Deer price increase to lift profits for sheep and beef farmers
The average sheep and beef farmer is expected to earn $90,200 next season as overall red meat prices rise in spite of a likely weakened Kiwi dollar.
Beef+Lamb New Zealand's New Season Outlook 2017-18 forecasts farm profits before tax to increase 6.6 per cent.
B+LNZ chief economist Andrew Burtt said the outlook set the scene for steady meat prices and production in 2017-18.
"However, strong improvements are expected in revenue from deer and velvet, as production increases, and from wool, which is coming off low prices."
Benchmarked earnings before interest, tax, rent and a manager's salary per farm are forecasted to increase by 3.1 per cent to $158,800, based on an exchange rate of $0.69.
Much of the outlook depended on the value of the dollar, which was expected to ease as major trading economies strengthen in 2017-18.
At a NZD$0.69 mid-level exchange rate, the report forecasted lamb at $103 a head, mutton at $74 and all beef to be at $1218.
The dollar strengthened in 2016-17, to average 0.71 cents against the United States currency, up 3 cents on the previous season.
The US dollar is significant for New Zealand's export-focussed sheep and beef industry because 70 per cent of meat export volume is sold in US dollar-denominated transactions, Burtt said.
Total farm expenditure was forecasted to lift marginally. While fertiliser prices are expected to remain steady, a lift in spending on fertiliser is expected as farmers continue to focus on improving their soils' productive capacity.
The increase is expected to outweigh a reduction in expenditure on interest, and repairs and maintenance. Much of the 6.6 per cent increase resulted from a 10 per cent lift in the revenue of deer, velvet and wool as well as a 4.8 per cent lift in cash crops.
Burtt said scanning and lambing so far had been " mixed", with some farmers reporting it had been the best in years to being "pretty average".
While South Island farmers had yet to lamb, those who had so far had said it had gone well. North Canterbury farmers were also in high spirits with plenty of feed on hand after being in drought, he said.
Sheep and beef revenue is expected to remain similar as small increases in production and easing exchange rates counter softening export prices.
Burtt said demand was expected to remain reasonable this year, driven by China. China would remain the largest single country market for New Zealand lamb, accounting for 33 per cent of volume.
Continuing tight sheepmeat supplies in Australia and New Zealand, particularly mutton, was expected to support prices as exchange rates were the prime uncertainty.
Export lamb production is forecast to increase marginally. While exports to the European Union, including the United Kingdom, dropped in 2016 17, the EU accounted for 36 per cent of exports and remained greater than China.
Beef production was expected to be down slightly on last season as the average carcass weight is forecast to be lower. The share of New Zealand beef exports to the US decreased to 48 per cent last season, but increased slightly to China, which is the second largest market.