Sheep and beef farmers face a tough year if the New Zealand dollar stays high, with average pre-tax profits predicted to fall 13%.
Currency fluctuations, a weak and volatile outlook for lamb and wool, plus the impact of drought and facial eczema in the North Island, would impact profitability, Beef + Lamb New Zealand's 2016-17 new season outlook says.
''This outlook sets the scene for a tough year and we'll see farmers tightly control expenditure and focus on what can be optimised behind the farm gate to make the most of the season ... ''
B+LNZ chief operating officer Cros Spooner said.
The outlook depended on the value of the New Zealand dollar which, while good news for importing oil, televisions and consumer goods, cut New Zealand's export receipts.
The weakness of sterling since the Brexit referendum in June also had a negative impact, as the United Kingdom normally accounted for 20% of New Zealand's lamb exports.
While sheepmeat prices were uncertain, farmers reported it had been a very favourable lambing with high survival.
International demand was expected to remain reasonable for beef this year, while tight sheepmeat supplies in Australia and New Zealand had potential to support prices with the unknown factor firmly centred on the exchange rate trend for 2016-17.
''In this context, any improvement in export prices is primarily expected to come from a weaker New Zealand dollar, but there is considerable uncertainty whether that will happen,'' Mr Spooner said.
For the year ending September 2017, the export lamb slaughter was forecast to drop 1.8% to 19.5 million, reflecting a smaller lamb crop (down 2.4%) and sufficient replacements retained to leave sheep numbers little changed at June 30, 2017.
This season, sheep and beef farmers would spend a total of $4.2 billion on fertiliser, interest, repairs and maintenance and general farm operating items, down $80 million on last year.
In Otago-Southland, gross farm revenue was expected to decrease 2.4% to $383,500 per farm for 2016-17.
Sheep revenue was predicted to drop 0.9%, reflecting lower lamb prices and a decrease in lambs sold due to fewer breeding ewes, while there was some offset from slightly increased works ewe prices.
Cattle revenue was expected to decrease 2.4% to $49,000 due to lower prices.
Total cattle numbers increased in Otago in response to stronger prices while remaining static in Southland.