The latest Situation and Outlook for Primary Industries report predicted exports would drop by 0.8% to $36.7billion for the year ending June 2017.
Strengthening global prices for horticultural, forestry and dairy products provided an offsetting boost.
Primary Industries Minister Nathan Guy said it was "very pleasing" to see the global dairy market rebounding after a difficult few years and the average payout was now expected to be well above break-even for most dairy farmers.
There was also continued strong growth for sectors such as horticulture, forestry and arable, Mr Guy said.
Over the next few years, primary sector export earnings were forecast to increase by an average of 5.4% per year, reaching $47.9billion for the year ending June 2021.
Dairy export values were forecast at $13.7billion for the year ending June 2017, up $0.4billion from the previous year, as rising prices more than offset a fall in export volumes.
A production recovery coupled with an expected continued increase in global prices drove the dairy forecast up to nearly $17billion for the year ending June 2018.
New Zealand’s dairy inventories were run down during the year ended June 2016, boosting export volumes by 6.1% in a year when production fell 1.5%.
Unlike last year, inventories were not expected to play a large part in export volumes for the year ending June 2017, the report said.
Global supply and demand were beginning to show signs of rebalancing. EU production had been slowing since June, while production was expected to fall in most other major milk exporting countries this year, mainly in response to price signals.
One exception was the United States, where production remained high. That had little impact on global markets at the moment, due to strong domestic demand.
Chinese dairy demand was on the rise, and it imported a record volume of dairy products during the year ended September 2016, despite falling milk powder imports.
Strong world demand for butter was expected to continue as Western consumers showed a preference for natural fats over processed fats.
The EU outlook was uncertain. The European Commission announced a voluntary milk supply reduction scheme earlier this year.
EU milk deliveries were already down 1.9% for the September 2016 quarter compared with the same time last year, so it would be interesting to see what impact the scheme would have on the remainder of the season, the report said.
There was a risk that current high prices would encourage EU farmers to begin increasing production, despite the scheme.
New Zealand’s all company average farm-gate milk solids price was forecast to rise to $6.41kg/ms for the season ending May 2017, up from the previous forecast of $4.85, released in June.
The price forecast increased to $7.15 for the 2017-18 season in anticipation of global prices firming at recent higher levels.
There was a down side risk that further price increases could be met with a quick supply response from European farmers, preventing prices from climbing to higher levels.
Meat and wool exports were forecast to reach $8.2billion in the year ending June, a decrease of 10.8% from the previous year.
This spring’s lamb crop was estimated to be 3% lower than last year and global prices for most types of meat were forecast to continue falling, which was impacting beef and lamb export prices.
Strong beef prices over the past two years had helped stabilise the beef herd, which was estimated to total 3.6million as of June 30 this year.
However, schedule prime beef prices were forecast to fall from $5.39 to $4.70 in 2017 and remain below $5 for most of the forecast period.
After peaking at $7.86 in July 2015, average beef export prices had slipped 20.5%, which was reflected in a forecast export price of $6.50 in 2017.
Given ample global supplies, export prices were expected to remain in that lower range for the next two seasons.
Over a longer timeframe, New Zealand and Australian beef might face stronger competition in the US market, not only from recovering US production, but also from Brazil, which recently had gained US market access.
Despite lower production in New Zealand, lamb and mutton export prices were forecast to fall again in 2017.
Average lamb schedule prices were forecast to fall from $5.12 to $5 per kg liveweight.
Wool export volumes were projected to decrease 6% but, even with lower production, inventories were building as a result of lacklustre demand. Average export prices were also forecast to fall 6%. Venison exports were forecast to decrease 12.2% to $160million in 2017, as lower production volumes offset higher prices.
Growth in horticulture export value to $6.3billion by 2021 would be led by kiwifruit and support by strong ongoing growth prospects for wine and apple and pear exports.
