Beef + Lamb sees farms' pre-tax profit dipping

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Beef + Lamb New Zealand economists are picking the average sheep and beef farm's pre-tax profit to slide 5 per cent to $54,000 in the year to come.

But this is only if the exchange rate falls. If the US dollar rate stays at around 72c then the average income will fall to $34,000.

The forecasts were regarded as "pretty uninspiring" by Federated Farmers yesterday.

Meat and fibre chairman Bruce Wills said it was not a good return for people who had millions of dollars of assets. "When you've got an ever-present risk of uncertain weather and uncertain exchange rates, a normal business would build in more margin to cope, but the sheep and cattle industry is unable to."

He said it reinforced the need to find ways to add profitability to the supply chain, the focus of a meat industry strategy under way.

Beef + Lamb economic director Rob Davison predicted the good demand for New Zealand lamb and beef in global markets would continue under tight supply.

He said the new season would be much the same as last year, when beef and lamb export receipts totalled $4.7 billion. This was a 1.6 per cent fall, reflecting a 3.5 per cent drop in meat shipments while lamb prices held and beef prices lifted 3 per cent.

The breeding ewe flock had stabilised for lambing this spring, after falling 15 per cent over the past two years from land use change and drought. "Indications from scanning results are that the lambing percentage will be back 2.5 percentage points on last year's record, resulting in a lamb crop of 27.6 million, down 2.5 per cent on last spring.

"The expectation is that fewer replacement lambs will be kept, following a high retention last year, to leave export lamb shipments down 1.7 per cent on last year."

Beef cattle numbers at 3.92 million this June were 1.3 per cent down on the previous year. Expectations were that beef production would fall 5 per cent from a lower cull cow slaughter as new dairy herds consolidated and conversions from sheep and beef farms to dairy continued, although at a slower rate than recent years.

Where the exchange rate lay between November and June would be crucial to farm profitability, Mr Davison said. Based on an optimistic exchange rate assumption of a kiwi trading at US68c, British 45p and 0.55, farmers would receive $82 for their lambs, $55 for other sheep and $3.32 a kilogram for beef.

But if the rates stayed at present levels, those prices would be $75 a lamb, $50 for other sheep and $3.09 a kg for beef.

For the average farm, such a drop would mean $18,000 less in gross profit.

Farm costs are expected to keep rising.

- © Fairfax NZ News