Dairy giant Fonterra warns: El Niño may affect milk production growth in the 2026/27 production season

The Zhitong Finance App learned that New Zealand dairy giant Fonterra (Fonterra) warned on Thursday that the El Niño phenomenon may affect the increase in milk production at the end of the 2026/27 production season because this weather phenomenon increases the risk of extreme weather events and affects global crop production.

There is a shortage of El Niño superimposed diesel fertilizer, and agricultural risks are accumulating at an accelerated pace

El Niño refers to the periodic warming of sea surface temperatures in the eastern Pacific Ocean due to weakening trade winds. The World Meteorological Organization (WMO) released a report in early September confirming that the El Niño phenomenon has formed and will continue to increase. It is expected to develop into a superscale event, which will have a significant impact on global precipitation and temperature patterns, and related extreme weather risks will continue until 2027.

Notably, risks in the global food supply chain are accumulating at an accelerated pace. Tracey Allen, head of agricultural commodities at J.P. Morgan Chase, warned in a report released on September 18 that the growing El Niño phenomenon is compounding the global shortage of diesel and fertilizer, and the biggest impact on agricultural production is expected to be felt in the first quarter of 2027.

Citing predictions from the US National Oceanic and Atmospheric Administration (NOAA), El Niño will peak around November, and there is a 90% chance that it will develop into an “extremely strong El Niño” throughout the fall and winter of the northern hemisphere. From historically high diesel prices, trade flow disruptions caused by geopolitics, and fertilizer shortages, to droughts in Europe and the fall short of expectations in the spring agricultural production season in the US, the challenges facing the agricultural market are already comprehensive. Tracey Allen stated bluntly in the research report: “There are 99 problems in the agricultural market, and El Niño is just one of them.”

FY2027 guidance is cautious, analysts suggest downside risks

Considering the risk of the El Niño phenomenon, Fonterra, the world's largest dairy exporter, expects basic earnings per share of 65 to 85 NZ cents for the 2027 fiscal year, which is slightly higher than 71 NZ cents per share for the 2026 fiscal year.

Jeremy Sullivan, investment advisor at Craigs Investment Partners, said: “The weather is clearly a factor that cannot be controlled by Fonterra. A drastic reduction in milk production will affect the quantity of products that can be processed and sold, so I think El Niño is a major downside risk and one of the reasons investors should be cautious about the 2027 fiscal year outlook.”

Meanwhile, Fonterra's profit after tax for the 2026 fiscal year more than doubled from the same period last year to NZ$2.61 billion (US$1.48 billion), thanks to the proceeds from the sale of Mainland Group to French dairy giant Lactalis and strong demand for high-protein products sold by its raw materials business.

Global demand for protein is rising rapidly as consumer preferences shift to healthier, more nutritious foods. Fonterra said it will invest NZ$1 billion over the next three years to expand its protein production network on New Zealand's South Island. According to the company, these projects are expected to create around 50 to 60 long-term jobs.

Fonterra also announced a final dividend of 33 NZ cents per share, bringing the total annual dividend to 73 NZ cents, compared to 57 NZ cents in the same period last year.