Sector is enjoying top returns and soaring production, writes Gerald Piddock.
The dairy industry is in the midst of a golden run, after two tumultuous seasons when farmers struggled to break even on the back of high input costs and interest rates.
How quickly it has turned. Milk production was the highest in a decade last year with December’s alone the highest in four years.
This was matched by the income received, with Fonterra making its largest ever monthly payment to farmers.
It’s not just people inside the farmgate who are feeling more positive. LIC has just released a half-year result where CEO David Chin credited market conditions as the main driver for both revenue and profit being up.
And let’s not forget what it will mean for our exports. The Ministry for Primary Industries’ Situation and Outlook for Primary Industries (SOPI) report, released in December, forecast dairy export revenue to increase 10% to $25.5 billion in the year to June 30.
It expected global dairy prices to remain high and forecast an all-company average farmgate milk price of $9.60/kg MS.
That forecast for Fonterra, which so many other dairy companies base their price on, is currently sitting at $10/kg MS in its midpoint range.
The next SOPI report isn’t until the National Fieldays in June. You can’t help but think it will give both the government and the industry something to smile about as they struggle to kick-start an economy that seems stick in first gear.
Agricultural economist Phil Journeaux was right when he told Farmers Weekly that the dairy industry’s ability to carry the economy through tough times cannot be overstated.
In the meantime, the upcoming half-year results for Fonterra and Synlait will be released in March.
The latter has already provided a sense of what that result will entail, saying it will be back to being profitable when that result is released on March 24.
It’s a remarkable turnaround for a company that posted a $181.2 million loss for the year to July 2024. In September it was facing oblivion if its shareholders rejected a vote for a $218m issue of new shares to its two largest shareholders and a $450m finance package from banks.
It is also clearly feeling very bullish about the future, having promised 10 cent premiums to its South Island suppliers for the next three seasons to better secure its farmer base, indicating that it believes the milk price will stay above the cost of production.
It’s rubbing off on farmers, too, with Rabobank’s latest confidence survey the highest it’s been since 2017.
So, for now, at least, dairy farmers are happy. While parts of the country are drying out, with so much production already in the vat and the feed crop harvest starting soon, farmers should be well positioned heading into the back end of summer and into autumn.
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