Sheep and beef profits to be hit by higher expenses - Report

Beef+Lamb expects sheep revenue, which contributes 48 per cent of farm revenue, will lift 1.2 per cent to $263,600 driven by strong farmgate prices.

New Zealand sheep and beef farm profits are expected to decline in the coming year as higher spending outweighs a lift in revenue from the products they sell.

The average farm is expected to earn a pre-tax profit of $129,700 in the June 2019 year, down 2.8 per cent from a pre-tax profit of $133,500 in the 2017/18 year, according to industry group Beef+Lamb New Zealand.

Beef+Lamb forecasts farm revenue will lift 0.7 per cent to $545,900 in the coming year, driven by increased revenue from sheep. It expects sheep revenue, which contributes 48 per cent of farm revenue, will lift 1.2 per cent to $263,600 driven by strong farmgate prices.

Wool revenue is expected to increase 5.3 per cent to $37,600 as a lift in prices offsets a decline in volumes. Cattle revenue is seen dropping 3.7 per cent to $142,500 due to softer average beef cattle sale prices, the organisation says in its New Season Outlook published today.

On the other side of the ledger, average farm expenditure is expected to rise 1.8 per cent to $416,200. Beef+Lamb said spending was expected to rise in all parts of farm businesses except for repairs and maintenance, interest costs and feed and grazing. Prices for inputs used on sheep and beef farms are expected to increase 3.2 per cent, following a 2 per cent increase last year. Spending on fertiliser, lime and seeds is expected to rise 1.9 per cent as an increase in volume offsets a slight decrease in on-ground prices.

The organisation forecasts beef, lamb, and mutton prices to remain firm at historically high levels, helped by the weaker New Zealand dollar and strong export demand.

"We forecast slight increases in farm-gate prices for lamb and mutton in 2018/19, as prices are expected to remain relatively steady in New Zealand's main export markets and benefit from an expected easing of the New Zealand dollar," said Beef+Lamb chief economist Andrew Burtt.

"This follows the exceptionally strong average farm-gate prices for lamb, mutton, and beef in the 2017/18 season."

Burtt said the value of the New Zealand dollar has a large bearing on the sector's outlook.

"The New Zealand dollar is expected to ease as the economies of our major trading partners strengthen in 2018/19 - principally against the US dollar in which over 70 per cent of red meat exports are traded," he said.

The forecasts assume the New Zealand dollar will be worth an average 67 US cents over the 2018/19 season, down from 70 US cents last season. It was at 65.70 US cents earlier today.
Lamb meat exports are expected to earn a total of $3.11 billion in the coming year, after breaking the $3 billion mark for the first time last season. Beef exports are forecast to drop 4 per cent to $3.42 billion as volumes and values weaken, Beef+Lamb said.

Meat is the country's second-largest export commodity behind dairy products.