Second consecutive season of $10-plus milksolid payout would buck trend.
DairyNZ says dairy farmers might be in for a second season where the milk payout stays high, forecasting a $10.13/kg MS payout for the 2025-2026 season.
This would break the trend of a quarter of a century, when high dairy payouts have been followed by a significant drop the following season.
DairyNZ head of economics Mark Storey said international supply and demand appear to be in good balance currently.
“This is being reflected in the $10+ milk price projections for next season from the major banks at present.”
DairyNZ calculated that farm working expenses should sit at $5.94/kg MS, which is reflected in a breakeven milk price of $8.57/kg MS.
“While we have seen on-farm inflation cool off and input costs per unit remain relatively stable, there have been some minor increases in areas like electricity.
“However, a factor driving these continued high expenses is an expected uptick in inputs such as feed and fertiliser as farmers in part respond to a positive milk price and in part rebalance reductions made in input use during the high price inflation experienced in recent seasons.
“Interest rates are also expected to continue to track downwards, and next season is when these lower rates will come into effect for many farmers as they come off fixed-term lending, which will offer some financial relief.”
The forecast came with a caveat that a lot can and often does change throughout a season.
“The international geopolitical context is hard to predict and there are significant external risks that could impact profitability.
“A volatile operating environment in international commodity markets – driven by trade tariff tensions, exchange rate fluctuations, and the increasing risk of a US recession – adds uncertainty to global dairy prices.”
He also noted that New Zealand and India are starting free trade negotiations.
“Despite this uncertainty, we do the best forecast we can with the information available, and right now we are seeing strong market fundamental indicators that, for the first time in 25 years, show there is a good chance we will see two $10 payouts in a row, rather than a peak followed by an immediate trough.”
Farmers are encouraged to take advantage of the current strong payout by maintaining healthy cash reserves and reducing debt where possible.
“Positively, we have seen a focus on debt reduction from farmers, which has led the debt-to-asset ratio to be the lowest it has been in the past 10 years, and we hope to see this continue.”
Looking back on the current season, he said the positive changes seen early on have continued, and this season has seen a significant boost in profitability for the sector compared to that initially expected back in June.
The current 2024-2025 season average national forecast payout is sitting at $10.04/kg MS per, while the breakeven milk price forecast is currently sitting at $8.54/kg MS.
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