Meat and Wool New Zealand Economic Service executive director Rob Davison said that at current exchange rate levels, 75% of in-market gains from last year would be wiped out.
Last year, the average lamb price to farmers was $89, but with sterling also appreciating rapidly against the New Zealand dollar, Mr Davison said that same lamb would be worth $66.
"This is not a good price in New Zealand dollars, given the 21% inflation in input prices to run farms over the last three years."
But the key period for lamb exports, and therefore exchange rates, was November to June, Mr Davison said.
The Alliance Group has been forced to lower its forecasts, now picking an average, mid-season lamb to make $70, compared with a forecast of $80 in August based on a New Zealand-United States exchange rate of 65c.
Last week, the exchange rate hit US76c, while sterling and the euro have also appreciated.
Chief executive Grant Cuff said, in an interview, the currencies of many of our major trading partners were fluctuating wildly, bringing lower expectations.
"It's not the volume of product coming forward. Markets are receptive, stable and OK. It's just the currency being played with by traders," he said.
As with last year, international demand for lamb exceeded supply.
Silver Fern Farms chief executive Keith Cooper has also dampened expectations, saying that while the currency was moving rapidly, at current levels he expected lamb to be worth $4 a kg to farmers compared with $5 last year, depending on the time of the season.
"In-market, you couldn't ask for a better scenario. But the frustration is that it has been more than eroded by exchange rate appreciation and there is no way of avoiding it."
Mr Cooper reminded farmers that between March 2008 and March 2009, $26 of the improved lamb price was due to exchange rate movement.
He said markets were as strong as last year and there was nothing to suggest they would weaken, while there had been improvement in demand for by-products.
The mood at the recent Anuga Food Fair in Europe was positive, with little pessimism associated with the financial crisis, illustrating food remained in demand.
While it was harder to quantify, Mr Cooper said New Zealand's reputation as a safe and reliable supplier of food also appeared to be paying dividends.
Grass-fed beef promotion in North Asia was starting to gain traction but, in general, markets were buoyant though affected by the currency.