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Market returns lift and costs come down in latest DairyNZ Econ Tracker

Dairy profitability is looking up as DairyNZ’s Econ Tracker shows a forecast seasonal closing position ahead of early-season predictions, though caution exists for farmers as we look ahead.

DairyNZ Head of Economics, Mark Storey, says it is positive to see that the outlook for the current season has improved, especially when compared to forecasts only 6 months ago.

“Revenue projections have improved largely due to better results at the global dairy auction, along with Fonterra’s adjusted projected payout for the season,” explains Mark.

“We have also seen relatively significant price decreases for feed and fertiliser, bringing these more in line with historical averages, reducing on-farm costs.

“While this is positive, we are seeing interest costs becoming one of the most significant costs for farmers this season. The Reserve Bank signalled slowed reductions to the official cash rate, meaning interest rates are now likely to reduce more slowly and later than previously expected, which is a concern.”

When considering these changes, DairyNZ’s latest forecast data on the Econ Tracker shows the national breakeven forecast currently sits at $7.75 kg/MS.

This is below DairyNZ’s forecast average payout received of $8.12 kg/MS, which is based on the estimated milk receipts for the 2023/24 season and dairy company dividends.

“A positive difference between these numbers is good news and will likely bring further relief to many farms, especially when compared to forecasts mid to late last year which showed a negative situation for dairy farmers,” says Mark.

The latest Econ Tracker update also provides the new forecast for the 2024/25 season.

“Looking ahead to next season, we see a marginal tightening of dairy farmer’s financial position, with less revenue forecast. We are not expecting feed and fertiliser costs to drop much further than they have already done and while debt servicing may ease, it will likely remain at very high levels,” explains Mark.

The breakeven milk price for the 2024/25 season is forecast to sit at around $7.76 kg/MS, while the forecast payout received is $7.79 kg/MS.

“We are encouraging farmers to continue managing their budgets and costs, as they will likely experience limited operating profits, and many will likely still find it tight across many parts of the country,” says Mark.

“However, we know that dairy operates in a fluctuating economic environment, and therefore, the farm revenue and costs captured in the 2024/25 season forecast are subject to considerable uncertainty and can change quickly.

“Farmers will be working closely with their banks, advisors, and rural professionals, including the DairyNZ team, as they plan for the next season.”

The new forecasts are published on the DairyNZ Econ Tracker and expressed as a national average, which does not necessarily reflect individual farm situations. A quarterly update, focused on the new season forecasting, is also available online.

Farmers and rural professionals can use this tool to support informed decision-making when it comes to financial planning, forecasting, and budgeting.

Farmers can contact their DairyNZ regional team, call 0800 4 DairyNZ, or go online to dairynz.co.nz/business/budgeting for more tools, information, and advice.

 

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