Beef + Lamb New Zealand’s New Season Outlook shows another challenging season for sheep and beef farmers with farm profit before tax expected to decrease by 7.4% to an average of $45,200 per farm.
While revenue is forecast to increase slightly by 1.1%, this is offset by a projected 1.8% rise in farm expenditure.
High costs, particularly interest payments, continue to impact profit margins, with profitability remaining at levels similar to those seen in the 1980s and ’90s.
While the rate of on-farm inflation has slowed, total farm expenditure remains stubbornly high for 2024-25, driven by expected increased costs on average for farmers from interest payments.
While interest rates have started to fall it will take time for significant relief to be felt by many farmers.
Those on floating loans will have started to feel some respite but many farmers will be coming off term loans and fixing in at higher rates than before. Interest expenditure has doubled since 2021-22.
The NZ dollar is expected to be slightly stronger (3%) against the USD (0.63) than in 2023-24 but be effectively unchanged against the GBP (0.48) and EUR (0.56).
BLNZ chair Kate Acland acknowledged the sector’s current difficulties but said she remains optimistic about the future.
“It’s been a tough year for many in the industry, and the upcoming season is also shaping up to be challenging. However we are starting to see some positive signs in the market, we know our sector is strong, resilient, and will bounce back even if it may still take some time.”
A sluggish Chinese economy is expected to continue to weigh on sheep prices. China is by far New Zealand’s largest mutton market and remains our largest single lamb market. What happens there also has a big impact on global lamb markets.
The current lift in farmgate prices in New Zealand is being driven by a lack of domestic supply, exacerbated by the drought, rather than an increase in global prices.
Farmgate prices and store markets could be volatile this year due to lumpy supply as farmers look to rebuild from the drought and volumes are down anyway.
The lamb price is projected to be $130 per head, up just 1.1% from last season but still 8.2% below the five-year average. Mutton prices are expected to remain steady at $60 per head, which is 46% below the five-year average.
There are some positives. The all-beef price is forecast to be $5.35/kg, 4.3% above last season and 4.8% above the five-year average, reflecting strong demand in the United States, where the cattle herd is at its lowest level in over 70 years.
European and North American markets are also expected to remain solid for lamb.
There has also been a significant decrease in lamb processing in Australia in the past few weeks.
If this trend continues, that coupled with less expected supply from New Zealand, the European Union and United Kingdom, could see global lamb prices lift higher than currently forecast.
As sheep revenue represents about 42% of average farm revenue, what happens with these prices is key to the speed of a recovery in farm profitability.
Export volumes for NZ red meat are expected to be lower in the coming season, with lamb down around 7%, mutton down 7%, and beef down 3%.
This is due to a significant decrease in sheep and cattle numbers driven by drought this year. Lamb production is also expected to be down significantly due to the fall in ewe numbers and a lower lambing percentage because of the drought.
The outlook says the state of the global economy is mixed. Most economies are still in recovery mode, while others, particularly China, remain weak.
The challenge of reducing inflation is expected to be mostly “solved” in New Zealand’s key markets for the outlook period, barring any major event. There are also ongoing shipping issues with costs spiking to a new peak and potential risks in trade policies.
