Farmers' profits forecast to halve

Sheep and beef farm profit before tax is expected to fall 54 per cent to an average of $73,000. Photo / Greg Bowker

Drought and lower prices will hit returns, says Beef and Lamb NZ

Sheep and beef farm profits are predicted to halve this season, as the full impact of current lamb prices and drought kick in, Beef and Lamb New Zealand says.

Its mid-season update estimates farm profit before tax for the 2012-13 season will fall 54 per cent on last season, to an average of $73,000 across New Zealand.

This is largely due to sharply lower lamb prices and a consequent 27 per cent decrease in sheep revenue, Beef and Lamb NZ's economic service said.

The service's executive Rob Davison said lamb numbers were up, thanks to a 123 per cent lambing last spring and more hoggets producing lambs. However, this was not sufficient to offset the lower lamb price and impact of drought.

"The forecast average lamb price of $85 per head is down 25 per cent from last season's $113.60, which was the second highest on record," he said.

"This has, understandably, flowed through to farmers' bottom lines, with the result that profit levels will effectively halve for the season ending 30 September 2013. In inflation-adjusted terms, this returned profits to levels similar to the first decade of this century," he said.

Davison said maintaining prices for lamb will be challenging.

"Europe's debt crisis is far from being solved and there is almost no growth in the region," he said.

There were concerns about economic prospects for the US, given its fiscal challenges. And China's economic growth has slowed to the lowest rate in a decade.

Cattle returns are predicted to drop 8.8 per cent, but Davison said the outlook was relatively positive, thanks to the supply situation in the United States.

Three years of drought in the US has reduced the country's total cattle numbers to 89.3 million head - the lowest tally since 1952.

Significantly, the US beef cow herd is the smallest it has been in decades and it will take years to rebuild breeding numbers, Davison said.