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.
This has been largely driven by increases in essential on-farm costs, but also indicates a positive overall season ahead.
DairyNZ head of economics, Mark Storey, says recent analysis highlights notable annual increases in some key farm expenses.
"These are being driven by higher tax obligations, due to higher returns, and increases in general farm working expenses - particularly in feed, fertiliser, and energy costs," says Storey.
"As a result, DairyNZ's forecast breakeven milk price has risen from $8.41 per kgMS in the 2024/25 season to $8.68 per kgMS in the 2025/26 season, which is a significant year-on-year increase," he says.
The key updated figures on the Econ Tracker include the current DairyNZ breakeven milk price forecast of $8.68 per kgMS, predicted average payouts of $10.12 per kgMS and average farm working expenses of $5.84 per kgMS.
Despite elevated costs, the outlook for the 2025/26 season remains positive, with robust milk price forecasts, and farmers likely to benefit from reduced debt levels and easing interest rates.
"These conditions should support continued debt reduction, reinvestment on-farm, and adjustments to personal drawings to manage inflationary pressures," says Storey.
However, he says the scale of cost increases over the past year is concerning, adding that global volatility adds uncertainty to the months ahead.
Fertiliser prices, for example, have increased sharply due to global supply constraints, export restrictions from China, and increased natural gas prices. Compared to May last year, phosphate prices are up 34% and urea 40%.
Crude oil prices have also recently surged by 17%, due to instability in the Middle East. While prices may ease, the recent spike underscores ongoing energy market volatility.
“Given New Zealand’s reliance on imported fuel, dairy farmers should allow for potential cost spikes, especially during peak operational periods,” says Storey.
“Feed costs have additionally climbed, with most commodities increasing between 6% and 37% per tonne over the past year. Palm kernel is the exception, with prices slightly down on last year,” he adds.
DairyNZ chair Tracy Brown says the farmers she's been speaking with are following global events closely.
"With continued uncertainty in global markets and pressure on some key expenses, it’s important farmers plan ahead and build flexibility into their budgets where possible," she says.
