Doubling down on dairy

While turbulence in the dairy market has led some farmers to look elsewhere, others are confident about the industry’s future and are doubling down on their investment.

For Steve Mathis, being born into the dairy industry has given him a long-term view – and for him, that view is rosy. Steve grew up on the family dairy farm in Tirau and then headed to the Dairy Board as a management cadet when he left school. Like many before and since, he went farming then 50/50 sharemilking then bought his own farm. Now he’s got two dairy farms under managers, takes possession of a third on 1 June and has a new career selling real estate for Property Brokers’ rural team. Yes, specialising in dairy. Steve’s confidence is shared by industry analysts, market commentators and sector heavyweights such as Fonterra. There has been a lot of ‘taking stock’ in the dairy industry over the last decade. For some, that has led to a decision to take the leap into something new; for others though, casting an eye over their operation has led them to see potential and to double down on their dairy investment. You can see it around the country. Dairy farmers are rising to the challenge of higher environmental and sustainability expectations. Farmers committed to improving animal welfare are spending big money on cow barns for wintering and also to protect fragile soil structures when the spring rains come. Steve’s boss at Property Brokers, Conrad Wilkshire, sees it in the sales data. For him, there’s no greater sign of confidence in the dairy industry than the strength in the dairy real estate market. An industry standard measure, the national dairy rolling 12-month median price, was $40,300/ha at February 2022. This is the strongest result in a decade. Value of total sales is heading towards $1.5 billion, not far shy of an all-time high. “Our view for autumn and spring 2022 is to see a continued strengthening of the dairy real estate market,” Conrad says in his Rural Market Update for May (page 60). “We still hold the view that investing in dairy assets offers very strong value upside even at current levels.” He sees yet another solid dairy season to come “even while absorbing some of the most significant international market shocks of the 21st century”.

Investing in dairy assets offers very strong value upside even at current levels.”

Conrad Wilkshire, Property Brokers

Underpinning that confidence is Fonterra’s forecast pay-out to suppliers for their milk. In February, the dairy cooperative raised its 2021/22 farmgate milk price to between $9.30 and $9.90 per kilogram of milk solid (kg/MS) from $8.90 to $9.50 per kg/MS. It increased the midpoint by 40 cents to $9.60 per kg/MS. Fonterra said high feed costs in the United States and the European Union had affected milk production and these conditions were expected to continue in the coming months. "Global demand for dairy remains firm, while global milk supply growth continues to track below average levels. These demand and supply dynamics are supporting the increase in prices," Chief Executive Miles Hurrell said. Weather challenges and slow grass growth have led Fonterra to cut by 3.8 percent projections for New Zealand milk collection in the period. When that happens in the “Saudi Arabia of milk”, the global market notices. Add bad weather in Australia and the US along with COVID-19 disruptions to supply chains and it is no surprise that global dairy prices are rising as combined milk production in the big five producers – New Zealand, the EU, Australia, the US and Argentina – falls. War in Europe is having its own affect. “The conflict in Ukraine has added to an already complex COVID-19 operating environment, impacting global supply chains, the oil price and global supply of grains,” Miles Hurrell said in February. As a third-generation farmer, Steve knows better than to put much faith in short-term price blips or be too concerned about inevitable sector dips. He figures he’s on the right side of the ledger when it comes to industry up and downs. As for the lifestyle, he has no complaints. He’s home for meals with the family and “hard work suits some people”. He knows that one day he will be in a rest home “and I want to talk about what I have done, not the dreams I had”. He says he’s happy to accept the new compliance challenges facing the industry. “Plant more wetlands” is on his farm plan. “Enjoy life more” is on his own plan. That and bringing his own family to the dairy life when they are ready. It’s in his blood.

| Projections for New Zealand's milk collection are down, along with those of other big producers.

| Strength in the rural real estate market is a clear sign of confidence.