New Zealand dairy farmers face tighter profit margins if a very strong El Niño weather pattern develops, according to Dairy NZ. The industry body forecasts the breakeven milk price for the 2026-27 season could reach NZ$9.07 per kilogram of milksolids under such conditions, while Fonterra Cooperative Group currently projects payment at NZ$9.25 per kilogram. Dairy NZ Head of Economics Mark Storey noted the shift from fuel and fertilizer cost concerns to weather-driven challenges affecting pasture growth and feed supply.

The El Niño is expected to bring drier conditions to northern and eastern regions, potentially slowing pasture growth in key dairy areas like Waikato and Taranaki, increasing feed costs and reducing milk production. Farm working expenses have already risen due to fuel costs, with the national breakeven price at NZ$8.62 before weather impacts, rising to NZ$8.90 under a strong El Niño scenario. However, farmers enter this period in a strong position after a profitable 2025-26 season with record production and high global prices.

Fonterra suppliers also benefited from a one-time payment following the sale of its Mainland Group consumer unit, enabling debt reduction and stronger balance sheets. The profit squeeze comes as New Zealand's economic recovery remains fragile and export-dependent, posing a potential political headwind ahead of the national election in less than eight weeks.