NZ dairy’s ‘dream combo’ - high prices, strong production, and a low Kiwi dollar

NZ dairy farmers are in a sweet spot this season. Photo / NZME

New Zealand dairy farmers are enjoying a rare sweet spot in the form of high production, strong prices, and a low New Zealand dollar.

Together, all three factors are likely to add $4 billion to dairy farmers’ gross incomes over the 2024/25 season, ASB economists estimate.

Dairy Companies Association of NZ data for December showed production in terms of milk solids was up 1.4% year-on-year, with 228,298,000kg produced for the month.

Overall, this brings the season-to-date figure to a 3.7% improvement on the 2023-24 season.

The December 2024 figure marks the highest milk solids collected for the month since December 2020, NZX Dairy said.

Looking at the five-year rolling average of 224,486,000kg milk solids, the December 2024 figure is sitting 1.7% above that.

“Having well and truly passed the seasonal peak of milk production, most regions – including the country’s major producing regions – have continued to enjoy a fairly buoyant production season since June,” NZX Dairy said in a report.

However, farmers across the country have noted that the drier conditions are starting to take effect, NZX said.

ASB Wealth senior economist Chris Tennent-Brown said the three elements were “the dream combo” for dairy farmers.

The New Zealand dollar was under pressure last year and is currently trading at two-year lows at around US56.9c.

Tennent-Brown said the low New Zealand dollar could benefit next season’s payout as well if, as many expect, it remains weak in response to a strengthening US dollar.

“We have seen a lower exchange rate, relative to last season, and likewise next season we could see US60c or under.

“If that weakness continues, that’s really helpful.

Last month, Fonterra raised the midpoint of the 2024/25 season forecast Farmgate Milk Price by 50 cents to $10.00 per kgMS.

The new forecast range of $9.50-$10.50 per kgMS reflected the ongoing strength of the global market.

“If production recovers from last season’s reduction, which it looks like it should, and combined with Fonterra’s payout being two dollars or more higher than last season’s $7.83 - up to $9.75 or $10/kg - that’s a big help for farmers’ topline that’s for sure,” Tennent-Brown said.

Enthusiasm for dairy - New Zealand’s biggest export - could spill over into other major commodities if conditions in China - the biggest export destination - improve.

“We have some happy dairy and beef farmers but it’s tough for sheep, wool and forestry with prices being where they are at the moment,” he said.

HighGround dairy analyst Stuart Davison expects tomorrow’s bi-monthly Global Dairy Trade auction to be a strong one, due in part to concerns about a limited foot and mouth disease outbreak in Germany.

“That’s driving a lot of bullish sentiment for the market at the moment, so there will be buyers potentially coming to the market seeking supply in the face of concerns out of Europe,” he said.

Futures market pricing suggests whole milk prices will push up to around US$3800 ($6,727) a tonne for whole milk powder from the US$3770/tonne achieved at last week’s “pulse” auction - an event held between main GDT auctions.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.