Farmers look for volume as prices ease

Farm incomes are expected to drop next year but the good news is that returns are expected to pick up in 2007 and grow strongly through to 2009.

The Ministry of Agriculture and Forestry's annual forecast says export receipts for agriculture and forestry will drop by $300 million next year to $15.5 billion.

Strong international prices for dairy, beef and lamb have peaked and the high dollar will hinder exporters.

But as the dollar depreciates and production volumes grow, things are expected to pick up again in most sectors from 2007.

Total primary industry export returns are tipped to grow to $18.7 billion by 2009.

MAF's Situation and Outlook for New Zealand Agriculture and Forestry forecast says tougher times lie ahead for all sectors next year.

"The supply-and-demand conditions that favoured much of the pastoral sector are expected to dissipate over the next 12 months."

That "in combination with higher costs and greater exposure to the high dollar will undermine future profitability".

Dairy revenue is expected to expand in the current March year, mostly due to a rise in milk solids production. Payouts to dairy farmers are expected to be $4 per kg of milk solids in 2006 - down from $4.55 previously.

Lamb numbers are also on the rise and are expected to reach 33.5 million next year.

The increase in production volumes will enable the sector to cash in as the dollar falls.

But beef and venison exporters will be constrained by declines in the numbers of breeding stock.

Total meat exports - of which lamb, beef and venison account for about 90 per cent - were worth a record $4.7 billion in the last March year.

The value of beef exports rose nearly 15 per cent - to $1.9 billion. That growth was driven by the Japanese ban on United States beef, because of fears about mad cow disease, and a shortage of South American beef, because of foot-and-mouth disease.

Beef export values are forecast to fall to $1.72 billion in 2006.

In spite of higher export earnings, poor weather caused lamb export volumes to fall by nearly 2 per cent. New Zealand failed to fill its EU quota for the first time ever in 2005.

The outlook for lamb is strong with value and volume expected to rise - by 2009 the value of exports is expected to exceed $2.26 billion.

Venison export volumes rose 29 per cent as farmers increased their kill and reduced stock numbers. Venison prices fell for the third year in succession.

Wool production rose 6 per cent as sheep numbers grew but the volume of exports declined as did the value. The low farm gate wool price is expected to remain until it starts to rise in 2007.

MAF says large volumes of produce have depressed world horticultural prices so the sector has felt the worst effects of the high exchange rate.

Export prices fell this year and are expected to fall again next year. Despite that, the outlook for kiwifruit and wine growers remains relatively stable but apple growers face an uncertain future.

Apple production next year and in 2007 is expected to fall as growers respond to the difficult conditions - either by leaving the industry or moving to develop new varieties.

Wine export volumes are still rising rapidly and are expected to keep doing so.

The forestry sector still faces many of the challenges that have plagued it for most of this decade - a strong dollar, increasing competition, higher fuel, labour and shipping costs.

But although the short-term outlook remains subdued, the expected depreciation of the dollar and improved export volumes, as new trees mature, should improve profitability for the sector, the report says. 

 

Agriculture - the outlook

MAF says export returns from the primary sectors will fall from $15.8 billion in 2005 to $15.5 billion in 2006. Here is the breakdown by sector.

* Dairy - International dairy prices will fall but the drop in export values is expected to be offset by an increase in production.

* Meat - Exports of beef, lamb and venison were worth a record $4.2 billion in the March 2005 year. Returns are expected to fall next year, in line with an expected drop in export volumes and prices.

* Wool - Production is expected to be stable in 2006. The value of exports will continue to decline although prices should begin to pick up again from 2007.

* Horticulture -  Returns for kiwifruit, apples and wine will all fall next year. The outlook for wine and kiwifruit remains favourable but the apple industry faces a less certain future.

* Forestry - Export volumes will continue to grow as more trees reach maturity. Returns will continue to decline although a falling dollar and easing shipping costs should help improve profits by 2007.