Low lamb prices and the ongoing drought are predicted to slash sheep and beef farm income this season.
Beef + Lamb New Zealand's Economic Service mid-season update estimates that farm profit before tax this season will fall 54 per cent on last season, to an average of $73,000.
This is largely due to sharply lower lamb prices causing a 27 per cent decrease in sheep revenue.
Economist Rob Davison said lamb numbers were up, thanks to a 123 per cent lambing last spring and more hoggets producing lambs. However, this was not enough to offset the lower lamb price and drought impact.
"The forecast average lamb price of $85 a head is down 25 per cent from last season's $113.60, which was the second highest on record," he said. "This has, understandably, flowed through to farmers' bottom lines, with the result that profit levels will effectively halve for the season ending September 30."
Maintaining prices for lamb would be challenging. "Europe's debt crisis is far from being solved and there is almost no growth in the region. Meanwhile, there are concerns about economic prospects for the US, given its fiscal challenges. And China's economic growth has slowed to the lowest rate in a decade, although it is still at about 8 per cent."
Cattle returns are predicted to drop 8.8 per cent, but Davison said the outlook was relatively positive, thanks to the supply situation in the US.
"Three years of drought in the US has reduced the country's total cattle numbers to 89.3 million head - the lowest tally since 1952. Significantly, the beef cow herd is the smallest it has been in decades and it will take years to rebuild breeding numbers."
Do you agree with claims that Fonterra is transferring wealth from farmers to unit holders and to the dividend in contradiction of its milk price manual?Related story: Lower milk price 'to boost dividend'