“Looking ahead to 2026-27, it is the rate of increase of expenses that is of most concern,” he said.
The 2025-26 season finished with a series of records.
Based on DairyNZ’s production data, national milksolids are set to reach around 2.02 billion kilograms – the first time New Zealand has passed the two-billion mark, and about 4.5% above last season’s 1.94 billion.
“Many farms enter winter with their strongest balance sheet in recent years with strong production and solid payout,” Storey said.
The attack by the United States and Israel on Iran on February 28 has driven fuel and fertiliser prices sharply higher.
Storey said the 2026-27 picture had “shifted materially” since DairyNZ’s March update.
“The Strait of Hormuz is no longer a distant watchpoint, it is at the farm gate.
“Four months in, the disruption is feeding through fuel, fertiliser, feed prices, and freight prices that farmers are seeing right now.”
In its quarterly update, DairyNZ provided three scenarios to test how different events may affect farm budgets: faster recovery (Strait of Hormuz fully reopens in July), expected recovery (reopens in August) and prolonged disruption (reopens in September).
Under the expected “recovery” scenario, farms remain profitable, but farm working expenses and the breakeven milk price rise, leaving a smaller operating profit buffer if milk prices were to soften, production slips or seasonal conditions turn dry.
For the 2026-27 season, DairyNZ’s forecast break-even milk price has risen 36c to $8.79/kg, with fertiliser, feed, fuel and interest the main factors, while farm working expenses rose to $6.19/kgMS and operating profit fell to $3.88/kg.
Spring will be the pressure point for farmers, Storey said.
“Fertiliser, fuel and supplementary feed decisions all land in the same August to November window, and that is where the cost shock will bite hardest.”
The duration of geopolitical disruption was a risk.
Looking back at the past decade, there was a clear pattern of prices remaining high after big events, Storey said.
“After every major inflationary event, the 2022 Russia–Ukraine conflict, the post‐Covid supply‐chain disruption, feed and fertiliser prices have settled at a stubbornly higher level.
“They fluctuate, but they don’t return to their pre‐shock baseline.
“The longer the disruption persists, the more of today’s elevated cost base becomes the new normal where the breakeven milk price stays near $9.00/kg into 2027–28 under our prolonged disruption scenario,” he said.
DairyNZ chairwoman Tracy Brown said rising costs reinforced the need to continue to shift the focus on-farm from maximising production to maximising profitable production.
“The sector is in a relatively good position; however, regional feedback suggests farmers are planning for elevated costs to persist beyond this season, particularly fertiliser and fuel,” she said.
A looming El Nino climate pattern may also compound the cost pressure with a feed deficit.
ANZ raises milk price forecast
Separately, ANZ raised its farmgate milk price forecast for 2026/27 to $9.20/kg from $8.70.
“The new season is starting on a positive footing, with good dairy commodity prices and a favourable exchange rate,” the bank said.
“We expect dairy prices to weaken over the next few months as the 2026/27 season ramps up, due to strong milk production in all major exporters.”
ANZ’s forecast for the season just ended was unchanged at $9.85/kg.
At this morning’s Global Dairy Trade auction – the first for the 2026/27 season, whole milk powder prices fell to US$3706 ($6250) per tonne, a 2.2% drop compared with the last auction in May.
The GDT price index dropped 0.6%.
New Zealand’s peak milk production months are September through to January.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.