DairyNZ: Strong payouts offset high farm costs
The dairy sector is in a relatively stable position, with strong milk price payout forecasts continuing to offset ongoing high farm costs, according to DairyNZ.
Prices for farm inputs fell by 0.6% in the year to March 2025, according to Beef + Lamb NZ's (B+LNZ) annual on-farm inflation report released last week. It notes that lower interest rates, together with modest decreases in some other input prices such as weed and pest control, fuel and fertiliser, lime and seeds have brought on-farm inflation down.
And DairyNZ's View from the Cowshed report released at Fieldays last week reveals that 85% dairy farmers are proud to work in the sector, and over three-quarters believe the outlook for dairying will remain stable or improve over the next three years - signalling a lift in confidence despite ongoing challenges.
At the same time, higher prices for some of NZ's major primary export products have been a feature of the past twelve months. Lamb, beef, and dairy product prices standout with prices over the past month up in the order of 40%, 30%, and 20% respectively over the same period a year ago, according to BNZ Research's Rural Wrap released recently.
B+LNZ chair Kate Acland says lower on-farm costs is a welcome respite for farmers after a 30% increase in prices since 2020.
Interest costs, which are a key driver of on-farm inflation, fell 13.9%. The prices for weed & pest control and fuel also declined - by 5.3% and 3.7%. Prices for fertiliser, lime and seeds also fell by 0.7%.
However, the prices for other inputs increased, with insurance and rates up 11% and electricity up nearly 7%.
Underlying inflation - which is the change in farm input prices if interest costs are excluded - was 1.8% in the year to March 2025. Acland says farm-gate prices remain strong and the outlook is relatively good.
"This is a positive change from recent years, when high on-farm inflation eroded profitability. This year, profits are expected to increase, even though total expenditure remains high," she says.
DairyNZ chief executive Campbell Parker says the findings of its View from the Cowshed survey paints a picture of a sector that is passionate, resilient, and progressive.
While confidence and pride are evident, the report also highlights key areas of concern. Rising farm expenses - particularly for feed and fertiliser - was the top challenge for individual dairy farmers, closely followed by regulatory compliance impacts.
A record farmgate milk of $10/kgMS last season and a similar opening forecast this season, is providing dairy farmers with some protection from high input costs but the same cannot be said for sheep farmers, who have faced poor farmgate returns.
However, red meat prices are firming. BNZ senior economist Doug Steel says the first thing to point out is that the past year's price gain sees the price level for dairy, lamb, and beef products above their respective five-year average.
"The degree varies by product, but all are substantially above recent averages: lamb by 23%, beef by 39%, and dairy by 25%," says Steel.
"In lamb's case, prices are currently threatening to push through $9/kg on tightening supply, which has this season's average pressing up to around $8.65/kg. That would be up about a third on the previous season and near the 2021-22 all time high of $8.87/kg."
