Could next season break a quarter-century trend by delivering two decent payouts in a row?
Over the past 25 years, seasons of record payout to farmers have tended to be followed by a significant drop in payout the following season. However, initial insights are indicating we could be on the way for two robust payout seasons in a row.
DairyNZ’s forecast for the 25/26 season looks similar to where we are finishing the present season, with a predicted milk payout of around $10.13 per kgMS, while farm working expenses sit at $5.94 per kgMS which is reflected in the breakeven milk price of $8.57 per kgMS.
DairyNZ Head of Economics Mark Storey says 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,” says Mark.
High expense costs persist
“It is important to highlight however, that we are seeing high farm working expenses persist for a variety of reasons, leading to a relatively high breakeven milk price.
“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.”
Change: the only certainty
But as with any initial pre-season forecast, it comes paired with some cautionary advice.
“All forecasts made at the beginning of the season come with a strong caveat – a lot can and often does change throughout a season, as costs and returns to dairy are in many cases driven by international factors well outside the individual farmer’s control,” says Mark.
“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. We also note today the potential for New Zealand and India to start 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.
“However, now is the time to use this payout to prepare for whatever comes next, in case market conditions change.”
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,” says Mark.
“Strategic planning now will help safeguard farm businesses against future volatility. There are a range of tools and resources to support you, including the Econ Tracker, where you can consider the balance of current expected payout, inflation and subsiding interest rates, to help make decisions for your farm.”
Wrapping up the 24/25 season – dry events
Looking at the current 24/25 season, Mark explains that the positive changes we saw early into the new season have continued, and this season has seen a significant boost in profitability for the sector compared to that initially expected back in June.
“As the season progressed, we saw successive positive outcomes in international dairy auction results that were in turn reflected in improved farmgate milk prices, meaning that the season has shaped up to be a relatively high payout season. After a few years of high costs and inflation having big impacts on the bottom line, this is a relief for farmers, and they will be optimistic this continues into next season.
“Although, as we near the end of the season, many farmers will be managing the current drought conditions across several regions. Farming during a dry season can be tough and affect the season ahead, and we encourage farmers to attend our partner events, watch our national webinar, and reach out for support to understand the available options to manage any impacts effectively,” says Mark.
The current 24/25 season average national forecast payout is sitting at $10.04 per kgMS, while the breakeven milk price forecast is currently sitting at $8.54 per kgMS.
The new forecasts are published on the DairyNZ Econ Tracker and expressed as national or regional averages, which does not necessarily reflect individual farm situations. A quarterly update document focused on the dairy price cycle, including the strong indicators for the 25/26 season and its unique challenges is also available.
The Econ Tracker can be accessed at dairynz.co.nz/econtracker
Media contact
Celine Walters-Gray
Media specialist
p: 027 247 9876
e: celine.walters@dairynz.co.nz