Rising costs still dampening incomes

A fragile global outlook for red meat sees Beef + Lamb New Zealand forecasting flat lamb prices...
A fragile global outlook for red meat sees Beef + Lamb New Zealand forecasting flat lamb prices for the coming season, but relatively good beef prices. PHOTO: TIM CRONSHAW
Sheep and beef farmers face a second year of falling incomes from rising farm costs in spite of the outlook for global sheepmeat and beef demand recovering slightly.

Beef + Lamb New Zealand (B+LNZ) is forecasting farm profitability to fall by 31% for the 2023-24 year in its New Season Outlook.

Farm profit before tax is expected to average $88,600 per farm. After adjusting for inflation, this is equal to $54,800 per farm in 2004-05 terms, a 15-year low.

Chief economist Andrew Burtt said it was going to be another tough year for farmers.

"Farmgate prices are expected to be similar to last season, but increasing costs, driven by inflation and high interest rates, will continue to squeeze farm profitability."

He said the falling forecast for farm profitability followed a drop of 32% in 2022-23.

"[That] means profits for farmers have more than halved in two years. This is a 15-year low, when you take inflation into account. The global outlook for the red meat sector remains fragile."

While demand is expected to recover slightly from last year, prices are likely to remain soft compared with the highs of two years ago, especially for lamb and mutton.

The pace of China’s economic recovery is uncertain, and the economies of other key markets remain relatively weak.

Furthermore, fellow red meat exporter Australia is expected to be highly competitive in New Zealand’s key markets such as China.

Mr Burtt said further short-term downside risks were if China failed to recover as quickly as forecast, and if Australia suffered a strong drought its red meat exports would be higher than expected in key markets.

Longer-term, an improvement was expected as the economies of key markets recovered. The global population and demand for protein was expected to continue to grow and the fundamentals remained sound, he said.

He said some farmers, however, were unlikely to make a profit this coming season.

Money management would be critical, he said.

"We expect profitability in all regions and farm classes will decline with sheep-dominant areas most affected, as lamb prices are likely to be flat for the coming season, while beef prices are relatively good."

Lower profitability has come when many farmers are continuing to rebuild farms after last summer’s cyclones and are preparing for potential drought conditions as a result of El Nino.

The forecast did not take into account the potential for increased costs from farmers facing the government’s regulatory reforms.

B+LNZ is helping farmers navigate the challenging times with workshops, seminars, on-farm field days and online resources.

tim.cronshaw@alliedpress.co.nz

 

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