But she notes that New Zealand farmers start the season with a marked squeeze on margins, driven by persistent and broad-based cost inflation.
"The ongoing closure of the Strait of Hormuz - now approaching its fourth month - is creating conditions reminiscent of past stagflationary shocks," she says.
"Initial impacts, particularly higher energy prices, are now flowing through into key upstream dairy inputs, including diesel, fertiliser, and industrial goods. Second-round effects are also emerging, with elevated energy costs feeding into broader inflation expectations.
"From here, the outlook becomes significantly more uncertain, warranting scenario-based planning.
"The key variablee is the duration of disruption: the longer the closure persists, the slower and more uneven the normalisation of energy and input markets is likely to be."
Higgins says while their base case scenario does not currently assume a prolonged closure of the Strait of Hormuz, the risk of a more extended disruption - beyond what markets are currently pricing - cannot be ignored.
“Inflationary pressures and weakening consumer sentiment are already testing demand resilience in dairy markets, and we expect this to continue over the months ahead.”
However, she says it’s also possible that, in a prolonged disruption scenario, global food import demand could rise sharply in a bid for food security, as energy-importing nations move to secure supply amid deteriorating terms of trade.
“This would likely support dairy commodity prices, with milk powder potentially returning to prior cycle highs and lifting New Zealand farmgate milk prices in the near term.
“The volatile operating environment farmers are now in underscores the need for wider-than-usual scenario planning across both costs and revenues, and for caution in treating commodity price spikes driven by geopolitical shocks as structural rather than temporary.”
