New Zealand milk production during 2024 was the biggest in a decade and the recent monthly payouts to dairy farmers have set records.
In mid-January, Fonterra made its largest ever monthly payment to farmers for milksolids. It was a combination of an 85% advance rate on December’s production, the catch-ups on payments for June to November production and the 3.7% season-to-date increase of milk production versus 2023.
December’s production was 228.3 million kg MS, 1.4% higher than in December 2023 and the highest December since 2020.
Over a longer time frame, total NZ milk production during calendar 2024 was 1923 million kg, the highest in a decade since cow numbers started falling.
With the exception of Southland, the main dairying regions have boosted productivity in the past six months and appear to be on track to carry that momentum through the rest of the 2024-25 season.
“The rate of increase month-by-month will taper off but we think the season as a whole will be up on recent seasons, going back to 2013.”
Agricultural economist Phil Journeaux, in Hamilton, said the seasonal tide of extra milk production has been weather related on top of a lower rate of per-cow and farm productivity gain.
“The 85% Fonterra advance rate has certainly put a lot more money in farmers’ accounts this year compared with previous years.”
Right now, dairying’s ability to carry the NZ economy – as it has in previous recessions – cannot be overstated, Journeaux said.
Fonterra has front-loaded the advance rate compared with its historical pattern because of better cashflows and lower corporate debt levels.
Chief executive officer Miles Hurrell has repeatedly said a key target of the company’s financial management is to pay more money earlier to its farmers.
With the current $10/kg mid-point of the farm gate milk price forecast, Fonterra will pay its farmers close to $15 billion in total over 16 months between June 2024 to October 2025, when the seasonal retro payments finish.
That milk procurement cost will be the largest annual financial expenditure for Fonterra in its 24-year history.
Hurrell has also said that half of all milk payments to farmers are spent on wages and farm inputs in the regions.
December is historically the third-highest month in the year for NZ milk production
In the months during which Fonterra pays dividends and, in 2023 and 2024, the special dividend and capital return, total monthly payment to farmers may have been higher.
But January 2025 set a record for milk-only payouts.
The January payments to its 8500 farms exceeded $1.5bn. All dairy processors collectively would have paid more than $2bn.
With the exception of share dividends, most other dairy companies in NZ match or slightly exceed Fonterra’s milk payments.
The recent fall in the value of the NZ dollar will also help dairy companies maintain their $10-plus forecasts for milk, although their forward currency conversions may be hedged at higher USD/NZD levels.
