Mark Storey: Dairy NZ Head of Economics on the improving conditions for the sector

More profit appears to be on the horizon for dairy farmers, with conditions faring better than expected.

Dairy NZ's lifted its revenue forecast to $8.84 per kilogram of milk solids, with a break even of $8.09.

Head of Economics Mark Storey says the combination of improved farmgate milk prices and declining interest rates show a healthier situation for the sector.

But he says the costs of electricity, feed, and maintenance have kept driving farm working expenses up.

He says overall expenses are staying stubbornly high, so the inflation hasn't come out of the system just yet.

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Episode Transcript

Speaker 1 (00:00):
Darien Z's quarterly econ tracker is out. The last one
predicted a payout including dividends eight dollars thirty four a
break even point of eight dollars zero seven per kg
of milk solids. Now the payout is up eight dollars
eighty four predicted break even eight dollars ozho nine joining us,
Mark Story, darien Z, head of Economics, Mark, good morning,
Good morning, Roy, thank you for being with me. What's

(00:21):
pushing this? What's driving this?

Speaker 2 (00:24):
Yeah, two things are driving that revised those revised forecasts.
The first is the improvements in the forecast milk pay
out price and protective from Frontira and announcements in August,
so the revenue side's going up. And the second is
the reserve banks forecast of interest rate costs adjustments and

(00:46):
banks beginning to respond to that. So those two, those
two factors are in combination are driving and improved outlooks
for our dairy farmers this season.

Speaker 1 (00:54):
How much is that worth to your average farmer, the
reduction and interest rates.

Speaker 2 (01:00):
Well, if we're looking at it, it obviously it depends
a lot for farm to farm, But if we're looking
at you know, I guess it's coming into well, we're
looking at rates of you know, an extra half percent,
more than a half percent in the remainder of this season.

(01:22):
We've done some analysis which has looked at what the
difference would be between you know, fast rates coming in
the December this year, if we were dropping down to
seven and a half percent from from eight point five
at present, and we're looking in the low tens of thousands.
But the more that flows into the season after that, yeah,

(01:43):
it obviously or makes a healthy difference.

Speaker 1 (01:46):
So that it's quite significant then, isn't it that? How
are you feeling, how farmer's feeling? It must be it
must be a positive step. I guess a positive outlook.

Speaker 2 (01:57):
Yeah, it's definitely always cautiously posit. It's early in the
season yet, so everyone's relying on forecasts of revenue and
forecasts of expenses at the same time. But it's looking
positive computer to previous seasons. Anything, any payout pies with
an eight in front of it tends to be good.
And if it starts getting up towards the nine, then

(02:18):
farmers are generally sitting in a fairly positive situation. Expenses
are still high and they are staying quite stubbornly high,
so things like wages, fertilizer, feed, et cetera haven't come down,
and perhaps as much as a bad of rights. In fact,
in this forecast where predicting that they've gone up. That's
reflecting you know, there's inflation staying in the system and

(02:41):
those prices are quite sticky. But overall farmers are getting
in a better position and hopefully can start paying down
some of their debt this season.

Speaker 1 (02:51):
Good good. I am pleased to hear it. And when
I'm looking at an n ZIE forecast saying where at
zero percent growth as a country through to March next year,
I'm please to hear a little a spot of good news. MAK,
thank you very much. Mark stroy Durians he'd hit of
economics with us this morning. For more from news Talks,
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(03:12):
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