Waikato farmers tackle debt as interest rates fall, says Zonderop

With interest rates receding, Zonderop says farmers are "seriously making dents in our debt, getting those bills paid on time and without the stress of pushing the limits of overdraft".

However, he cautions farmers against taking their eyes of the ball.

"It still takes careful management of your finances and budgets to get this debt under control," Zonderop told Dairy News.

"Breakevem is still in the high $8 mark which means we can't take our eye off the ball.

"One of the biggest wins really is the reduction of interest rates, this is really helping that monthly budget."

Fonterra will release its opening milk price forecast for the new season later this week.

Zonderop believes with the hopes of a strong opening forecast, a kind autumn and a tremendous feed bounce back, many farmers will hit the ground running.

But the high feed bills from this season, which ends May 31, could still be a hangover at the start of the season, he warns.

"With out bank balances teetering on the edge of 'should I, shouldn't I call the bank', most of us will come through unscathed and those normal winter bill hangovers can be dealt with a lot easier until those retros kick in, especially with the lowering of interest rates, that extra in the back pocket will help us off to a great start.

"Although the cow prices have been through the roof, this season could be a tough start to first-time sharemilkers. Even those who needed to top up extra cow numbers could offset those wins of the high opening forecast."

Zonderop says debt reduction will be a priority for farmers.

"The golden rule of any business: pay yourself first and the bank second still applies today.

"Farmers are now more discerning with their hard-earned cash and with more financial friendly tools available, we are doing our homework.

"First farm buyers are really doing their homework, and the dream is still possible. But our margins are still tight. Personally I think not too many will be spending up large at the Fieldays; 'steady as she goes' would be my option rather than a splurge, as there is always that unexpected expense around the corner."

A Season to Remember

ANZ chief economist Sharon Zollner says this season has certainly been one to remember, with a rare trifecta of strong global dairy prices, strong domestic production, and a weak New Zealand dollar.

ANZ revised its farmgate milk price forecast for the current season up by 15c to $10/kgMS.

Dairy commodity prices have continued to lift as the season draws to a close, says Zollner.

Fonterra's milk price forecast for the 2024-25 season is $9.70 to $10.30, with a midpoint of $10/kgMS.

"While farmers have certainly enjoyed the combination of high dairy prices and a low NZD this season, the reverse would not be appealing," says Zollner.

"The correlation between dairy prices and the NZ dollar has not been its usual self in the last couple of years, but it is in New Zealand's interests that the correlation returns, as it is a useful shock absorber, sharing both the joy and pain of export commodity price cycles around the broader economy."

DairyNZ estimates the breakeven milk price to be $7.51/kgMS this season, and $8.57/kgMS next season.

"Of course, an average hides a lot - in practice the breakeven price differs by region and indeed by farm," says Zollner.

"However, based on our updated milk price forecast of $10/kgMS for both 2024/25 and 2025/26, that would make these two seasons a very solid run."