Better prices for sheep and beef this season

Media Release
_18 August 2008

Better prices for sheep and beef farmers this season

Sheep and beef farm profits will be much better next season with improved in-market prices for lamb, beef and strong wool due to tightening supply and some depreciation in the New Zealand exchange rate, according to Meat & Wool New Zealand's New Season Outlook 2008-2009.

Meat & Wool New Zealand Economic Service Executive Director, Rob Davison says sheep and beef farm profit per farm is expected to lift significantly from an average of $19,400 (2007‑2008) to $53,000 (2008-2009). Conditions will improve further if the New Zealand dollar continues its expected downward trend against all major currencies.

"While we would like to see farm-gate returns improve more, this will be a vast improvement on the previous season which is on record as the lowest sheep and beef farm profit in at least 50 years, in inflation adjusted terms."

Gross farm revenue next season is forecast to increase $575 million to $4.50 billion at the farm-gate. $3.78 billion or 84 per cent of the receipts are spent on farm operating expenditure (e.g. fuel, shearing and local government rates). The remaining $720 million (16 per cent) is farm profit before tax which is spent on mortgage repayments, tax, capital equipment replacement and farm family living expenses.

Mr Davison said while farm profits for next season will be better, they will remain below 1999-2000 to 2004-2005 levels because of high on-farm costs (+10.4%) and lost production from the wide-spread dry conditions experienced by many regions last year.

Mr Davison said FOB meat and wool exports receipts were forecast to decrease 2.8 per cent to $5.5 billion for the year ended September 2009 and this reflected a 15 per cent decrease in export volumes of wool, mutton and beef, masking the gains of improved prices.

_Based on an assumption of a 75 cents/US exchange rate, the average price for lamb would increase from $56 last season to $73 this coming season. If the New Zealand dollar were to depreciate to 70 cents against the US dollar and equivalent currencies, returns for lamb would increase to around $79.

Strong wool prices are forecast to increase with reduced supplies for the coming season and also the depreciating exchange rate. In-market prices for fine and mid-micron wool are picked to be flat as slowing economic growth impacts on retail sales for woollen apparel in both the United States and Europe.

Mr Davison said a 75 cents US/NZ exchange rate should improve beef prices by 15 per cent at the farm-gate. Another 8 percent could be added if the dollar went down to 70 cents. Underpinning this upward trend is increased feed costs for grain-fed beef and strong demand from Asia and European markets for grass-fed beef.

"Reduced global supplies of lamb, wool and beef are the main drivers of pricing increases and given the trend towards falling stock numbers globally, this will be a feature for several years to come," he said.

ENDS

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