Tough outlook for sheep and beef

A range of factors including currency fluctuations, a weak and volatile outlook for lamb and wool, plus the impact of drought and facial eczema will impact on sheep and beef farmer profitability this season.

The Beef + Lamb New Zealand New Season Outlook 2016-17 predicts beef prices to remain favourable and limited availability should ensure good returns for breeders, however competition for store stock is likely to reduce the margins for those finishing farmers, Beef + Lamb New Zealand chief operating officer Cros Spooner says.

While sheepmeat prices are uncertain, farmer reports indicate that it has been a very favourable lambing with high survival.

The Outlook predicts that the average farm profit before tax on sheep and beef farms in New Zealand will fall 13 per cent to $67,000 this season.

"This outlook sets the scene for a tough year and we'll see farmers tightly control expenditure and focus on what can be optimised behind the farm gate to make the most of the season and be best placed for the next," Spooner says.

"With the completion of lambing and calving, the season is essentially set for farmers.

Depending on their location, farmers will be implementing strategies to maximise returns.

"For example those in Southland have had a good autumn, mild winter and spring, which has provided ideal conditions for lambing.

Southland farmers are most dependent on sheepmeat prices, and to combat the lower per kilogram prices we're likely to see farmers considering taking lambs to higher carcase weights and we may see higher hogget mating this year.

"At the other extreme, those in North Canterbury and parts of Wairarapa and Hawke's Bay have faced a dry summer, autumn and winter and this has continued into spring.

"These farmers have reduced stock numbers but will be concerned by the continuing dry conditions. The uncertainty for these farmers is when it will rain.

They'll want to concentrate on growing their lambs, ensuring their ewes and hoggets are in good condition and looking to bring on finishing stock. However, availability and price is already indicating this will be challenging.

"Facial eczema was widespread and farmers will be looking closely at climatic trends that might provide early warnings this season."

Spooner says much of the outlook depends on the value of the New Zealand dollar, which is at 71 cents against the US dollar at the moment, up 8 cents on this time last year.

"While this is good news for importing oil, televisions and other consumer goods because fewer New Zealand dollars are needed to buy these items, it cuts back New Zealand's export receipts.

This particularly impacts on sheep and beef farms because around 90 per cent of production is exported, and domestic meat prices reflect the export price."

"This season, New Zealand's 11,300 commercial sheep and beef farmers will spend a total of $4.2 billion on fertiliser, interest, repairs and maintenance and general farm operating items, down $80 million on last year 2 by per cent.

Much of the profit decline is the result of a fall in wool (11 per cent), lamb and sheep revenue (2.4 per cent) and dairy grazing revenue (11 per cent).

Cattle revenue is expected to be similar to last year with production up slightly but a continuation of the United States dollar at its current level would reduce cattle revenue.

Spooner says international demand is expected to remain reasonable for beef this year, while tight sheepmeat supplies in Australia and New Zealand could support prices, with the unknown factor centred on the exchange rate trend for 2016-17.