Southland dairy farmers could be looking at a $10 milk price this season, with BNZ lifting its forecast to $10 a kilogram of milksolids and ANZ saying a payout above that level is very possible.

BNZ senior economist Doug Steel pointed to two big shifts in a short period: skim milk powder prices have risen more than 20 per cent at Global Dairy Trade auctions, and the New Zealand dollar has fallen about 5 per cent against the US dollar.

Skim milk powder is now close to US$4000 a tonne, roughly US$200 above whole milk powder. Steel said powder prices and currency movements have a much bigger bearing on the farmgate price than milkfat prices.

ANZ is holding its forecast at $9.80, but agricultural economist Matt Dilly said: "So, a payout over $10 is very possible based on where prices are tracking at the moment."

Fonterra's forecast range for 2026-27 is $8.50 to $10.50, with a midpoint of $9.50, which the co-operative lifted in September. Milk price futures on the NZX are trading above $10.30 for the season.

Strong start to the season

Milksolids collections in September were up 1.9 per cent on the same month a year earlier, and 3 per cent for the season to date. October is the peak month for milk flows nationally, and Dilly expects the strong start to carry through at least until November or December.

Farmers are also locking in prices. Fonterra says more than 125 million kilograms of milksolids have been contracted through its fixed milk price services across eight events this season, already a record with two monthly events still to run. The October offering fixed a price of $10.03 net of the service fee.

Lisa Payne, Fonterra's head of milk supply, said: "Farmers can't control market volatility, but they can reduce their exposure to it."

Southland's wet spring

A strong price would be welcome in Southland, where the season so far has been shaped by the weather rather than the markets. Federated Farmers Southland said at the start of October that persistent rain had left little or no grass growth and feed on many farms was very tight, after the region's wettest winter in 46 years and a third sodden spring in a row.

That is the reverse of the picture in parts of the North Island, where the concern is dryness. Waikato Federated Farmers dairy chair Matthew Zonderop warned a $10 price would not necessarily leave farmers better off if they have to buy in palm kernel or bales.

Economists see risks on both sides. Butter and anhydrous milk fat prices are drifting lower on strong production in Europe and the United States, and skim milk powder's strength is tied to elevated oil prices, which are hard to forecast.

Dilly expects the strengthening El Niño to affect milk production as the season progresses, though probably not until early 2027, by which time most of the season's milk will have been produced and sold.