This year looking good for beef, dairy

Sheep farmers face the toughest outlook in 2013 after big price falls. Photo / Glenn Taylor

The signs are mildly positive for the dairy and beef sectors this year, but the outlook for sheep farmers does not look quite so rosy, agricultural economists said.

Farmers across the board will face the likelihood of a rising New Zealand dollar, which analysts say will remain well above its long-term average throughout 2013.

The Bank of New Zealand expects "stubborn strength" in the dollar to continue this year and for dips below US80c (95c) to be short-lived.

Federated Farmers president Bruce Wills said farmers were going to face the headwinds of an elevated currency for some time yet. "It's probably going to go higher before it goes lower," he said.

So far this year, the Kiwi has shown no signs of retreating.

Beef and dairy farmers can be expected to benefit from severe drought conditions that are gripping the United States, which have led to smaller herds and higher feed costs.

About 62 per cent of the continental United States experienced drought last year. In some states, the drought has been as severe as the so-called "dust bowl" years of the Great Depression.

As a result, US beef prices are at record highs, but the strong New Zealand dollar over the past year has wiped out much of the resulting gains for New Zealand farmers.

Weather-wise, 2013 has started well for most Kiwi farmers.

Federated Farmers said this week that much of New Zealand's farmland had benefited from summer rain, except for Hawke's Bay and parts of Gisborne.

The dairy season started poorly last June but has since picked up some momentum.

On the flipside, sheepmeat and wool prices have recorded big price falls. Sheepmeat lost about 40 per cent in the last six months and lamb prices have dropped by about one third in the last 12 months.

Despite the problems facing pastoral farming, Wills remained upbeat, based on world population growth and growth in the number of people who can afford better nutrition.

Eventual improvements in the US and European economy will take some of heat out of the New Zealand dollar, he says.

Westpac expects recovering economic activity in China over 2013 to drive demand for dairy products, while the lingering effects of drought in the US and elsewhere continue to constrain supply, which should result in higher prices.