South Island sheep and beef farmers are facing a 20% drop in pre-tax profit this season, driven by decreased revenue from sheep, wool and cropping.
Beef and Lamb New Zealand has released its mid-season update, which shows drought and the ratio of sheep to cattle farmed were the two factors with the biggest impact on incomes.
Six months ago, its new season outlook predicted average farm profit before tax New Zealand-wide would be about $110,800 for 2014-15.
But those predictions were based on the assumption that climatic conditions would be normal and this season had proved to be ''far from normal'', Beef and Lamb New Zealand economic service chief economist Andrew Burtt said.
While average farm profit before tax had been adjusted slightly downwards to $109,400 nationally, North Island profits were expected to increase 19% to $117,100, compared with last season.
South Island profit was predicted to drop 20% to $100,200, compared with last season, the difference being the ratio of sheep to cattle farmed, with cattle making up greater numbers in the north.
Farm-gate prices for cattle were expected to reach record highs this season on the back of strong demand and tight supplies, particularly in the United States.
In Otago-Southland, gross farm revenue was expected to decrease 3.3% to $424,900 for 2014-15, due to a 7.5% decrease in sheep revenue, as a result of lower prime and store lamb prices.
Wool revenue was predicted to fall 7.2% to $64,700, while cattle revenue should increase 26% to $51,200.
Total farmer expenditure in the region would increase 1.5% to $323,800, with increases in expenditure on fertiliser and wages being the largest drivers.
Nationally, the 2014-15 export lamb slaughter was forecast to fall 2.6% from the previous season, to 19.8 million head, largely reflecting an increase in non-trade hoggets retained, with the flock expected to recover slightly in the year to June 30.
However, continued dry conditions could see lamb production lift.
The farm-gate price for lambs was expected to average $97 per head, down 2.7% from the 2013-14 price of $100.
The annual farm-gate mutton price was estimated to remain unchanged at $76 per head .
ASB's latest Farmshed Economics report said the average over the past four weeks for a 17.5kg lamb was about 8% below the same period last year.
For the year so far, both supply and demand had conspired to push down prices.
The drought had lifted supply temporarily, although demand remained in a soft patch.
Chinese demand was at a low ebb, demand from the Middle East was also weak following the plunge in oil prices, and the low euro was hurting demand from Europe.
However, rural economist Nathan Penny saw many of those factors as temporary and, as they passed, lamb prices should firm through the middle of the year.
The mid-season update showed total beef and veal returns were expected to grow by 24% to $3.49 billion FOB in 2014-15, mainly driven by a 31% rise in the average value of beef exports, compared with the previous record high achieved in 2013-14.
However, the value of co-product exports was expected to fall by 9.1% to $482 million FOB in 2014-15.
Total wool production was forecast to fall 5.4% to 155,200 tonnes greasy reflecting a decline in both shorn wool and slipe wool production.
The outlook for 2014-15 was for wool exports to decline 5.4%.
Average returns were also expected to decline, leading to an 8.8% drop in total wool receipts, compared with 2013-14.
The overall auction wool price for 2014-15 was forecast to decrease 1.6% on the previous year, reflecting a drop in fine wool auction price.
Medium and strong auction prices were expected to remain relatively stable.
Dairy grazing revenue was anticipated to increase 8.3% to $22,100, due to more dairy heifers being grazed on sheep and beef properties as part of the expansion of the dairy industry and a small increase in the per head grazing fee.
Cash cropping revenue was forecast to drop 8.2%, reflecting the dry conditions and subsequent reduction in yields.
