Sheep, beef farmers face 13 pct decline in income

Business Reporter·NZ Herald·

1 Nov, 2016 08:21 AM4 mins to read

Wool revenue is expected to drop by 11 per cent. Photo / Warren Buckland

Sheep and beef farmers are facing a 13 per cent fall in income this year, particularly if the New Zealand dollar remains high, Beef and Lamb NZ says in its latest season outlook.

Much of the profit decline would be the result of an 11 per cent fall in wool revenue, a 2.4 per cent decline in lamb and sheep revenue, and an 11 per cent fall in dairy grazing revenue.

Cattle revenue is expected to be similar to last year with production up slightly but a continuation of the US dollar at its current level would also reduce revenue, Beef and Lamb NZ said.

The farmer-funded organisation predicted that the average farm profit before tax on sheep and beef farms would fall by 13 per cent to $67,000 this season.

"A range of factors including currency fluctuations, a weak and volatile outlook for lamb and wool, plus the impact of drought and facial eczema, which was widespread in the North Island where half New Zealand's sheep are farmed, will impact on sheep and beef farmer profitability this season," Beef and Lamb said.

International demand is expected to remain reasonable for beef this year, while tight sheepmeat supplies in Australia and New Zealand have potential to support prices with the unknown factor firmly centred on the exchange rate trend for 2016-17.

"In this context, any improvement in export prices is primarily expected to come from a weaker New Zealand dollar, but there is considerable uncertainty whether that will happen," said Beef and Lamb NZ's chief operating officer Cros Spooner.

He said beef prices would remain favourable and limited availability should ensure good returns for breeders, however competition for store stock is likely to reduce the margins for finishing farmers.

While sheepmeat prices are uncertain, farmer reports indicate that it has been a very favourable lambing with high survival, Spooner said.

"This outlook sets the scene for a tough year and we'll see farmers tightly control expenditure and focus on what can be optimised behind the farm gate to make the most of the season and be best placed for the next," he said.

Farmers in Southland have had a good autumn, mild winter and spring, which has provided ideal conditions for lambing.

At the other extreme, farmers in North Canterbury and parts of Wairarapa and Hawke's Bay have faced a dry summer, autumn and winter and this has continued into spring.

These farmers have reduced stock numbers but will be concerned by the continuing dry conditions.

Facial eczema was widespread and farmers will be looking closely at climatic trends that might provide early warnings this season.

Spooner said much of the outlook depended on the value of the New Zealand dollar, which is at US71c, up 8c on this time last year.

"This particularly impacts on sheep and beef farms because around 90 per cent of production is exported, and domestic meat prices reflect the export price," he said.

The weakness of sterling since the Brexit referendum in June also had a negative impact because the UK normally accounts for 20 per cent of New Zealand's lamb exports.

Export lamb production is forecast to decrease marginally - by 1.6 per cent - in 2016-17. The largest markets for lamb are the UK accounting for 20 per cent, the rest of the European Union accounting for 18 per cent and China 32 per cent.

New Zealand beef production is expected to be similar to last year, with the US, which is New Zealand's largest market, accounting for 50 per cent of exports followed by China (18 per cent), Taiwan, Canada and Japan.