KEY POINTS:
The price paid for beef and lamb will rise significantly this year despite the global financial crisis, according to Meat & Wool New Zealand.
Its mid-season update forecasts a 38 per cent rise in lamb farm-gate prices for the year ending June 30, while beef is predicted to be up by 11 per cent.
Farm profit before tax is expected to rise from its lowest level in 50 years at $16,700 in the 2007/08 year to $45,600.
Lamb and beef returns were on a positive trend set to continue in contrast to other agricultural exports, Meat & Wool said.
Its Economic Service executive director, Rob Davison, said depreciation of the New Zealand dollar had been positive for exporters.
"Total sheep and beef farm earnings at the farm gate are estimated to increase by $500 million to $4.4 billion, a positive for the economy."
Lamb production was down 23 per cent this year as a flow-on from drought, expansion of dairy farming and increased cropping, he said.
"Overall, the increase in lamb price is due to tighter global supplies of lamb from New Zealand, Australia and the EU and the depreciation of the New Zealand dollar particularly against the Euro and the US dollar," Davison said.
Drought in recent years reduced the Australian sheep flock from 120 million in 1997 to 79 million in 2008. Numbers have dropped in New Zealand because of low returns, drought and dairy expansion - down 11 per cent to 34.2 million in the year ended June last year.
Meanwhile, reform of the Common Agricultural Policy had reduced sheep numbers in Europe.
However, the supply pushed into the market by drought had been moved through the system and the effects of reform in Europe were ongoing but slow, Davison said.
"In terms of lamb there's a downturn in supply from New Zealand which is quite big, which is 23 per cent by slaughter but about 18 per cent by volume of export. Because we've got heavier lambs this year [that] means that we're only going to be focusing on the higher-paying markets."
Farm-gate beef prices would be positive in the short-term, and could firm further into 2010, Davison said.
"The price increase for beef will be underpinned by the depreciation of the New Zealand dollar and strong United States demand for manufacturing beef as consumers trade down to lower-value market segments such as hamburgers."
New Zealand lean beef was supplied to the fast-food industry.
"It's hard to say they're [prices for lamb and beef] going to carry on increasing. We believe [they] will remain at a higher level than they were last year."
There had been some fall in fuel and interest rates but overall farm input costs were expected to rise 6.9 per cent.
Wool prices were forecast to drop despite a more favourable exchange rate. Auction wool prices were forecast to drop 21.8 per cent for fine, 4.4 per cent for mid-micron, and 11.8 per cent for strong wool. Low consumer confidence had dampened retail demand in apparel markets and a substantial downturn in housing, commercial construction and building refurbishment had reduced the demand for carpets, Davison said.
"New building's gone to a standstill so wool's carrying quite a brunt of the downturn."
THE OUTLOOK
* Lamb prices up 38 per cent this year.
* Beef prices up 11 per cent.
* Total earnings up $500 million to $4.4 billion.
