NZ sheep and beef farm profits predicted to drop

New Zealand sheep and beef profits are predicted to halve this season, as the full impact of current lamb prices and drought kick in.

According to Beef + Lamb NZ Ltd (B+LNZ)’s Economic Service Mid-Season Update, estimates for farm profit before tax for the 2012-2013 season will fall 54 percent on last season, to an average of $73,000 across New Zealand. This is largely due to sharply lower lamb prices and a consequent 27 percent decrease in sheep revenue.

Rob Davison explaining the metrics.B+LNZ Economic Service executive director Rob Davison says lamb numbers themselves were up, thanks to a 123 percent lambing last spring and more hoggets producing lambs. However, this was not sufficient to offset the lower lamb price and impact of drought.

“The forecast average lamb price of $85 per head is down 25 percent from last season’s $113.60 which was the second highest on record. This has, understandably, flowed through to farmers’ bottom lines, with the result that profit levels will effectively halve for the season ending 30 September 2013. In inflation-adjusted terms, this returns profits to levels similar to the first decade of this century.”

Maintaining prices for lamb will be challenging, Davison believes. “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. In addition, China’s economic growth has slowed to the lowest rate in a decade, although it is still at about eight percent,” he says.

Cattle prices are predicted to drop 8.8 percent, but Davison says that the outlook is 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.”

Average gross revenue per farm is estimated to be $409,300 – down 19 percent from last season. Total farm expenditure is estimated to fall only 3.6 percent to $336,000.

The full report is available here.

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