Sheep and beef: Farm profits forecast to plunge 54 per cent

Farmers hardest hit are those with a heavier reliance on sheep revenue. Photo / Rowena Duncum

Times are tough and farmers will have to continue to dig deep to stem what looks like widespread cash losses in the sheep and beef sector for the 23/24 financial year, according to a new report.

The latest Beef + Lamb New Zealand mid-season update 2023-24 shows the outlook has worsened significantly since its forecasts in October, because there has been no recovery in China, and Australian exports of red meat have been bigger than originally forecast.

The report said an excellent lamb crop last spring meant more lambs to sell, but this couldn’t compensate for lower per-head prices and unavoidably high costs.

Farm profits are forecast to be down 54 per cent to an average of $62,600 per farm.

This is a 67 per cent fall in farm profit from the 2021-22 year to levels not seen since the 1980s, except for during the Global Financial Crisis.

China’s economic recovery remains slow, resulting in decreased demand and lower farm-gate prices, especially for lamb and mutton.

Increased supply from Australia into international meat markets also contributed to a global reduction in prices.

Both of these dynamics were not expected to change much before the end of the season.

As a result, the forecast for lamb and mutton prices for the season has been revised downwards.

The annual weighted average all classes lamb price for 2023-24 is estimated at 651 c/kgCW1, down 12 per cent on 2022-23 and 13 per cent lower than the five-year average.

The annual weighted average all classes mutton price for 2023-24 is estimated at 241 c/kgCW, down 34 per cent on 2022-23 and 49 per cent lower than the five-year average.

New Zealand’s export receipts for lamb and mutton are forecast to be down 4.8 per cent and nearly 20 per cent respectively on last year.

However, there are some positive trends.

Beef has held up much better, driven by significant demand out of the United States as it rebuilds its herd post-drought.

All beef is forecast to average $5.15 per kgCW for the season, which is 2.9 per cent down on last year, but 2 per cent higher than the five-year average.

Listen to Jamie Mackay interview Beef + Lamb NZ chair Kate Acland on The Country below:

Demand for lamb in Europe and the US has also been strong which is expected to continue for the rest of the season.

Certain farm classes, such as high country, hard hill country, and South Island hill country, are hardest hit with profitability due to their heavier reliance on sheep revenue.

The East Coast region, still recovering from Cyclone Gabrielle and ongoing wet weather setbacks in 2023, is projected to have the lowest regional profitability.

Input costs remained “stubbornly high”, Beef+Lamb NZ chief executive Sam McIvor said.

“We know farmers are feeling it, many have already worked hard on cutting costs and my conversations indicate they’re leaving no stone unturned to find additional savings.

“This is especially true for farmers with relatively high debt levels.

“They’re also looking to maximise income and taking stock to heavier weights and where feed allows, this is commonplace.”

The report found interest rates were a significant issue and it was uncertain when these would fall this season - so the sector would need to draw on its traditional ability to weather cyclical tough times and on its tenacity.

McIvor said farmers should speak with their accountants and bank managers about tax planning and cash-flow management.

“I would expect bankers will be working to support farmers during this tough period, as the sector’s longer-term prospects are strong and it will recover.”

Demand in the medium term for New Zealand’s free-range, grass-fed, antibiotic-free, hormone-free, low- emissions red meat is absolutely positive but in the short-term particularly for sheep meat, it’s very challenging.