Optimism Returns for New Zealand Dairy Farmers as Milk Prices Rise, but Caution Advised Amid Interest Rate Volatility

Although farm working expenses have seen a slight increase—driven primarily by rising costs in electricity, irrigation, wages, and repairs—the significant reduction in interest rates coupled with the increase in farmgate milk prices has led to an overall improvement in the financial outlook for many farmers. DairyNZ emphasizes that these developments are bolstering the financial stability of the majority of dairy operators.

Garry Reymer, executive member of Waikato Federated Farmers, concurs with this optimistic sentiment. He noted that most dairy farmers have weathered the winter season well and are entering the new milking season in better shape than last year. “With the improved milk price and decreasing interest rates, there's a palpable sense of optimism in the air,” Reymer commented.

However, Reymer urged caution among farmers, advising them not to become overly exuberant with their spending. He pointed out that Fonterra's new advance rate schedule means that farmers may not see a lift in their milk payments through the summer months, extending into July.

In light of the ongoing geopolitical volatility, Reymer advised farmers to keep a close eye on their expenses. “If farmers are relying solely on interest rate reductions to remain profitable, they should reevaluate their farm systems. While many businesses face pressure, seeking out competitive deals can be beneficial, but it’s also important to remember that loyalty can provide valuable service when needed.”

Regarding interest rates, Reymer encourages farmers to actively negotiate with their banks. “Make a compelling case for a better rate,” he suggests. “Understand your financial position, have a clear plan, and demonstrate to your bank that you are in control of your business rather than the other way around.”

DairyNZ’s head of economics, Mark Storey, highlighted that the September 2024 quarterly update of the Econ Tracker delves into the implications of recent interest rate changes for dairy farmers this season. “Our analysis reveals that the timing of interest rate reductions can significantly impact farmers’ discretionary cash flow. Early rate cuts could lead to greater savings and improved cash positions compared to reductions occurring later in the season,” Storey explained.