Profit margins on sheep and beef farms in New Zealand are expected to drop by a further 30% this season, according to a new report.
The Beef and Lamb New Zealand (B+LNZ) New Season Outlook 2023-24, published today (Wednesday, October 11), shows that global demand for beef and sheepmeat is expected to recover slightly.
However, ongoing increases in farm costs are anticipated to sharply reduce the incomes of sheep and beef farmers for the second year in a row.
The report states that profit before tax for 2023-24 is forecast to average NZ$88,600/farm (€50,354).
After adjusting this figure for inflation, this is equivalent to NZ$54,800/farm (€31,145) in 2004-05 terms.
B+LNZ said that this represents a 25% lower farm profit than what was recorded in 2004-05.
B+LNZ’s chief economist Andrew Burtt said that this will be another tough year for the country’s farmers.
“Farm-gate prices are expected to be similar to last season but increasing costs, driven by inflation and high interest rates, will continue to squeeze farm profitability.
“We’re forecasting farm profitability to fall by 31% for the 2023-24 year, which follows a decline of 32% in 2022-23 and means profits for farmers have more than halved in two years.
“This is a 15-year low, when you take inflation into account. The global outlook for the red meat sector remains fragile,” he said.
B+LNZ said that although demand is expected to recover slightly from last year’s levels, prices are expected to remain soft compared to the highs of two years ago, especially for lamb and mutton.
The pace of China’s economic recovery is also uncertain, while the economies of other key markets remain relatively weak.
Farmers in New Zealand will also face stiff competition from Australian red meat exports to 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 added.
New Zealand exports over 90% of its meat production, so global economic conditions significantly influence farm-gate prices.
The B+LNZ report states that some farmers in New Zealand are likely to not make a profit this coming season.
“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 comes at a time when many farmers are continuing to rebuild farms in the wake of last summer’s cyclones and preparing for potential drought conditions in the coming months as a result of El Nino, which will impact the timing of sales for example.
“The B+LNZ forecast does not take into account the potential increased costs facing farmers from the government’s regulatory reform agenda,” he added.
The B+LNZ chief economist said that “money management is going to be critical this year”.
“Firstly, making sure every farm input is driving productivity and profitability and secondly, working proactively with bankers and accountants to best manage any debt and tax obligations,” he said.