Fert price hikes hurt

He says fertiliser prices have jumped 100%, wage bills are up 20% and hiring tradesmen has become more expensive.

Lewis says "market forces" mean farmers must pay more to retain staff in a labour-squeezed market.

While the record forecast payout must be celebrated and provides a buffer against rising costs, he doesn't expect too many farmers to end up with a large surplus this season.

He points out that recent surveys found farmer confidence still low.

"With the strong payout we should see higher farmer confidence but that's not the case," he told Rural News.

"Farmers are not thinking about dollars. While the high milk price is a cause for celebration, high inflationary costs are a major cause for worry for some farmers."

Last month, DairyNZ solutions and development lead adviser Paul Bird urged farmers to use strong milk price to pay off debt and be better prepared to withstand shocks.

Speaking at the online DairyNZ Farmers Forum, Bird noted that while industry debt had dropped to $38 billion, reducing it further would be "a good thing".

"The average dairy farm is still made up of half debt and half equity. That's still quite a big chunk of debt," noted Bird.

Farms with returns of around 5% would come under pressure if interest rates rose to 5% and beyond.

Bird says paying debt puts farmers in a good position to withstand shocks.

It also puts farmers in a solid place if they are "looking for the next opportunity to grow in dairying".

Lewis says farmers have been hearing this message for the past five years from the banks.