KEY POINTS:
The average sheep and beef farmer will see farm profit before tax slashed 49 per cent to the lowest inflation-adjusted level in 50 years if exchange rates stay high, Meat & Wool New Zealand says.
In its 2007-08 Outlook published yesterday, Meat & Wool said that with an exchange rate around US78c to US80c gross farm revenue would fall 9 per cent and farm profit before tax plunge 49 per cent to $23,400 for the average commercial sheep and beef farm.
If the exchange rate centred on US70c instead of US80c for the 2007-08 season, sheep and beef farm profit for the average farm would lift 155 per cent from the extreme low of $23,400 to $59,800.
"The only difference in this scenario would be the lower New Zealand exchange rate," Meat & Wool said.
At US70c the lamb price would increase 15 per cent from last year's low of $53 to $61 per head, while beef prices would lift an estimated 20 per cent.
Meat & Wool chairman Mike Petersen said the current high exchange rate more than wiped out any expected increases in offshore prices for wool, lamb and beef.
In contrast, dairy international prices had more than doubled and those increases far exceeded any exchange rate effect, Mr Petersen said.
The meat, wool and dairy sectors exported 85 per cent or more of their production and for that reason depended on overseas markets and the prevailing exchange rate.
"Even with the benefit of the high international prices, dairy would still only make up around 25 per cent of New Zealand export receipts.
"The remaining 75 per cent of the export sector is under extreme pressure from the high exchange rate and is now receiving lower prices than last year in New Zealand dollar terms," Mr Petersen said.
For the meat and wool sector, farm operating expenditure was already cut back and would be reduced further leading to lower activity in the servicing sector.
After essential on-farm expenditure was met, the rock bottom farm profit of $23,400 was spent on taxation, debt reduction if possible but more likely increased overdraft debt, and then on the farm family expenses.
That added up to lower regional demand and activity, Mr Petersen said.
A continuation of early July exchange rates for the whole of the 2007-08 farming year would see lamb prices fall 6 per cent from $53 a head in the farming year just finished to $50, beef prices fall 12.5 per cent and strong wool prices fall 11 per cent.
Those decreases would occur despite the outlook for offshore prices to increase due to tighter international supplies, particularly for lamb.
- NZPA
