BNZ lifts milk price forecast to $10.25/kgMS for 2025-26
A stronger than expected outlook for dairy has prompted one bank to lift its 2025-26 season forecast milk price by 75c to $10.25/kgMS.
While the majority of primary sector prices are generally strong, there are also several challenges ahead for the sector, according to the latest BNZ Rural Wrap report.
"For many major product categories, prices are above their five-year average, and some materially so," says BNZ senior economist Doug Steel. "These outcomes are mostly the result of buoyant prices in offshore markets." However, the report also concedes that all manner of disruptions across international supply chains has seen supply struggle to satisfy robust demand. It also adds that a subdued NZ dollar - relative to buoyant offshore prices - has supported primary product prices in New Zealand dollar terms.
"The NZ/US dollar exchange rate has lifted from pandemic lows under US $0.60 last year, but it has failed to kick on even as primary prices offshore have risen over the past year," Steel says.
"The last time world prices for NZ's major primary export products were around current levels was in 2014. Back then, the NZ/US exchange rate was well over US$0.80. Firm world prices and a subdued NZ dollar is a positive mix for NZ primary producers."
Steel believes factors keeping the NZ dollar lower include, in the bank's view, the ongoing overvaluation of the US dollar, lower domestic interest rates relative to those offshore, as well as the loss of net tourism and education foreign exchange earnings, and rising costs.
However, he warns that rising costs are risk.
"Official figures show average costs in Q2 accelerating in the primary sector, up 3.4% on average over the year. Of couse, some individual costs have lifted significantly more than that."
Steel aslo points to growing inflation as a potential challenge for the sector and the NZ economy as a whole.
"Material increases in both export and import prices reflects the generally more inflationary environment that is percolating at present - the strongest we have seen for quite some time," he explains. "Rising costs are a reason to not overly celebrate the generally positive selling prices NZ is experiencing. It is margins that matter more."
Steel adds that costs escalation appear to have continued into the second half of 2021.
"Take fertiliser prices, for example. Offshore prices for the likes of urea and DAP have more than doubled since the pandemic started and have continued to rise over recent months," he says. "This has put upward pressure on domestic prices, given the limited offset from movements in the NZ dollar."
The report highlights the lift in oil prices - at around double what it was a year ago,
"Again, with muted movement in the NZ dollar this has translated into higher fuel costs around the country including for the primary sector."
Meanwhile, Steel says it is not just the cost of products that is on the rise, but also the costs of moving it.
"International freight costs continue to ramp higher. Recent figures show that international freight costs for NZ rose 20% in Q2 alone, adding to the 52% hike in Q1. These costs are up a whopping 112% on a year ago."
He adds that it is not just freight costs that are troublesome, with logistics like shipping delays and container issues adding to the challenges.
"Disconcertingly, offshore freight cost indicators show no sign of relief on this front," Steel explains. "Many expect global shipping congestion issues to extend well into next year, which would only add complexity to logistics through the main primary selling season."
Meanwhile, he says the labour market remains a chronic supply choke point.
"Primary producers are in the thick of this. A recent Federated Farmers survey showed a net 49% of farmers reported difficulty finding staff. That is as high as it has been since the survey started more than 10 years ago."
Steel says more RSE workers will help, but only at the margin. However, he believes the recently announced one-off resident visas that creates a residence pathway for about 165,000 in situ migrant workers and their families (about 9,000 primary sector workers) will be welcomed across the industry.
"It will provide much needed certainty and support retention of employees. But we anticipate tight labour market conditions to continue."
The report concludes that given all of these factors, it is no surprise to see farmers expecting cost increases ahead.
Phoebe Scherer, a technical manager from the Bay of Plenty, has won the 2025 Young Grower of the Year national title.
The Fencing Contractors Association of New Zealand (FCANZ) celebrated the best of the best at the 2025 Fencing Industry Awards, providing the opportunity to honour both rising talent and industry stalwarts.
Award-winning boutique cheese company, Cranky Goat Ltd has gone into voluntary liquidation.
As an independent review of the National Pest Management Plan for TB finds the goal of complete eradication by 2055 is still valide, feedback is being sought on how to finish the job.
Beef + Lamb New Zealand has launched an AI-powered digital assistant to help farmers using the B+LNZ Knowledge Hub to create tailored answers and resources for their farming businesses.
A tiny organism from the arid mountains of mainland Greece is facilitating a new way of growing healthier animals on farms across New Zealand.
OPINION: For years, the ironically named Dr Mike Joy has used his position at Victoria University to wage an activist-style…
OPINION: A mate of yours truly has had an absolute gutsful of the activist group SAFE.