reforms designed to help smaller producers. The combination of policy uncertainty, geopolitical risk, and fragile demand creates multiple stress points that could materialize before the 2025/26 season pricing is finalized.

Monitoring Framework for Dairy Market Stability

The current forecast hinges on several volatile assumptions. Establishing clear metrics now is essential to detect early shifts in demand or policy that could erode margins. Key watchpoints include tracking China's dairy import growth trajectory and U.S. tariff escalation patterns alongside New Zealand quota reform progress for underrepresented exporters. Global demand stability amidst ongoing geopolitical tensions remains paramount.

China's H1 2025 dairy import growth slowed notably in Q2. This deceleration coincided with heightened U.S.-China trade tensions, which triggered a sharp 27% decline in U.S. Sweet Whey Powder shipments to China as buyers rushed purchases ahead of anticipated tariffs. New Zealand rapidly filled this gap, leveraging its Free Trade Agreement to capture 77% of China's Sweet Whey Powder imports during the period, while the European Union's share plummeted to 9%. This shift underscores how rapidly trade policy changes can reconfigure market access.

The volatility surrounding U.S.-China tariffs remains a critical uncertainty. Any further escalation could disrupt established supply chains and force additional, potentially less efficient, rerouting of goods. New Zealand's dominance in China's Sweet Whey Powder market is currently a structural advantage, but it is fragile if trade relationships deteriorate further or if competitors find new market access or substitutes. Monitoring the persistence of these trade barriers and the adaptability of global buyers is crucial.

Looking forward, the global demand outlook assumed in the forecast faces significant pressure points. While Skim Milk Powder imports into China rose 6% in H1 2025, sustained demand growth amid economic uncertainty and trade friction is not guaranteed. The September 2025 confirmation of Synlait's final 2024/25 milk pricing will serve as a vital benchmark. This figure, influenced by current market realities and policy impacts, will validate whether underlying demand assumptions remain sound or need adjustment. The forecasted base milk price of $10.00 per kgMS for 2025/26 represents a 25% increase from the prior year's opening forecast, but this projection assumes stable demand; significant demand weakness could undermine the price trajectory. Closely tracking the September pricing outcome and its market reaction will be essential for assessing the forecast's viability.