Top Performing Farms Thrive Despite 27% Increase in Operating Costs
The cost of running a New Zealand farm is now 27% higher than it was before Covid, putting sustained pressure on profitability acrfoss the sector, according to new ANZ research.
Three major banks are forecasting opening farmgate milk prices over $8/kgMS for the 2024-25 season, which kicks off June 1.
ANZ agricultural economist Susan Kilsby notes that dairy commodity prices are steadily trending higher, and this is expected to continue in coming months.
ANZ is forecasting a milk price of $8.50/kgMS next season.
"If achieved, this should deliver some profit back into the industry, as this price will end up near breakdown for the average farm," says Kilsby.
"Farms with high debt levels are finding it particularly challenging to keep up with the rapid rise in interest rates and other costs."
Westpac's chief economist Kelly Eckhold believes farmers will get $8.40/kgMS next season.
"Combined with an easing in prices for some on-farm inputs, this should leave farmers modestly above breakeven on average," Eckhold says.
He points out that near-term, world dairy prices are expected to remain relatively steady.
"Growth in the Chinese economy is expected to remain subdued, though we have seen this counter-balanced more recently by stronger demand from other regions."
Global milk supply is expected to grow modestly this year, with New Zealand production likely to be slightly up on last year. In contrast, environmental regulations have driven a substantial drop in European milk production recently, he notes.
BNZ is the most conservative of the three banks, lifting its next season's forecast milk price by 20c to $8.20/kgMS.
Senior eonomist Doug Steel says Global Dairy Trade (GDT) dairy prices have continued to improve in the New Year to now be 30% "above their ding-dong lows" of last August.
"Dairy prices have fully recovered from last year's dip. This is only to around average levels on an inflation-adjusted basis, but that is a lot better than being well below normal."
As for this season, BNZ and ANZ are forecasting a milk price of $7.90/kgMS, 10c above Fonterra's mid-point of $7.80/kgMS. ANZ is sticking to its forecast of $7.70/kgMS.
