Grim year for sheep and beef sector

The Ministry of Agriculture and Forestry's (MAF) 2006 monitoring report into the status of the sheep and beef farming sectors reports a tough past year, but some optimism about the near future.

The author of the Sheep and Beef Monitoring Report, John Greer, says the key issue for sheep farmers in the 2005/06 year was a sharp fall in export lamb prices - down by nine to ten dollars a head. Beef and wool revenue also declined.

The report is part of an annual process where MAF monitors the production and financial status of farms. Trends, issues, and sector concerns are also monitored. The reports are based on model farms designed to best typify average farming operations within specific regions and information for each model is drawn from real growers and a wide cross-section of agribusiness.

The drop in lamb returns saw the cash farm revenue on the national sheep and beef model fall eight per cent to $320,800, despite a record high lambing percentage.

"Farmers were unable to slow their operating or capital spending in the face of the decline in product prices and revenue from December 2005," John Greer says. "Consequently a disposable deficit of $45,300 was incurred on the model sheep farm.

Mr Greer says sheep farmers continue to focus on improving productivity, with changes in sheep breeds to improve lambing percentage being a common approach. "Farmers are also changing pasture varieties and using nitrogen strategically in order to up production."

With cattle, the report finds farmers are deploying tactics such as buying weaner bulls instead of bull calves, buying younger trading cattle and holding onto their cattle longer in a bid to maintain trading margins.

John Greer says because farmers have spent above maintenance levels on fertiliser, repairs and maintenance in recent years, many are feeling comfortable deferring spending in these areas for the next couple of years.

Finding good quality permanent labour has proved an issue for farmers, putting stress on them and their families.

Looking to the future, the lamb price is expected to rise four to five dollars per head in 2006/07.

The report says the industry predicts stock numbers will increase slightly and gross farm revenue is expected to increase five per cent to $339,000.

"This is, however, dependent on farmers' assumptions for lambing percentages to hold and prices to improve as predicted. For many of the models, industry observers felt farmers were a little optimistic in their estimate of lambing percentage," Mr Greer says.

Cash farm expenditure is expected to increase slightly overall. But Mr Greer says with a dramatic reduction in tax payments expected on the back of the low 2005/06 profit, farmers expect the disposable surplus on the national average sheep and beef model to recover to $5,500. "Overall, financial performance is expected to be better than last year but still at the lower end of the range, with cash farm expenditure at 60 per cent of gross farm revenue, and return on capital only 1.5 per cent."

The report notes that the financial effects of the heavy snows in Canterbury this winter are not yet known. "It is, however, anticipated that farm profitability will be reduced through the cost of feed purchases and reduced stock performance," John Greer says.