KEY POINTS:
The continued hot weather is biting into valuable dairy production and forcing some sheep farmers to shoot animals.
Meat & Wool chairman Mike Petersen said farmers were not panicking but the situation was critical, with some people resorting to desperate measures.
"I understand in North Canterbury, for example, some people are shooting sheep because they can't get them killed [and processed]."
Conditions on the west coast of the North Island were as dry as they had been in 25 years, Petersen said.
"If we go for another four weeks - and I saw the Niwa report that said no rain till really the end of April - then that's going to create some real problems nationwide."
There was currently a three or four week delay at processing works, with animals fetching between $35 and $45, compared to a production cost of about $55.
The peak sheep slaughter was between January and March but farmers were killing lighter lambs, cutting the returns.
Capital stock was being reduced and many sheep farmers would endure a third year of cash loss.
"We've got what I'm calling a crisis of confidence at the moment," Petersen says. "This is probably the third major crisis I would say that the meat industry's faced since going right back into the 60s and 70s."
Drought in Australia and reform of the Common Agricultural Policy in Europe had pushed an over-supply of sheep into the market during the last two years, while parts of the east coast of the North Island had not got out of a drought from last year.
International prices had risen about 7.5 per cent but the value of the New Zealand dollar meant returns were unchanged in local currency terms, Petersen said.
"The New Zealand dollar continues to be a major hindrance for New Zealand," he says. "It took $14 a lamb off last season's lamb crop."
However, it would be unlikely to see sheep farmers walk off the land, as happened during the 1980s, because farm equity remained solid with the option of converting to dairy functions. Elsewhere in the meat industry beef farmers were performing well with the main kill between November and February, Petersen said.
Federated Farmers president Charlie Pedersen said production on many dairy farms would be down about 25 per cent in January and up to 30 per cent in February, with farmers drying off cows months earlier than normal.
On Friday Fonterra said season-to-date total milk production was lower than last year and worsening drought conditions could cost dairy farmers up to $500 million by the end of the season in May.
Chairman of Federated Farmers dairy section Frank Brenmuhl said key production was between October and December but the midpoint of the season for some farmers could be towards the end of the year.
"So if you're drying cows off now or even drying your whole herd off that means that you may lose 25 per cent of total production by the end of the season," Brenmuhl said.
It was on the cards that some farmers could make less money than last year despite a record forecast payout from Fonterra of $6.90 per kilo of milksolids.
Meanwhile, for other agricultural sectors the hot dry weather was perfect. The wine industry - where exports grew 28 per cent to $751.9 million for the year ending November - can control its water needs through irrigation, with warm dry weather being good for the flavour and ripening of grapes.
New Zealand Winegrowers chief executive Philip Gregan said the sector loved the current weather.
"The only concern we have is that there is enough water available for irrigation," Gregan said.
The industry had spent a lot of money on water storage, while restrictions on water had not been a major issue for the sector to date.
"There was some suggestion earlier in Marlborough that the Southern Valleys' Irrigation Scheme may be shut down but they had some rain up in the hills and that's improved flows and as far as I know at the moment there are no water issues."
Pipfruit New Zealand chief executive Peter Beaven said he would like the hot weather to continue for as long as possible.
"Then we don't lose any harvest time," Beaven said. "It's the old situation, it's good for us and bad for pastoral guys."
The apple harvest takes place between February and May.
"It's impossible to harvest in rain because the tractors just turn the ground up and it's really difficult for the pickers in amongst the trees."
However, too much hot weather in spring/summer could mean irrigation, extra cost and potential sunburn for the fruit.
"An ideal weather condition would be probably rain overnight once a week," Beaven said. "If God could re-make the world like that, apple growers would be happy."
* Showers fell yesterday in many parts of the country and the forecast this week is for some more rain.
