Farm profits could plummet 54% or $62,600 on average this financial year on the back of widespread cash losses in the sheep and beef sector, according to Beef + Lamb New Zealand’s mid-season update.
The report says the outlook for the 2023-24 financial year, which ends on September 30, has worsened significantly since BLNZ’s October forecasts, because there has been no recovery in China, and Australian exports of red meat have been bigger than originally forecast.
An excellent lamb crop last spring has meant there are more lambs to sell, but it cannot compensate for lower per head prices and unavoidably high costs.
The report warns that farm profits could be down 54% to an average of $62,600 per farm.
This is a 67% fall in farm profit from the 2021-22 year to profit levels not seen since the 1980s, except for during the Global Financial Crisis.
China’s economic recovery remains slow, resulting in decreased demand and lower farmgate prices, especially for lamb and mutton. The increased supply from Australia into international meat markets is also contributing to a global reduction in prices. Neither is expected to change much before the end of the season.
As a result, the forecast for lamb and mutton prices for the season has been revised downwards. The annual weighted average all classes lamb price for 2023-24 is estimated at 651 c/kgCW1, down 12% on 2022-23 and 13% lower than the five-year average.
The annual weighted average all classes mutton price for 2023-24 is estimated at 241 c/kgCW, down 34% on 2022-23 and 49% lower than the five-year average.
New Zealand’s export receipts for lamb and mutton are forecast to be down 4.8% and nearly 20%, respectively, on last year.
On a positive note, beef has held up much better, driven by demand out of the United States as it rebuilds its herd post-drought. All beef is forecast to average $5.15 per kgCW for the season, which is 2.9% down on last year, but 2% higher than the five-year average.
Demand for lamb in Europe and the US has also been strong and this is expected to continue for the rest of the season.
Certain farm classes, such as high country, hard hill country, and South Island hill country, are hardest hit due to their heavier reliance on sheep revenue. The east coast region, still recovering from Cyclone Gabrielle and ongoing wet weather setbacks in 2023, is projected to have the lowest regional profitability.
BLNZ chief executive Sam McIvor said input costs remain high and farmers are feeling it.
“Many have already worked hard on cutting costs and my conversations indicate they’re leaving no stone unturned to find additional savings. This is especially true for farmers with relatively high debt levels.
“They’re also looking to maximise income and taking stock to heavier weights, and where feed allows this is commonplace.”
Interest rates are a significant issue and relief from a fall in interest rates this season is uncertain, so the sector will need to draw on its traditional ability to weather cyclical tough times and on its tenacity, he said.
In Focus Podcast: Full Show | 8 March
The feature guest this week is Alison Dewes, a fourth generation dairy farmer and second generation vet from Bay of Plenty. She’s involved in a successful catchment group there and is an advocate for ground-up solutions to our environmental challenges and she tells me what she’s learned while helping lead a catchment group.
Then Federated Farmers GM policy and advocacy Paul Melville talks to Bryan about whether the aspirational climate targets we have in place are causing people to disengage as we struggle to meet them.
But first senior reporter Richard Rennie, who is in Australia finding out how farmers there are tackling the key issues of climate change, advancements in genetic technologies and the constant drive for more value.
