Volatility farming's new normal

Sheep and beef farmers are encountering as much marketplace volatility as dairy farmers, but the perception is they are worse off.

Beef+Lamb New Zealand chairman Mike Petersen said volatility seemed to be highlighted more in sheep and beef farming than dairying, but it was being experienced in both sectors, and more could be expected.

"The big story is the volatility and that's a real issue we are grappling with," Petersen said at the National Fieldays in Mystery Creek.

"It's not new, but we have a big rubber band of supply and demand that is actually creating a lot of uncertainty for the sector and that's a problem."

Farmers were receiving $113.50 a lamb in the 2011-12 season and this could drop to the mid-$80 mark.

Petersen said that was a "massive" variation for farmers, but they were not alone in dealing with volatility.

"This volatility is no different to what is happening in the dairy sector," he said.

"The dairy sector is at $5.85 [a kilogram of milksolids] with a forecast of $7 next year and we are talking a volatility that is similar.

"If we look at the patterns there's little difference between the dairy sector and what has happened with sheep and beef prices."

He said volatility was eroding confidence in sheep and beef farming and was difficult to plan for while discouraging young people from coming to the sector.

Yet dairy leaders had spoken of 35 per cent of farmers making cash losses in Waikato, he said.

Dairy farmers could count on more-consistent cash flows and their systems made it easier for handing over farms to the next generation.

While dairy prices might be uncertain, farmers got good and transparent estimates with forecasts which make it easier to plan farm budgets.

Petersen said sheep and beef farmers would have to get used to price and marketplace volatility.

"The volatility will stay the same and it doesn't matter how you structure your industry," he said.

"Volatility is the new normal and that only seems to be more-so not less, and it does require farmers to build more buffers for risk."

He said the recent fall in the New Zealand dollar against the greenback had provided a big relief for farmers particularly for beef trade in the United States.

"We have effectively gone from 84 cents (against the US currency) to US78c ... and that's roughly 6c and that translates to 40c a kilogram in farm gate prices for beef," he said.

"The reason we haven't seen it now is we have some soft in-market pricing in the US, but that won't stay for long and all the trends are for prices to firm when the US gets into the summer barbecue season.

"The beef outlook is positive."

There are also optimistic signs for sheepmeat with sheep numbers down in the United Kingdom and ewe numbers expected to retreat from the drought in the North Island with reductions anecdotally down 10 per cent to 20 per cent.

Petersen said it was likely the sheepmeat industry would struggle to fill Christmas orders.

Farmers did not want prices to go silly, however, and wanted sensible pricing that would last longer, he said.

Some farmers would take two years to restore ewe numbers to their pre-drought level and Beef+Lamb's initial estimate of farm profitability of about $70,000 would not be reached.

Fairfax Media