Beef + Lamb NZ releases New Season Outlook

Beef + Lamb New Zealand releases New Season Outlook
Beef + Lamb New Zealand’s (B+LNZ) New Season Outlook is predicting that the good demand for New Zealand lamb and beef will continue. This outlook is underpinned by the continuing tight global supplies, particularly for lamb.

B+LNZ releases its New Season Outlook each spring and this year it sees beef and lamb export receipts totalling $4.7 billion, 1.6 per cent less than last year. The decrease predominantly reflects a 3.5 per cent decrease in meat shipments to world markets, while lamb prices per tonne held on last year and beef prices lifted 3.0 per cent.

B+LNZ Economic Service Director, Rob Davison says because New Zealand exports 82 per cent of its beef and 92 per cent of its lamb, it’s the international market prices that drive the sheep and beef sector as it is those prices that dominate.

“In terms of lamb production, New Zealand’s breeding ewe flock has more or less stabilised ( 0.6%) for lambing this spring, after decreasing 15 per cent over the past two years from land use change and drought.

“Indications from scanning results are that the lambing percentage will be back 2.5 percentage points on last year’s record resulting in a lamb crop of 27.6 million, down 2.5 per cent on last spring.

“The expectation is that fewer replacement lambs will be kept following a high retention last year to leave export lamb shipments down 1.7 per cent on last year.”

Beef cattle numbers at 3.92 million this June were 1.3 per cent down on the previous year. Expectations are that beef production shipped this year will decline 5 per cent from a lower cull cow slaughter as new dairy herds consolidate, a continuation of conversions from sheep and beef farms to dairy, but at a slower rate than recent years. There will be some re-stocking in Northland and the Waikato following last season’s dry conditions.

Steer and heifer production reflects the decline in beef cow numbers in recent years though bull beef lifts (+0.9%) because of a slight increase in bull beef calves in recent years. This was mainly due to improved margins for calf rearers in the spring of 2009. However, more bulls are expected to be finished at 18 to 20 months than in recent years for cash flow reasons.

The New Zealand exchange rate continues to loosely follow Australian and Canadian currency trends that are weighted towards oil and mineral commodities.

“Where the exchange rate lies between November and June when the majority of farm production is sold, will have a large influence on sheep and beef profitability at the farm level and export earnings.

“Based on a more optimistic exchange rate assumption than today of a 68 cents/US$ exchange rate and its associated cross rates, all classes average sheep and beef farm profitability before tax is estimated to average $54,000 per farm for 2010-11, down 5 per cent on 2009-10.

“At a less export favourable exchange rate of 72 cents US to the NZ dollar this would see sheep and beef farm profitability fall to $34,000 per farm.”

The steep fall in profitability from a less export favourable strong exchange rate links in the short term to farm expenditure remaining largely fixed and Gross Farm Revenue falling from lower per head export prices received at the farm gate.

The table below illustrates the sensitivity of farm gate prices under a range of US exchange rates and the associated cross rates for 2010-11.

The all classes ‘average’ sheep and beef farm sells 1,620 export lambs, 250 export sheep and 92 prime cattle.

“Doing the maths at US 72 cents exchange rate compared with US 68 cents equates to a drop in Gross Farm Revenue of $18,000 per farm which flows to the bottom line farm profit before tax. Alternatively a more favourable exchange rate would boost farm profitability $22,250 per farm and would be welcome.”

Mr Davison said everything has been set for this year’s production but the big uncertainty is where the exchange rate will lie and what this will deliver to the export sector.

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

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