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Sheep and beef farm profits will nearly treble next season on the back of improved market prices for lamb, beef and strong wool and the fall of the New Zealand dollar, economists say.
The average profit for each farm in the sheep and beef sector will jump from just $19,400 in the 2007-2008 season to $53,000 in 2008-2009, said Rob Davison, executive director of Meat and Wool NZ's economic service.
"Reduced global supplies of lamb, wool and beef are the main drivers of pricing increases and given the trend towards falling stock numbers globally, this will be a feature for several years to come," he said.
"Conditions will improve further if the New Zealand dollar continues its expected downward trend against all major currencies.
"This will be a vast improvement on the previous season which is on record as the lowest sheep and beef farm profit in at least 50 years, in inflation adjusted terms," he said.
Gross farm revenue next season is forecast to increase $575 million to $4.5 billion at the farm gate.
Economists estimate farmers will spend $3.78 billion or 84 per cent of the earnings on running their farms, and paying costs such as fuel, shearing and local government rates.
"The remaining $720 million [16 per cent] is farm profit before tax which is spent on mortgage repayments, tax, capital equipment replacement and farm family living expenses," Davison said.
But he said that while farm profits for next season will be better, they will remain below levels recorded in 2000 to 2005 because of high on-farm costs estimated at 10.4 per cent of revenue and production lost from the big "dry' which hit many regions last year.
The FOB meat and wool exports receipts are forecast to drop 2.8 per cent to $5.5 billion for the export year to September 2009 and this reflected a 15 per cent fall in export volumes of wool, mutton and beef, masking the gains of improved prices.
Based on an assumption of a US75c exchange rate, the average price for lamb would increase from $56 last season to $73 this coming season. If the NZ dollar slips to US70c, each lamb would be worth around $79.
The falling kiwi is also expected to boost wool prices.
- NZPA
