Farm profits in New Zealand could fall by 54% this financial year to an average of NZ$62,600 (€35,282) per farm, a new report has warned.
The Beef and Lamb New Zealand’s (B+LNZ) mid-season update states that the outlook for 2023-24 has “worsened significantly” since its previous forecast in October.
The updated forecast represents a 67% fall in farm profit from the 2021-22 year to levels not seen since the 1980s, except for during the global financial crisis.
Although there was an excellent lamb crop last spring resulting in more lambs to sell, this cannot compensate for lower per head prices and unavoidably high costs.
Farm profits
B+LNZ has pointed to the slow economic recovery in China, resulting in decreased demand and lower farm-gate prices, especially for lamb and mutton.
The increased supply of red meat exports from Australia into international markets is also contributing to a global reduction in prices.
The report states that both of these dynamics are not expected to change much before the end of the season.
As a result, B+LNZ said that New Zealand farmers will have to “continue to dig deep to stem what looks like widespread cash losses in the sheep and beef sector”.
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 651c/kg carcass weight (CW), 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 241c/kg CW, 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.
B+LNZ said that demand for lamb in Europe and the US has also been strong and this is expected to continue for the rest of the season.
The report notes that New Zealand beef has “held up much better”, driven by significant demand out of the US as it rebuilds its herd post-drought.
Beef is forecast to average NZ$5.15 (€2.90)/kg CW for the season, which is 2.9% down on last year, but 2% higher than the five-year average.
New Zealand
Sam McIvor, B+LNZ chief executive, said that input costs remain stubbornly high.
“We know 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,” he said.
McIvor said that interest rates in New Zealand are also a significant issue for farmers meaning that “the sector will need to draw on its traditional ability to weather cyclical tough times and on its tenacity”.
“I would expect bankers will be working to support farmers during this tough period, as the sector’s longer-term prospects are strong and it will recover,” he said.