New Zealand’s dairy sector has passed the two billion kilogram milk solids mark for the first time, driven by three consecutive seasons of strong milk prices and continued productivity gains on farm.
Mark Storey, head of economics at DairyNZ, says the milestone reflects milk prices at or above $9 per kilogram of milk solids, inflation-adjusted, across those three seasons, alongside favourable growing conditions.
“It’s both responding to a healthy milk price, and overall the country’s favourable growing seasons, and then farmers making good decisions on farm with their per cow and per hectare productivity coming through,” he says.
Costs tell a different story for the upcoming season. Storey says fertiliser costs are forecast to rise 41%, driven largely by disruption in the Strait of Hormuz, with total farm working expenses forecast to reach $6.19 per kilogram, a 10% increase on the previous season.
He says DairyNZ has for the first time published a range of scenarios rather than a single forecast.
“This has probably been the most difficult forecast exercise we’ve done, entirely because of the uncertainty around the Middle East and what’s happening in that conflict and the flow-on effects in terms of fertiliser, fuel, and coming out of that, feed costs and other expenses.
“This has probably been the most difficult forecast exercise we’ve done”
The fertiliser exposure will be most concentrated in spring. Storey says farmers should stress-test their budgets against more extreme scenarios and be deliberate with application.
“Look to use it very selectively.
“Be targeted with it, and have some flexibility built into your spring and summer feed strategies, and maintain that cash buffer.”
He says debt reduction over recent seasons has strengthened balance sheets, and farmers are entering the season in good shape. The break-even milk price is forecast at $8.79 per kilogram in DairyNZ’s expected scenario, rising closer to $9 in a more prolonged disruption.
“They’re coming out of the past season in terms of production and performance and cash surplus in pretty solid positions,” says Storey.
He says the sector is confident, but the season ahead carries tension.
“Farmers are coming off a very strong season, and heading into another season where milk price looks strong, but some of those expenses are stubborn.”
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