South no longer land of sheep

Southland was once the most intensively sheep-farmed region in the country, but new research showed the economy was now more reliant on the dairy industry than it was sheep.

The managing director of Invercargill-based Agribusiness Consultants, Ivan Lines, has calculated direct annual income from the dairy industry at more than $930 million, twice that of sheep, which has been estimated at $430 million.

He said that nearly a decade ago there were six million ewes in Southland, but today the flock had shrunk to just over three million.

In 1998-99, there were 467 dairy herds in Southland milking 170,000 cows, but by 2007-08 there were 750 herds with more than 360,000 cows.

In Otago, the shift was less pronounced, with herd numbers increasing from 292 milking 112,000 cows in 1998-99 to 331 herds milking 170,000 in 2007-08.

Mr Lines said in an interview the Southland economy was now more balanced, giving farmers more choice, such as dairy support, or raising bull beef.

But it was also heavily exposed to the fortunes of the dairy industry.

"If the dairy industry gets a cold, it has a pretty major influence on the economy," Mr Lines said.

A recent seminar at Invermay showed just how the fortunes of the two industries had changed, with the forecast milk price falling from $7.66 a kg milk solids (kg/ms) in 2007-08, to $5.20 kg/ms this year and a forecast $4.55 kg/ms next year.

Gore farm consultant Graham Butcher, of Rural Solutions, said last year when lambs sold for $50 to $55 each, dairy support such as winter grazing of cows and young stock was viable.

Sheep farmers were receiving $30 a cow a week for grazing last winter, but this year grazing prices had fallen about $20 or $25 a week a cow, prices driven down by a combination of oversupply of grazing and a reluctance by dairy farmers to commit to grazing early.

This had occurred as lamb was making closer to $90 per unit, and Mr Butcher said gross margins achieved from lamb finishing were now comparable and, in some cases, ahead of winter dairy grazing.

"The sheep industry is catching up," he said in an interview.

Mr Butcher said the lower milk price meant dairy farmers were slashing discretionary spending, and while winter grazing was still considered essential spending, he said competition from lamb and an oversupply of grazing this year could see fewer sheep farmers doing it next year.

The Meat and Wool New Zealand-sponsored seminar was designed to help sheep and beef farmers benefit from the financial windfall they enjoyed this season.

Ashburton farm consultant Phil Everest warned that sheep and beef farmers risked repeating the mistakes of dairy farmers by eroding higher incomes through increasing farm expenses.

He said when the milk price hit $7.66 a kg/ms, operating expenses on Southland owner-operator farms blew out to over $4.60 kg/ms.

With a forecast milk price of $4.55 kg/ms next season, many were now pruning operating expenses to $3.40 kg/ms.

The dairy industry also used its prosperity to buy land, with Southland prices rising 60% between September 2006 and July 2008 compared with a 29% rise in Canterbury and a 33% increase in Waikato.

Mr Everest reminded sheep and beef farmers that product prices tended to follow cycles and they should contain costs and position themselves for an inevitable turnaround in fortunes, and that included repaying debt.

"Cost control should be your number one objective, so that when income does drop, expenditure can also," Mr Everest said.