Beef + Lamb NZ report finds farm profit margins expected to hit a 15-year low

Beef + Lamb NZ has released its New Season Outlook 2023-24.

While the outlook is for global sheepmeat and beef demand to recover slightly, ongoing increases in farm costs are expected to reduce farmers’ incomes sharply for the second year in a row, according to a new report from Beef + Lamb New Zealand.

The industry organisation’s New Season Outlook 2023-24 predicts “another tough year for farmers”, B+LNZ’s chief economist Andrew Burtt said.

“We’re forecasting farm profitability to fall by 31 per cent for the 2023-24 year, which follows a decline of 32 per cent in 2022-23 and means profits for farmers have more than halved in two years.

Burtt said this was a 15-year low when inflation was taken into account.

“The global outlook for the red meat sector remains fragile.”

While demand is expected to recover slightly from last year, prices are likely to remain soft compared to the highs of two years ago, especially for lamb and mutton.

The pace of China’s economic recovery is uncertain, and the economies of other key markets remain relatively weak.

Fellow red meat exporter Australia is also expected to be highly competitive in New Zealand’s key markets such as China.

“There are further short-term downside risks on these forecasts, should China not recover as quickly as forecast, and if Australia suffers a strong drought its red meat exports would be higher than expected in New Zealand’s key markets,” Burtt said.

New Zealand exported over 90 per cent of its meat production, so global economic conditions significantly influenced farm-gate prices, he said.

Burtt said that, while the sector faced “a challenging year”, this was balanced by strong longer-term fundamentals.

“We expect an improvement as the economies of our key markets recover.

“The global population and demand for protein is expected to continue to grow and therefore the fundamentals for the sector remain sound.”

Listen to Jamie Mackay interview B+LNZ farmer director Nicky Hyslop on The Country below:

Detailed analysis

Farm profit before tax for 2023-24 is forecast to average $88,600 per farm – however, after adjusting for inflation, this is equivalent to $54,800 per farm in 2004-05 terms, a 15-year low and 25 per cent lower than in 2004-05.

“Some farmers are likely to not make a profit this coming season,” Burtt said.

“We expect profitability in all regions and farm classes will decline with sheep-dominant areas most affected, as lamb prices are likely to be flat for the coming season while beef prices are relatively good.”

Burtt said this lower profitability came at a time when many farmers continued to rebuild farms in the wake of last summer’s cyclones and prepared for potential drought conditions in the coming months as a result of El Niño - which would affect the timing of sales, for example.

The B+LNZ forecast didn’t take into account the potential increased costs facing farmers from the government’s regulatory reform agenda, Burtt said.

“Money management is going to be critical this year.”