The DairyNZ Econ Tracker update shows conditions seem to be improving. Photo / DairyNZ
The DairyNZ Econ Tracker update shows conditions seem to be improving. Photo / DairyNZ
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This season’s outlook for dairy farms is better than anticipated, according to the latest DairyNZ Econ Tracker update.
In the previous June 2024 Econ Tracker forecast update, DairyNZ predicted a relatively challenging season due to high expenses, however, conditions seem to be improving.
“In the past few weeks, we have seen the combination of declining interest rates, and improved farmgate milk prices, which creates a more favourable outlook for New Zealand dairy farmers,” DairyNZ’s head of economics, Mark Storey said.
He said these changes would likely provide dairy farmers greater financial flexibility than initially projected for the 2024/25 season.
Before these announcements, DairyNZ’s latest Farmer Perceptions survey already showed most farmers felt confident in the financial sustainability of their business, with 60% feeling very confident, while only 10% felt less confident.
“Many farmers will continue to feel relief following these recent announcements on the farmgate milk price and interest rates, having experienced several seasons with tight profit margins,” Storey said.
DairyNZ head of economics, Mark Storey. Photo / DairyNZ / Stephen Barker / Barker Photography
However, he said there was still a slight cash deficit on average for dairy farms which showed that interest costs were still high.
When considering these changes, DairyNZ’s latest farm financial forecast on the Econ Tracker shows the national breakeven forecast sits at $8.09 per kg/MS, while the forecast average payout received has increased to $8.84 per kg/MS.
Storey said farm working expenses were up slightly, driven by increases in key operational areas such as electricity, irrigation, wages, and repair and maintenance costs.
However, the reduction in interest and increase in farmgate milk price significantly outweighed these minor increases and improved most farmers’ overall financial position, he said.
With a lot of attention around the interest rate changes in recent months, the September 2024 quarterly update of the Econ Tracker provides a deeper analysis of what interest rate changes and timings could mean for dairy farmers this season.
“The alternative scenarios we explore show how the timing of interest rate reductions can influence the discretionary cash position of farmers.”
Storey said earlier rate cuts would result in greater cost savings and a stronger cash position than reductions made later in the season.
Listen to Jamie Mackay interview Mark Storey on The Country below:
“For example, if the interest rate drops from 8.25% to 7.50% by December 2024, compared to dropping to 7.50% by March 2025, it would improve the cash position of the average farmer by $5675 for the current season, relative to the alternative [three months later] scenario.”
This scenario analysis provides some insight into what interest rate cuts could mean for the remainder of the 2024/25 season but are not to be relied on.
“The improved liquidity from improved interest rates and expected farmgate milk prices can be used to address deferred payments from the previous season, such as repair and maintenance costs, or to pay down short-term debts, ultimately contributing to a more stable and sustainable financial outlook,” Storey said.
More about DairyNZ’s Econ Tracker
The Econ Tracker is a robust tool, which uses the most recent DairyBase and other sector data to form the forecasts which are updated quarterly.
It is used to support farmers and the sector to progress a positive future, including supporting DairyNZ’s science, research and development work alongside farmers.
Farmers and rural professionals can use this tool to help with financial planning, forecasting, and budgeting.
The new forecasts are published on the DairyNZ Econ Tracker and expressed as national or regional averages, which do not necessarily reflect individual farm situations.
A quarterly update, on this occasion, focused on interest rates, is also available.
