New Zealand Dairy Farmers Milk Tech Innovation for Financial Stability

There are several reasons why so few farmers use hedging:

It has been hard for farmers to access risk management tools
Setting up futures accounts has been complicated and slow, often taking months
Many farmers worry about missing out on higher prices if they lock in a lower price

The New Zealand dairy industry, a key part of the country's economy, is dealing with big challenges in today's complex market. At the recent New Zealand Fieldays, a major farming event, experts and farmers talked about the future of dairy farming and new ways to overcome current problems.

Matt Manning joined the “Dairy Insights: Heard Mentality” podcast recently to talk about Fieldays, which hosted approximately150,000 visitors over four days.

Matt, a dairy broker with StoneX in Sydney, shared his take on the challenges and opportunities for New Zealand's dairy sector with Dairy Insights.

The Risk Management Problem

Despite dairy's importance to New Zealand's economy, only about 9% of the country's total milk production was hedged for the 2023-2024 milk season. This means many farmers are at risk when market prices change.

"Farmers in New Zealand can't control the prices they get, and they face a lot of risk in their business," Manning explained. "Price risk makes up about 50% of the total risk to profit margin for farms in New Zealand."

The Price Taker's Challenge

New Zealand dairy farmers have little control over the prices they get for their products. They often have to make big business decisions, like buying feed or equipment, up to a year before they know what they'll be paid for their milk.

This uncertainty is made worse by the fact that many dairy farms in New Zealand have high levels of debt. The mix of high debt and unpredictable income creates a risky financial situation.

Market Changes and Global Factors

The global nature of the dairy market adds more complexity. Manning noted that current milk prices for the upcoming season are influenced by strong butter and fat markets. However, this strength might not last, and any weakening could significantly affect farm incomes.

Also, decisions about money policies, both in New Zealand and abroad, play a crucial role. Manning highlighted the potential risk if US and New Zealand policies on interest rates differ, which could affect currency exchange rates and milk prices.

Policy Changes and Environmental Concerns

Recent policy changes by the new New Zealand government have brought some relief to farmers. The decision not to include agriculture in the emissions trading scheme has eased worries about potential cost increases. However, environmental concerns are still important.

In fact, sustainability remains a key focus for the industry. Manning pointed out that banks are offering very low interest rates for sustainable farming projects. This shows the industry's ongoing commitment to protecting the environment, even as it deals with economic challenges.

New Solutions on the Horizon

Recognizing these challenges, the dairy industry is turning to new solutions. At Fieldays, StoneX introduced a new app called StoneX Trading, designed to help New Zealand dairy farmers manage price risks.

This app, available only in New Zealand, offers options that let farmers set a minimum price for up to three seasons in advance. It's much quicker to set up than traditional methods, taking about 15 minutes instead of months. It also eliminates margin calls, making it simpler for farmers to use.

"It allows these farmers to have good discussions with their bank," Manning noted. "From what we're hearing from bankers, it might help farmers get better loan rates if they have a good hedging plan in place."

Looking Ahead

As the New Zealand dairy industry continues to change, tools like the StoneX Trading app represent a step towards better risk management. By giving farmers easy-to-use hedging options, the industry is better prepared to handle market changes while staying competitive globally.

The challenges facing New Zealand's dairy farmers are big, but so is the industry's ability to innovate and adapt. As farmers get better at managing financial risks, they'll be better equipped to focus on what they do best: producing high-quality dairy products while taking care of the land for future generations.

Interested in Getting More Insights?

Listen to the full episode of Dairy Insights: Heard Mentality with Nate and Matt on Spotify.

Listen here

Make Actionable Dairy Insight Your Edge

See why StoneX is a partner of choice

Have questions about our products or services? We're ready to help.

Start a conversation

StoneX: We open markets

Our market expertise, advanced platforms, global reach, culture of full transparency and commitment to our clients’ success all set us apart in the financial marketplace.

Globality

With access to 40+ derivatives exchanges, 180+ foreign exchange markets, nearly every global securities marketplace and numerous bi-lateral liquidity venues, StoneX’s digital network and deep relationships can take clients anywhere they want to go.
Transparency

As a publicly traded company meeting the highest standards of regulatory compliance in the markets we serve; our financials and record of accomplishment are matters of public record. StoneX’s commitment to “doing the right thing over the easy thing” sets us apart in the industry and helps us build respect, client trust and new partnerships.
Expertise

From our proprietary Market Intelligence platform, to “boots on the ground” expertise from award-winning traders and professionals, we connect our clients directly to actionable insights they can use to make more informed decisions and achieve their goals in the global markets.

Tell us about yourself. Are you a:

First name

Last name

Company

Country

Province/Region

By submitting this form, you are sending StoneX Group Inc. and its subsidiaries your personal information to be used for marketing purposes. View our Privacy notice to learn more.

First name

Last name

Company

Account number

Account holder name (if different from above)

By submitting this form, you are sending StoneX Group Inc. and its subsidiaries your personal information to be used for marketing purposes. View our Privacy notice to learn more.

The subsidiaries of StoneX Group Inc. provide financial products and services, including, but not limited to, physical commodities, securities, clearing, global payments, risk management, asset management, foreign exchange, and exchange-traded and over-the-counter derivatives. These financial products and services are offered in accordance with the applicable laws in the jurisdictions in which they are provided and are subject to specific terms, conditions, and restrictions contained in the terms of business applicable to each such offering. Not all products and services are available in all countries. The products and services offered by the StoneX Group of companies involve risk of loss and may not be suitable for all investors. Full Disclaimer.

This website is not intended for residents of any particular country, and the information herein is not advice nor a recommendation to trade nor does it constitute an offer or solicitation to buy or sell any financial product or service, by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Please refer to the Regulatory Disclosure section for entity-specific disclosures.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc. The information herein is provided for informational purposes only. This information is provided on an ‘as-is’ basis and may contain statements and opinions of the StoneX Group of companies as well as excerpts and/or information from public sources and third parties and no warranty, whether express or implied, is given as to its completeness or accuracy. Each company within the StoneX Group of companies (on its own behalf and on behalf of its directors, employees and agents) disclaims any and all liability as well as any third-party claim that may arise from the accuracy and/or completeness of the information detailed herein, as well as the use of or reliance on this information by the recipient, any member of its group or any third party.