Farms nearly back in black: DairyNZ Econ Tracker
The outlook for dairy farms this season is better than anticipated, as emphasised in the latest DairyNZ Econ Tracker update.
DairyNZ’s head of economics, Mark Storey, explains that in the previous June 2024 Econ Tracker forecast update, DairyNZ predicted a relatively challenging season ahead due to high expenses, however, conditions seem to be improving.
“In the past few weeks, we have seen the combination of declining interest rates, and improved farmgate milk prices, which creates a more favourable outlook for New Zealand dairy farmers,” explains Mark.
“These changes are likely to provide dairy farmers with greater financial flexibility than initially projected for the 2024/25 season.”
Prior to these announcements, DairyNZ’s latest Farmer Perceptions survey already showed most farmers feel confident in the financial sustainability of their business, with 60% feeling very confident, while only 10% feel less confident.
“Many farmers will continue to feel relief following these recent announcements on the farmgate milk price and interest rates, having experienced several seasons with tight profit margins. Although, there is still a slight cash deficit on average for dairy farms which reflects that interest costs are still high.”
When considering these changes, DairyNZ’s latest farm financial forecast on the Econ Tracker shows the national breakeven forecast sitting at $8.09 per kgMS, while the forecast average payout received has increased to $8.84 per kgMS.
“We have seen farm working expenses increase slightly, driven by increases in key operational areas such as electricity, irrigation, wages, and repair and maintenance costs. Although the reduction in interest and increase in farmgate milk price significantly outweigh these minor increases, improving the overall financial position of most farmers” says Mark.
With a lot of attention around the interest rate changes in recent months, the September 2024 quarterly update of the Econ Tracker provides a deeper analysis into what interest rate changes and timings could mean for dairy farmers this season.
“The alternative scenarios we explore show how the timing of interest rate reductions can influence the discretionary cash position of farmers. We see clearly that earlier rate cuts would result in greater cost savings and a stronger cash position, compared to reductions made later in the season,” says Mark.
“For example, if the interest rate drops from 8.25% to 7.50% by December 2024, compared to dropping to 7.50% by March 2025, it would improve the cash position of the average farmer by $5,675 for the current season, relative to the alternative (3 months later) scenario.”
This scenario analysis provides some insight into what interest rate cuts could mean for the remainder of the 2024/25 season but are not to be relied on.
“The improved liquidity from improved interest rates and expected farmgate milk prices can be used to address deferred expenses from the previous season, such as repair and maintenance costs, or to pay down short-term debts, ultimately contributing to a more stable and sustainable financial outlook.”
The Econ Tracker is a robust tool, which uses the most recent 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 national or regional averages, which does not necessarily reflect individual farm situations. A quarterly update, on this occasion focused on interest rates, is also available.
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, DairyNZ
p: 027 247 9876
e: celine.walters@dairynz.co.nz