Sheep and beef farmer incomes slashed for season
Sheep and beef farmers will take a big hit this season, with the forecast average profit before tax $82,000, compared with last year's $104,700 - a drop of 21 per cent.
Marlborough-Canterbury farmers will be especially worse off, with average farm profit expected to fall 51 per cent.
Beef+Lamb NZ released the mid-season forecast, which looks forward to the end of June.
Beef+Lamb NZ chief economist Andrew Burtt said weak lamb prices had cut into the profits.
Labour's Primary Industries spokesman Damien O'Connor said the results were a "clear indication of the chaos in the industry".
"The culture within the industry is not collaborative and the Silver Fern Farms deal with Shanghai Maling will limit collaboration," O'Connor said.
Meat Industry Excellence spokesman Ross Hyland said since his organisation's report a year ago offering a blueprint for restructuring, nothing had happened since to address the issues facing the processing industry such as over-capacity and procurement.
In September last year Beef+Lamb NZ had predicted farmer profits would lift by 9.6 per cent to $110,000 on the back of buoyant beef prices.
Burtt said the profit prediction was based on better lamb prices at the beginning of the season.
"The effect of weak lamb prices was accentuated by an early lamb processing season, so that a large percentage of lamb sales were into a weakening frozen export market," he said.
Better beef prices did not help because very few farms were solely beef, and relied also on sheep.
Burtt said profits had also fallen because of weak demand and an exchange rate that did not drop as much as expected.
Wool revenue was up however. The range of increase per kilogram greasy wool is forecast to be from 15 per cent for medium wool ($6.98), to 5.2 per cent for fine ($9.63) and strong ($4.28) wools.
Overall, sheep revenue drops 10 per cent, reflecting a decrease in the lamb price and number of lambs sold. High inventories in China and more domestic lamb being available in the UK (resulting from a lift in UK lamb production and less UK exports to Europe) depressed New Zealand frozen lamb export returns this season.
"It will impact South Island farmers more severely, due to the higher ratio of sheep to cattle farmed in the south and a second year of drought conditions in Marlborough and North Canterbury."
In the South Island, the average Marlborough-Canterbury farm profit is expected to fall 51 per cent, while Otago/Southland profits are forecast to be 16 per cent less than for 2014-15. Compared with 2013-14, farm profit for these two regions will have reduced by 67 per cent and 40 per cent, respectively.
The average North Island farm profit is projected to decrease 12 per cent.
The lamb price paid to farmers, on average across the 2015-16 season, is forecast to average $5.25 per kg carcase weight – or $95 per head, based on an average 18 kg carcase.
The country's overall export lamb production to the end of September is expected to be down 7.8 per cent, from 21.2 million to 19.6 million head.
Cattle revenue is forecast to rise 2.1 per cent to $120,400 per farm for 2015-16, on the back of cattle prices remaining relatively high (despite a slight decrease on last season's pricing) and increased stock values. Farmgate prices are expected to ease by 2.6 per cent – to $4.99 per kg carcase weight for steers and heifers and $3.90 for cows – after gaining more than 30 per cent in the previous season. Heavier average carcase weights should partly offset the slight decline in per kilogram pricing.
This season's export cattle production is estimated to decrease 7.3 per cent to 605,000 tonnes carcase weight. This follows record high production, particularly for cows, in 2014-15, driven by high international beef prices and low dairy prices.
After adjusting for inflation, using 2004-05 as the base year, the All Classes Sheep and Beef farm profit before tax per farm for 2015-16 is forecast to be $64,500 which is at the average for the 2000s decade.