Tight margins are set to continue for many New Zealand dairy farmers, due to inflationary pressures, as shown in the latest forecasts released on DairyNZ’s Econ Tracker.
DairyNZ’s head of economics, Mark Storey, explains that despite a reasonable farmgate milk price payout predicted for the current 2024/25 season, high costs and inflation are continuing to affect farmers’ bottom line – with interest rates the highest non-operational expense.
“The recent opening Fonterra farmgate milk price forecast for this season of $7.25 - $8.75 per kg/MS, with a midpoint of $8 per kg/MS, was in line with expectations, and many farmers would have been planning for this, while optimistically hoping for more,” says Mark.
“Despite these strong prices, high expenses continue to erode farmers’ financial positions.”
DairyNZ’s latest forecast data on the Econ Tracker shows the national breakeven forecast currently sits at $8.07 per kg/MS. This is below DairyNZ’s forecast average payout received of $8.34 per kg/MS.
“We have now seen several seasons with tight profit margins for dairy farmers. While farmers have shown their ability to adapt, continued low margins will inevitably affect their ability to respond to shocks and adverse events.”
“One of DairyNZ’s three strategic priorities is to power more adaptable and resilient farms, by providing key industry analytics and insights. The Econ Tracker is a key part of this work, as it can help farmers budget around these tight conditions and improve resilience in the long term.”
The June quarterly update includes an analysis into non-operational expenses, including interest and rent, tax, and net drawings, and what findings from the 2022/23 season can mean for this season.
“In the 2022/23 season we saw non-operational expenses account for 42% of farms’ total expenditure, with interest rates being the highest of these expenses. The analysis shows that at an interest rate of 8.25 percent, around 40 percent of farms would pay more than $2.00 per kg MS,” says Mark.
“Our analysis illustrates the significant impact of non-operational expenses, in particular interest costs, on famers' cash positions – a critical factor influencing the resilience of farms over time.
“We know that farmers will be working closely with their advisors this season, to manage the expected limited operating profits.”
The Econ Tracker is a robust tool, which uses DairyBase and other sector data to form the forecasts which are updated quarterly. It is used to support farmers and the sector to progress a positive future, including supporting DairyNZ’s science, research and development work alongside farmers.
Farmers and rural professionals can use this tool to help with financial planning, forecasting, and budgeting.
The new forecasts are published on the DairyNZ Econ Tracker and expressed as a national or regional averages, which does not necessarily reflect individual farm situations. A quarterly update, focused on non-operational expenses, is also available online.
The Econ Tracker can be accessed at dairynz.co.nz/econtracker
Note for the editor:
The breakeven milk price is the milk sale price per kilogram of milksolids to cover a farm’s costs in a season, excluding capital expenditure and principal repaid on loans.
The forecast average payout is based on the estimated milk receipts for the specified season, along with dairy company dividends.
Media contact
Celine Walters-Gray
Media specialist
p: 027 247 9876
e: celine.walters@dairynz.co.nz