KEY POINTS:
High exchange rates, an oversupply of stock and a $15 drop in lamb prices - it is hard to find a cheerful sheep farmer these days.
But one market observer foresees a pinprick of light at the end of the tunnel.
Former Affco chief financial officer Allan Barber reckons the price of lamb has bottomed out and next season farmers "shouldn't see prices go lower".
He also predicts tough competition in the procurement [livestock] market until the end of this season will force meat companies to pay more.
Since the start of this season, lamb prices have fallen $15 a head, and meat exporters are warning prices could fall further once the lucrative European Easter markets are stocked.
The latest Meat & Wool New Zealand forecasts for 2006-07 predict beef and sheep farmers will earn nearly 7 per cent less this year than previously expected because of the strong dollar.
The drought in Australia has also forced many Australian farmers to kill their lambs early.
Meat & Wool executive director of economics Rob Davison said poorly performing lamb skin prices, a carryover of New Zealand lamb unwanted by offshore markets, plus local production of too-heavy lambs has also contributed to the low prices.
Last season's overblown price forecasts from Meat & Wool haven't helped either.
Last month a Rabobank survey showed that 57 per cent of sheep farmers expected the rural economy to worsen.
"Everyone tells us how great our product is but people can't make a living out of the returns of the last couple of years," said Southland farmer and Federated Farmers representative David Rose. "Prices have been lower than this, in the 1980s and 1990s, but costs were lower then too."
Rose said compliance costs plus the Holidays Act and ACC were calculated to have taken $3 off every lamb sold last year. Lamb was in "self-destruct mode" because returns were so far below the cost of production.
The Meat Industry Restructuring Group, recently set up by a band of Southland farmers, has blamed "soft selling" in offshore markets by meat companies, and is pushing for more co-operation. Most recently it called for Alliance and PPCS to merge, an idea both companies brushed off. However, both companies are in talks about potential co-operation.
