Farm profit expected to fall 54pc

Waikato and Northland are among the regions worst affected by the dry summer weather. Photo / Christine Cornege

Sheep and beef farmers may be in for a tough time with profits predicted to halve this season as the full impact of lower lamb prices and widespread drought starts to hit home.

Beef and Lamb New Zealand's economic service mid-season update has estimated 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, largely due to sharply lower lamb prices and a consequent 27 per cent decrease in sheep revenue.

In Otago-Southland, farm profit before tax was expected to decrease 46 per cent to $114,100 per farm, while total gross revenue was predicted to decrease 21 per cent to $403,300.

Sheep account revenue was expected to fall 27 per cent to $252,000, and cattle account revenue was expected to fall 3.7 per cent and wool revenue 21 per cent.

North Otago Federated Farmers president Richard Strowger, who is on the rural lobby organisation's meat and fibre national executive, said farmers needed to "once and for all" take stock of their industry.

The only way they could do that was to support two co-operatives, as that was the only way they would have a voice.

"If farmers are sick of what it is, they have to decide who is going to give them the best income and direction over the next 20 years and support that company," he said.

While it might be "rough" initially, they needed to make that decision and get on and support that company.

Otherwise, more and more sheep and beef land was going to be lost to dairy support. "If it can't dairy, it'll go dairy support," he said.

Farmers seemed to be struggling to get a consensus of what was the best way forward. Farmers tended to blame meat companies and meat companies tended to blame farmers but that behaviour had to stop, Mr Strowger said.

While lamb numbers were up nationwide, thanks to a 123 per cent lambing last spring and more hoggets producing lambs, that was not sufficient to offset the lower lamb price and impact of drought, Beef and Lamb NZ economic service executive director Rob Davison said.

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

"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 returns profits to levels similar to the first decade of this century," Mr Davison said.

Maintaining prices for lamb would be "challenging". Europe's debt crisis was far from being solved and there was almost no growth in the region, there were concerns about economic prospects for the United States and China's economic growth had slowed to the lowest rate in a decade, he said.

Cattle returns were predicted to drop 8.8 per cent but the outlook was "relatively positive", thanks to the supply situation in the US.

Three years of drought had reduced the country's total cattle numbers to 89.3 million head, the lowest tally since 1952.

The beef cow herd was the smallest it had been in decades and it would take years to rebuild breeding numbers, he said.