KEY POINTS:
Beef and sheep farmers are picked to earn nearly 7 per cent less this year than previously expected because of the strong dollar.
And a sharp fall in lamb prices, due in part to the Australian drought, is contributing to the sector's difficulties.
The latest Meat & Wool New Zealand forecasts for 2006-07 released yesterday predicted a gross average annual profit of $62,500, some $4600 less than expected last July.
The $62,500 prediction is about 21 per cent better than last year.
But profit in 2005-06 was very low at $51,700 after farmers spent more in anticipation of higher incomes, before lamb prices fell unexpectedly.
The average annual profit measured in 2004-05 dollars has been $82,400 this decade.
Rob Davison, Meat & Wool's economic service executive director, said the strength of the dollar was responsible for much of the drop in this year's forecast profit.
Around 80 per cent of meat and wool production is exported.
But a 3.9 per cent lift in gross sector revenue to $4.07 billion is still expected, with 79 per cent of this going to operating expenditure and 21 per cent ($850 million) in pre-tax profit.
Meat & Wool said tight farmer control of spending this year was helping to bolster pre-tax profits.
Improved beef prices and production and a small lift in the season's average forecast lamb prices were also positives. That was despite the 2006-07 forecast for all grades of lamb falling to $57 a head, down 7.6 per cent on a $61.35 prediction in November when the dollar was tipped to dip.
"Nearly all the downward revision [since November] can be attributed to the stronger than previously expected US exchange rate," Meat & Wool said.
A weaker dollar against the pound and the euro, strong beef prices and a continued clamp on expenditure were expected to "underpin a recovery back towards 2003-04 farm profit levels".
The exchange rate was expected to stay strong until interest rate yield support eroded late this year.
