A major turnaround in the fortunes of meat and wool farmers is forecast, with predictions of a 60% increase in farm profits this coming season.
After three years of low incomes, Meat and Wool New Zealand has picked average sheep and beef profits to lift from $19,400 in 2007-08 to $53,000 for 2008-09, due to stronger market prices and assistance from a lower exchange rate.
In inflation-adjusted terms, last year was the lowest profit for sheep and beef farmers in 50 years.
The news for Otago and Southland farmers in the coming year was even better, given their larger farm sizes and reliance on income from lamb.
Meat and Wool New Zealand Economic Service executive director Rob Davison said the profit before tax for southern farms would be $75,300 or $66,300 in inflation-adjusted terms.
Total gross revenue for southern farmers in the coming year was expected to increase 22% with larger contributions from dairy grazing (up 53.4%) and a 26% increase from sheep, driven by prime lamb returns nearly 25% greater than last year.
Revenue from cattle was expected to increase 22%.
Mr Davison said profits could improve further if the value of the New Zealand dollar continued to ease as many expected it would.
Based on a US75c exchange rate, Mr Davison expected an average lamb to be worth $73 this season compared to $56 last season.
The dollar has traded at US70c in recent weeks, which Mr Davison said would lift the value of lamb to farmers to $79, and $88 at US65c.
Mr Davison's forecast lamb prices support those made by exporters in recent weeks.
Beef prices were expected to improve 15% at US75c and another 8% at US70c.
Strong wool prices were also expected to improve, based on reduced volumes and the falling dollar, but fine and mid-micron wool prices could be flat, due to slowing economic growth impacting on retail sales for woollen apparel in the United States and Europe.
"Reduced global supplies of lamb, wool and beef are the main drivers of pricing increases and given the trend towards falling stock numbers globally, this will be a feature for several years to come," he said.
New Zealand's sheep flock fell 11% in the last year to 34.2 million, with this season's lamb kill likely to be six million fewer than last year at 20.3 million.
Mr Davison said improved farm profitability however, would still be lower than that earned between 1999 and 2005, eaten up by a 10.4% increase in farm costs in the last year and lower production in many regions following drought.
