Better times for sheep and beef farmers

2 September 2011

Sheep and beef farm income increased dramatically last year with a 75 per cent rise in before tax profit, compared with the previous year. This was a welcome change to a run of poor profit years including a 50 year low in 2007-08, according to the latest Beef + Lamb New Zealand (B+LNZ) Economic Service New Season Outlook.

B+LNZ Economic Service Executive Director, Rob Davison said the increased returns came from a significant lift in international prices for meat and wool.

“At the farm gate, lamb was up 43 per cent, sheep meat 62 per cent while wool was up 43 per cent (from the previous year’s 100 year low) and beef was up 18 per cent.

“These price increases occurred despite the New Zealand dollar appreciating against the currencies in which the products were traded. The New Zealand dollar was up 11.0 per cent against the USD.”

For the current farming year just started, the outlook is for sheep and beef farm profit before tax to fall 7 per cent, largely from a stronger exchange rate. The outlook scenario is centred on the New Zealand dollar strengthening 2.5 per cent against the USD, 2.2 per cent against the GBP and 4.6 per cent against the Euro.

“This leaves gross farm revenue virtually unchanged (+1.2%) but on-farm expenditure is expected to increase 4.2 per cent with fertilizer usage up relative to recent years.”

Davison says farm profit is spent on tax first and then tax paid profit goes on debt reduction, capital machinery purchases and farm family living expenses.

During the five year period of low farm profitability (2005-2009), cash deficits were made up from increased borrowing - higher overdraft levels and refinancing term debt.

For the 2011-12 year, lamb export receipts are expected to remain similar to the previous year at $2.9 billion. Increased lamb shipments (+4.8%) are offset by the stronger exchange rate scenario. The increased volume of lamb shipped comes from an expected improved lamb crop, despite the 2.5 per cent decrease in the ewe flock this year.

Beef export receipts are expected to decrease 2.1 per cent to $2.6 billion with export volumes up 3.1 per cent but the FOB price per tonne down 5 per cent from an expected increase in the exchange rate.

Davison says wool production is estimated to decrease 1.3 per cent due to smaller sheep numbers but with some offset from an increased clip per head. Wool export receipts are estimated to remain similar to the previous year at $718 million.

The full report is on the Beef + Lamb New Zealand website at: www.beeflambnz.com/economicservice .

ENDS

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