High dollar hammers sheep and beef outlook

Media Release

20 July 2007

High dollar hammers sheep and beef outlook

The 2007-08 outlook for sheep and beef farmers is grim if the current high exchange rates continue for the next 12 months, Meat & Wool New Zealand Chairman, Mike Petersen says.

"Under the current 79-80 US exchange rate, gross farm revenue decreases 9 per cent to $3.6 billion. This reduction totals $400 million or $26,000 at the farm gate, for the average commercial sheep and beef farmer and it follows from two tough years."

Off‑shore lamb, beef and wool prices are expected to increase this year, however the high exchange rate erodes these prices to less than last year in New Zealand dollar terms. This is in contrast to the phenomenally steep rise in global dairy prices where the increase has outpaced the exchange rate increase.

Mr Petersen said it needs to be remembered that the primary sector is one of the major engines of the economy, generating 65 per cent of export receipts. Dairy alone with its forecast $1.3 billion increase would make up around 25 per cent of export receipts but the other 40 per cent of export receipts, attributed to the primary sector, is under extreme pressure from lower export earnings in New Zealand dollar terms due to the high exchange rate.

Every 1 cent US exchange rate change on an annual basis would either add or decrease $85.0 million to the meat and wool sector based on its $5. 4 billion contribution to export receipts.

Mr Petersen said on top of the dominant currency effect, higher input prices are combining to halve farm profits before tax for 2007/08.
The outlook for meat and wool products from New Zealand 3-5 years out is fundamentally strong. However, the currency level in the next 12 months will determine the impact on farmers, their support industries and the New Zealand economy.

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