KEY POINTS:
Dairy farmers can expect payouts to stay above $5 a kilogram of milk solids for at least the next four years, says a Government survey.
The Situation and Outlook for Agriculture and Forestry report released yesterday says international prices for dairy commodities peaked in June, but are expected to remain high and the value of the Zealand dollar should depreciate.
The Ministry of Agriculture and Forestry's annual snapshot and forecast of the nation's primary sectors shows an 18 per cent boost in dairy export quantities for the year to March 31 and a 23 per cent rise in total dairy export value to $8.41 billion.
And that should rise 39 per cent to $11.68 billion a year by 2011 as cow numbers increase, milksolid production rises and the exchange rate falls.
Strong returns in South Korea and Japan have strengthened farm-gate prices for beef this year, and although international prices for New Zealand beef are expected to fall over the forecast period, returns to farmers should improve with a falling New Zealand dollar, the report says.
But North Asian returns for New Zealand beef are expected to fall as the US regains access to those markets after the mad-cow disease scare.
Those lower prices could temper the continued strength of New Zealand beef prices in the US, where production is expected to fall as the biofuels industry lifts the cost of feed.
The continued strength of the dollar this year is expected to take its toll on farm-gate prices, with prime beef sustaining a bigger hit than manufacturing-grade, but the outlook is positive beyond 2008.
Although the high dollar and static international prices for lamb in New Zealand's key European and United States markets produced a second season of poor lamb schedules - the worst prices since 1996 in inflation-adjusted terms - a forecast decline in breeding-ewe numbers in Europe offers the sector a glimmer of hope.
However, the report noted that although prices for New Zealand lamb in the EU and US are forecast to increase gradually by the time the next slaughter season is in full swing in the first half of next year, the exchange rate is not expected to have depreciated by this time and so will not boost farm gate prices.
Shortages caused by the Australian drought drove a 24 per cent increase in export prices for fine wool last year, and mid-micron wool returns improved too.
But average wool prices languished at their lowest levels in more than 45 years once inflation was factored in.
The impact of the Australian drought is expected to keep boosting international prices for New Zealand wool this year, the report said.
It also blamed the declining quality of New Zealand wool for meagre returns, as a wide range of sheep breeds used for meat production had contaminated white wool with black and dye-resistant hollow fibres.
"The price premium New Zealand wool has commanded for its whiteness, strength and low vegetable matter is being eroded.
"Farmers are also taking less care in preparing their wool for sale," it said.
Although the decline of the euro and the yen in the September and December quarters of last year boosted kiwifruit returns for the year to March 31, the report expected that higher exchange rates and "less favourable forward-cover arrangements" would leave this year's returns "seriously impaired".
But the longer-term outlook was more positive.
