EAST Coast sheep and beef farm profits are expected to drop 30 percent over the next year but agricultural advisers say there is still plenty to be positive about in the industry.
Figures from Beef + Lamb New Zealand’s New Season Outlook report for the 2012-13 season show a 27.5 percent decline.
It also points out that since profits were up in the past two years, the recent drop could be interpreted as a “correction” or “balancing out”.
B+LNZ chairman and director for the East Coast region Mike Petersen said there was still a lot to be happy about, despite the drop.
“Although the drop in profits is largely due to lower returns from mutton, lamb and wool — which make up a large proportion of our income — the East Coast lambing percentage is expected to be up 4 percentage points on last season, to 127 percent,” he said.
“This is mainly thanks to ewes being in great condition at tupping.
“On top of that, more of us opted to put the ram out with our ewe hoggets.
“As a result, 34 percent more lambs from hoggets are predicted compared to last spring.”
Farm consultant Peter Andrew of AgFirst Gisborne highlighted the positive aspects of the local sheep and beef sector.
“We have a high percentage of cattle in the Gisborne district — one of the highest in New Zealand at almost 50 percent — and prices look good,” he said.
“Droughts in the US and the impact on the beef market are only going to be positive for New Zealand beef pricing for the next couple of years.
Mr Andrew said the great profitability of recent years had meant that a lot of farms’ debt levels had dropped — and this compared to interest rate levels as well.
“We are well-positioned to absorb this drop, especially in mutton, beef and wool.”
Lyall Evans, of BDO Gisborne, said the predicted decline was not unexpected and was in line with everything he had read to date and had been told by clients.
“The record profitability of sheep and beef farmers in the past two years is not expected to continue this financial year, due to lower New Zealand dollar prices for sheep, meat and wool,” he said.
“The strength of our currency versus the Euro and US dollar is not helpful, and a worry for all New Zealand exporters, including farmers.
“A real concern are the reports by processors of unsold sheep meat, which indicates farmers may have received poor pricing signals from the meat companies last season that did not match the market the companies were selling into.
“Wool prices appear to have fallen totally out of bed from the previous year and rising costs coming from councils and energy inputs are also difficult for farmers.”
However, farmers in the Gisborne area in general had improved their financial positions over the past two years, with large reductions in debt, said Mr Evans.
“Farmers will be more resilient to the drops in sheep and wool revenue than they would have been three years ago.
“The year in prospect might see minimal cash surplus (if any at all) after tax, drawings and capital expenditure.”