Making the most of ‘the good year’ dilemma for New Zealand farmers

The good news keeps coming for New Zealand’s farmers, but choppy market conditions mean planning never goes out of fashion. Rabobank’s latest update suggests that milk collections are lifting across most export regions, including ours. Additionally, the Fonterra windfall has added a boost to farm balance sheets. 

It's not all roses, though. Shoppers in key markets are holding tightly to wallets, China included. There’s talk of economic bubbles, and inflation is stubbornly high. Housing doldrums persist. 

Although global supply is lifting, demand remains uneven. That usually caps prices and adds volatility, and that means examining on farm price risk management. 

But on-farm in the dairy sector, the numbers look very different. With a projected capital return of about $2 per share from Fonterra (tax-free) next year, and payout forecasts around the $10/kg mark signalled for the 2025 season and similar talk for 2026, the cash is flowing. 

Yes, it feels good, but it begs a bigger question…  

Where should the next dollar go: debt, on-farm investment, or off-farm? 

In a cash-strapped economy, liquidity is a rare privilege. For farmers with stronger balance sheets, this is a powerful chance to elevate the business. How surplus cash is allocated will determine whether this good year simply feels good or truly moves the business up a class. 

It’s worth considering: 

1. Resilience: Pay down debt (selectively) and lift liquidity. 

The biggest destroyer of farm equity isn’t a “bad” investment; it’s being forced to sell assets or borrow at high rates when conditions swing. Reduce that risk by trimming the debt that hurts most and by building a cash buffer. Together, that will provide the breathing room to ride out volatility and seize opportunities.  

• Pick off the pricey bits: Tackle the highest-rate, shortest-term debt first. Refixing opportunities are improving, but don’t assume rates will keep falling. Spread maturities so you’re never exposed all at once. 

• Hold a buffer: Aim to cover some operating costs in cash or available facilities before chasing returns elsewhere. 

• Create headroom: Reducing your debt-to-income ratio gives you the freedom to start new projects and seize opportunities. 

2. Repeatable on-farm returns: Green-light what stacks up at conservative prices. 

A good rule of thumb: if a project pays back at $7.00–$7.50/kgMS and normalised input costs, it’s a contender. If it needs $9.00 and bargain-basement urea to work, it’s a wish so leave it be. We see the steadiest paybacks in: 

• Pasture first: Lift tonnes of home-grown feed and use ahead of buying more feed. 

• Reliability capital: Effluent systems, water reliability, and laneways may not be glamorous, but they cut losses and compliance risk in any policy setting. 

• Animal performance: Genetics, smooth transitions, and fewer lame cows usually beat shiny gadgets and paint jobs. 

• Weatherproofing: Invest in drainage where it’s wet and storage where it’s dry. Protecting production beats chasing it. 

• Technology: For larger operations, disciplined data use turns daily choices from instinct into evidence. Standardise data capture, automate where possible, and consolidate on a single dashboard. Decide on a few metrics that matter, start small and prove it works, then roll it out wider. You’re looking for faster, repeatable decisions and a tighter cost per unit. 

3. Diversification: Go off-farm once the first two are funded. 

Off-farm assets spread regulatory and commodity risk and deliver simpler cashflows but come with tradeoffs. 

• Don’t get carried away. A modest approach is advisable until on-farm pipelines and buffers are secure. 

• Choose clarity. Favour transparent investments with realistic yields and fees. 

• Match duration to your cash cycle. Align investments with your farm’s cashflow management. For example, don’t tie up funds just before tackling a shed rebuild. 

A further note on distributions  

Paying dividends is not a habit for many dairy farms running as companies, so it’s worth providing advice on splitting the payout (and surplus). Every farm is different, but a sensible starting point for a good year is putting: 

• 40–60% to resilience: Pay down debt and build a cash buffer. Weight to whichever is tightest on your farm. 

• 30–40% to high-ROI on-farm projects: Back the investments that lower unit costs and lift reliability, without relying on carbon credits. 

• 0–20% to off-farm diversification: Only if the first two are covered and your risk appetite allows. 

The take-home: Cashflow is not certainty

If the COVID economic boom, then bust, taught us one thing, it is that cash doesn’t last long. This season offers cashflow, not certainty. Supply is lifting into uneven demand; inputs have eased from extremes but aren’t cheap; interest rates bite less than they did, but they still bite; and the weather always keeps us honest. 

That’s when disciplined capital allocation makes the biggest long-run difference. Pay down the debt that keeps you awake. Fund the on-farm projects that work at realistic prices. Only then look over the fence. 

Do that quietly and consistently and this year’s payout and dividend won’t just feel good; it will move your business up a class. 

Disclaimer: 

Findex NZ Limited trading as Findex. 

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex 

While all reasonable care is taken in the preparation of the material in this article, to the extent allowed by legislation Findex accepts no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material. 

October 2025