DairyNZ predicts a 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.
Storey said international supply and demand appeared 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.”
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,” he said.
“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.”
“What about the elephant in the room?” Mackay asked, “With tariffs, nobody knows geopolitically what is going to happen in the world in the next year to 18 months, in fact for the next three and a half years.”
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“The international geopolitical context is hard to predict, and there are significant external risks that could impact profitability,” Storey said.
“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.
“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,” Storey said.
The Econ Tracker
DairyNZ has a range of tools and resources to support farmers, including the Econ Tracker, where farmers can consider the balance of current expected payout, inflation, and subsiding interest rates, to help make decisions for their farm.”
The new forecasts are published on the DairyNZ Econ Tracker and expressed as national or regional averages, which do not necessarily reflect individual farm situations.
A quarterly update document 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
