September 18, 2012

 

 

New Zealand beef and sheep farmers are likely to expect lower profits in the current season due to weaker demand in Europe and strong New Zealand dollar.

 

Industry representative group Beef + Lamb New Zealand expects the average farm profit before tax to settle at around NZD96,500 (US$80,000) for the year to May 31 2013, down 34% on the previous year though still ahead of profit recorded in the 2010 season.

 

"While disappointing, it's not entirely unexpected given the global recession," Beef + Lamb New Zealand Economic Service Executive Director Rob Davison said in a statement. He added in a phone interview the fall in farm profits is largely due to lower prices for wool and lamb as beef revenue is expected to hold steady.

 

Profits on beef and lamb farms have risen over the last two seasons, boosted by growing demand for red meat and wool from emerging markets and a fall in supply as beef and sheep farms globally have moved into dairy.

 

Red meat is New Zealand's second-largest export, accounting for around NZD5 billion (US$4.1 billion) of outbound shipments annually, while wool accounts for around NZD717 million (US$593 million) of exports each year. New Zealand's economy remains reliant on the strength of its export products and any weakness in soft commodity prices is of concern.

 

Beef + Lamb New Zealand in its annual forecast said it expects wool exports for the year to fall 17.1% to NZD644 million (US$533 million) and lamb exports to fall 8.7% to NZD230 million (US$190 million). Beef exports, though, are expected to rise 7.5% to NZD2.6 billion (US$2.1 billion).

 

Davison said that if the New Zealand dollar falls below US$0.8000 then it would improve returns to farmers although a higher exchange rate would have the opposite effect.

 

"What is important is where the exchange rate will be from November to June when the majority of production is exported," he said.

 

The New Zealand dollar is currently trading around US$0.8280 and is at its highest level since March 2012. New Zealand lamb is particularly influenced by the economic situation in Europe as this is the major market for the country's prime cuts.

 

"The profit decrease directly reflects head winds from the recessionary trends in Europe and flow-on from the global financial crisis that continue to lower economic activity and confidence around the world," said Davison.

 

He said, however, China was growing in importance as an export market for New Zealand lamb and is now New Zealand's fourth-largest single country market.