Milk price moves: how to stress-test a pasture-based budget when the forecast shifts

Article summary: Fonterra’s 2025/26 Farmgate Milk Price forecast was revised on 18 December 2025, with the midpoint lowered while still sitting inside the season’s opening range. DairyNZ’s December Econ Tracker update highlighted global milk supply lifting, tighter margins, and NZ production running ahead year-on-year. When the forecast shifts, the farms that hold margin are usually the ones that pre-decide actions across three scenarios, and maximise pasture harvested.

A forecast move is not a crisis, but it is a cue

Milk price forecasts move because markets move. What matters on-farm is how quickly you translate a new signal into a clear plan.

On 18 December 2025, Fonterra updated its 2025/26 Farmgate Milk Price forecast range from $9.00–$10.00/kgMS to $8.50–$9.50/kgMS, lowering the midpoint from $9.50 to $9.00/kgMS, while noting the midpoint still sits within the season’s opening range of $8.00–$11.00/kgMS.

The useful takeaway is not the exact number. It’s this:

  • If prices soften (or costs stay sticky), pasture utilisation becomes even more valuable.

  • If you wait for certainty, you usually respond late, and late responses are expensive.

Why the margin squeeze story is getting louder

DairyNZ’s December 2025 Econ Tracker update pointed to three forces that matter to pasture-based budgets:

  • Global milk supply is lifting, which eases commodity prices when demand lags.

  • Margins are tightening as costs remain elevated (including seasonal lifts in farm working expenses).

  • NZ milk production is running ahead year-on-year (up 3.4% season-to-date, with October up 2.8%, and the South Island leading).

This is exactly the environment where “doing the basics brilliantly” wins: harvesting more home-grown feed and protecting cash.

The simple method: build a 3-scenario budget you can actually use

You’re not trying to predict the season. You’re trying to avoid being surprised by it.

Build three versions of the same budget:

  • Good: better milk price and/or better production conditions

  • Base: your best current estimate

  • Ugly: lower milk price and/or higher costs and/or production constraint

Step 1: Lock your “non-negotiables”

These don’t change much across scenarios:

  • Your minimum cash buffer

  • Your key bills that must be paid (tax, interest, essential repairs)

  • Your minimum pasture cover and rotation rules that protect the platform

Step 2: Change only three inputs

Keep it simple. Change:

  • Milk price (or milk revenue per unit)

  • Milk volume / kgMS (or total production)

  • Purchased feed and variable costs (especially the ones that blow out quietly)

Step 3: Add trigger points so you know when to switch plans

Example triggers (choose what fits your system):

  • Forecast midpoint moves down again, or your processor signals weaker demand

  • Your actual season-to-date production drops behind target

  • Feed costs rise past your pre-set “walk-away” price

  • Pasture growth rate stays below demand for two consecutive checks

What to change in each scenario (good / base / ugly)

Good scenario: use the upside to reduce future risk

Your aim is to turn a good season into resilience.

  • Pay down the most expensive debt, or rebuild working capital

  • Fix the constraints that block pasture harvested (access, water, fencing, laneways)

  • Build a quality feed buffer (silage made early, not “emergency bales” later)

  • Be disciplined: do not let costs creep just because revenue improved

Base scenario: protect utilisation and keep optional spending optional

Your aim is to stay efficient and ready to pivot.

  • Hold your grazing standards (pre-graze targets, residuals, rotation discipline)

  • Keep purchased feed policy tight and explicit (see below)

  • Delay or stage discretionary capex until the picture is clearer

  • Review the budget monthly, not quarterly

Ugly scenario: act early to protect cash and pasture, not late

Your aim is to stop small leaks becoming a season-long drain.

  • Tighten bought-in feed rules immediately (price and purpose)

  • Reduce demand where you can (stocking pressure, trading stock, non-performers)

  • Bring forward culling decisions with clear thresholds

  • Prioritise pasture persistence: avoid grazing that damages regrowth just to chase litres

Your practical lever list (the ones that usually move the needle)

1) Pasture harvested (the cheapest feed you’ll ever buy)

Focus on controllables:

  • Rotation length that matches growth (not habit)

  • Residual discipline (protect regrowth, avoid “grazing by panic”)

  • Early surplus control (quality conserved early beats quantity conserved late)

  • Wet-weather rules to avoid pugging and rework

2) Bought-in feed rules (clarity beats hope)

Write these down. Decide in advance:

  • What is bought-in feed for? (fill a true deficit vs chase production)

  • What is your maximum price? above which you will not buy

  • What is the substitution test? (does it actually replace pasture or just add cost?)

  • What is the stop-loss? if margin per unit turns negative, you change course

3) Stocking decisions (demand management)

These are hard calls, so make them rules-based:

  • Identify which stock classes are most flexible to shift (youngstock, trading stock, late-calvers, non-core mobs)

  • Decide what you will do if pasture growth stays behind demand for X weeks:

    • reduce intake demand

    • offload surplus mouths

    • increase stand-off time (where appropriate) to protect the platform

4) Culling triggers (protect the herd, protect the business)

Avoid emotional culling. Use triggers like:

  • Repeated health and fertility issues that drive vet cost and lost days in milk

  • Persistently low performers relative to feed demand

  • Any animal that forces you into expensive feed decisions to “carry” them

The goal is not to maximise production at any cost. It is to maximise margin per hectare (or per unit of feed).

Why this is globally relevant (EU, ZA, LATAM too)

Even though the example is NZ-centric, the margin-management logic travels well:

  • DairyNZ noted output increases across multiple regions (for example the US and EU up, and strong lifts in parts of South America and the UK during 2025), which adds volume into international markets and can soften prices.

  • When global supply rises faster than demand, processors and farmers everywhere feel it, regardless of whether you are paid on a milk price, component price, or contract.

That’s why pasture utilisation remains the universal lever: it is the feed source you control most.

How to run this as a simple monthly routine

  • Update your three scenarios monthly (or whenever your processor updates guidance)

  • Track a small set of leading indicators weekly:

    • pasture growth rate versus demand

    • feed wedge shape and trend

    • supplement use versus plan

    • cost creep (feed, fertiliser, repairs)

  • If a trigger is hit, switch scenario and execute the pre-decided actions

Pasture.io helps by keeping your pasture trend, grazing decisions, and paddock records visible, so you can adjust sooner and measure whether the change worked.

The bottom line

Forecasts will move again. The farms that stay calm and profitable usually do two things well:

  • they run a simple, pre-decided good/base/ugly budget, and

they treat pasture harvested as the primary margin strategy, not an afterthought.

- The Dedicated Team of Pasture.io, 2025-12-18
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