DairyNZ drops break-even milk price amid global crash

There are concerns for dairy farmers as milk prices plummet to lows not seen since 2016. 

DairyNZ on Thursday adjusted its breakeven price - the figure that helps farmers identify and forecast average costs. 

"It's just reflecting that things are looking a lot more challenging than we thought," said ASB chief economist Nick Tuffley. "It does mean that the cash flow's really been coming under pressure."

Dairy NZ was previously forecasting a national breakeven of $8.16 per kg for milk solids, which has been revised down to $7.51.

"We know dairy farmers have a difficult season ahead, in light of the reduced milk price and continuing high farm costs," said DairyNZ head of economics Mark Storey.

"The updated breakeven milk price reflects that farmers are working really hard to reduce their spending in the face of extremely high costs. 

"We know farmers are looking at budgets line-by-line and analysing where spending can be reduced, including pausing non-essential capital expenditure and carefully evaluating feed, fertiliser and other spending."

Fortunately, however, Tuffley said the price crash appeared to be seasonal.

"We do expect they will start to go up at some point, once Chinese demand - import demand - does start to firm up," he said.

"China does consume more than what it produces domestically, it's just that they've got a lot of inventory still so they're working that down. It's just that pick-up in demand's likely to be too late for this season."

Earlier this week, global dairy prices fell by 7.5 percent - largely due to softer demand coming out of China. 

The ebb in the market marked a return to price lows not seen for five years.

Tuffley told AM Early ASB expected prices to firm up come next season.

In the meantime, Dairy NZ warned of reduced income for up to 18 months.

"DairyNZ will continue working with farmers to support them to remain viable this season," said farm performance general manager Sarah Speight.