Many Otago sheep and beef farmers will report cash deficits of up to $200,000 this year and be forced to survive on the growing equity in their land.
A combination of low product prices, low production because of the dry summer, and rising costs has created one of the worst financial crises in the sector in 20 years.
For some, it will be the second successive year of cash deficit, but banks appear supportive, due in part to high land values and farmers being able to earn cash from supporting the dairy industry through winter grazing of dairy cows, grazing young stock or growing feed.
Dunedin accountant Craig Wyatt, of Harvie, Green and Wyatt, said unlike the 1980s, sheep and beef farmers had equity and were optimistic conditions would improve, citing moves to restructure the meat industry and an international shortage of lamb likely to push up prices.
Rabobank Otago manager Jeffrey Morrison said southern sheep and beef farmers should be thankful for the dairy sector.
‘‘Sheep and beef farmers aren't that comfortable down here, but their confidence is still OK because their asset value is underpinned by dairying,'' Mr Morrison said.
Many sheep and beef farmers were diversifying to support the expanding dairy industry, but all were ultimately looking to the meat companies to provide a substantial improvement in lamb returns.
In the short term, he said many would refinance their mortgages to fund cash flow deficits.
‘‘Although they know they are struggling with cashflow, they know they could sell their farm tomorrow and have a good lifestyle. But the majority do not want to do that.
‘‘They want to remain in the industry but want to see more profits and a better cashflow,'' Mr Morrison said.
Forecast prime lamb prices this season were between $2 and $5 higher than last year, but because of the dry weather, many farmers were unable to get all their lambs to the optimum weights and had to sell them for less, or as store for someone else to finish.
The dry summer meant feed was short and those selling store lambs had few markets. Prices were down about $10 a head on last year. Ewe prices were also low.
The situation was no better for farmers selling newly-weaned beef calves, with prices at the autumn sales up to $50 a head down on last year due to the feed shortage.
Meat and Wool Economic Service executive director Rob Davison said the average weight of lambs killed across the country this season was nearly 0.7kg lighter than last year, reflecting the dry summer.
Earlier this year, the specialist rural economists forecast the third-lowest profit in 50 years for sheep and beef farmers.
Mr Davison said the dry weather had worsened that forecast.
Mr Wyatt said southern sheep and beef farmers had stopped discretionary spending and were paring farm expenses, including fertiliser, which has risen sharply in price in the last year.
He agreed many would restructure their mortgages to capitalise their deficits, and others would look carefully at their business.
‘‘I can see cashflow constricting throughout New Zealand, not just for farming, but right across the economy with the credit squeeze and talk of recession,'' Mr Wyatt said.
