DairyNZ Predicts Rising Costs Despite Higher Milk Prices

DairyNZ has released its Quarterly Update, outlining three potential scenarios for farm budgets in response to varying durations of geopolitical disruptions. These scenarios include a faster recovery, an expected recovery, and a prolonged disruption. Each scenario considers the reopening of the Strait of Hormuz at different times, affecting farm operations and profitability.

Under the expected recovery scenario, farms are projected to remain profitable. However, there is an anticipated rise in Farm Working Expenses and Breakeven Milk Price, which could reduce the Operating Profit buffer if milk prices decline, production decreases, or if dry seasonal conditions occur.

The forecast for the 2026–27 season indicates that the breakeven milk price will increase by $0.36 to $8.79 per kilogram of milk solids (kgMS). This rise is primarily attributed to higher costs of fertiliser, feed, fuel, and interest. Additionally, Farm Working Expenses are expected to rise to $6.19/kgMS, while Operating Profit may fall to $3.88/kgMS.

According to DairyNZ, the spring season poses a significant challenge for farmers, as critical decisions regarding fertiliser, fuel, and supplementary feed occur between August and November. This period is identified as the most vulnerable to cost shocks.

Mark, a representative from DairyNZ, highlighted the risks associated with prolonged geopolitical disruptions. Historical patterns suggest that after major inflationary events, such as the 2022 Russia–Ukraine conflict and post-COVID supply chain issues, prices for feed and fertiliser tend to stabilize at higher levels. Prolonged disruptions could result in a new cost base, with breakeven milk prices remaining around $9.00/kgMS into the 2027–28 season.