How to handle the high forecast

At first glance, DairyNZ’s forecast of average payout for 2024-25 looks like a record-breaker. But once adjusted for inflation, the story shifts (see Graph 1). In real terms, the payout received still falls short of the 2007-08 high of $11.13 per kilogram of milksolid (kgMS). So, while the headline number might look impressive, its value over time tells a different story.

This underscores why adjusting for inflation matters – headline figures can be deceiving when assessing the actual economic return for dairy farmers over time.

However, even though the current forecast payout isn’t a record in inflation-adjusted terms, it’s still one of the strongest in recent years. It sits alongside the 2021-22 season, which had a real milk price of $10.41 per kgMS, the highest inflation-adjusted payout in the past decade.

DairyNZ economic analysis indicates that farmers who make drastic system changes in response to payout fluctuations often end up worse off than those who stay the course. The advice is to remain committed to core business principles.

From experience, a high payout in one season is often followed by a significant drop. Although DairyNZ’s initial forecast suggests the payout may remain high as we head into the 2025-26 season, and hopefully this pattern will change, it’s worth remembering how much it can shift throughout the season.

Farmers can make the most of the strong payout by building healthy cash reserves and paying down debt where possible. Taking a strategic approach now will help safeguard farm businesses against future volatility.

Market dynamics are also shifting. While China’s demand has helped sustain prices, rising stock levels could soften future demand. As the 2024-25 season winds down, the focus will turn to market sustainability, with domestic production, economic conditions, and the United States indicating an escalation in global tariffs shaping the outlook in the months ahead.

Since 2019, milk production costs have risen across most dairy-exporting regions, making farming more expensive. Despite this, Oceania farmers maintained the lowest production costs in 2024 (17% below other areas), though currency fluctuations affected US comparisons. Feed remains the largest expense.

Dairy farming will continue to face cost pressures and variability over the next decade, influenced by climate change, energy transition costs and evolving regulations. However, with the current government, some regulatory pressures are easing. In New Zealand, debt servicing costs — while recently high — are declining as interest rates ease and farms improve their debt-to-asset ratios by paying down debt. Labour remains a key challenge in both Australia and New Zealand, but overall, the sector is adapting to changing conditions.