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Source: NZPA / Ross Setford -
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Agricultural economists say sheep and cattle farmers can expect strong increases for both lamb and beef prices over the next few months.
Lamb prices at the farmgate for 2008-2009 are expected to be up 38% on last year, and beef prices are forecast to increase 11%.
"Total sheep and beef farm earnings at the farm gate are estimated to increase by $500 million to $4.4 billion," economist Rob Davison said on Friday.
He expects lamb prices at the farm-gate to average $80 a head in 2008-09, compared with an average of $58 a head last year. But he noted the 38% increase was partly offset by a 23% fall in lamb production, mainly as a result of drought.
There had also been a continuing incursion of the dairy industry onto sheep and beef land, both directly and through increased use of sheep and beef farms to grow fodder for dairy cattle.
Meat and Wool New Zealand chairman Mike Petersen said lamb and beef returns were on a positive trend and that looked set to continue - in contrast to other agriculture exports such as dairying where returns have dropped by more than a third on last season's record levels.
The industry board's economists predict that the average profit for sheep and beef farmers in 2008-2009 will remain low, but will be better than the 50-year low experienced last year.
Before-tax farm profit was $16,700 in the 2007-2008 year and is forecast to be $45,600 in the 2008-2009 year.
Though farm revenue is higher than last year, farmers need to keep a tight rein on their on-farm spending because business costs have been rising, Davison said.
There had been a drop in fuel and interest rates, but overall farm input costs were still expected to rise 6.9% this year, and last season's low income had left most farms with increased debt to service.
The falling exchange rate for the New Zealand dollar had helped exporters at a time when lower interest yields and greater uncertainty in global finance had made investors averse to investing in other currencies.
"The more export-favourable NZ dollar has already had a positive effect, and underpins higher farm-gate returns for 2009," said Davison.
"Overall, the increase in lamb price is due to tighter global supplies of lamb from New Zealand, Australia and the EU and the depreciation of the New Zealand dollar particularly against the euro and the US dollar."
Davison also predicted that farm-gate beef prices could firm further into 2010, underpinned by the falling exchange rate and strong United States demand for manufacturing beef as consumers trade-down to lower-value products such as hamburgers.
Americans use lean New Zealand beef - such as the meat from culled dairy animals - to mix with the fattier grain-fed meat off northern hemisphere feedlots.
Wool prices at auction are expected to slump 21.8% for fine, 4.4% for mid-micron, and 11.8% for strong wools.
The price-falls will happen in spite of the more favourable exchange rate for exporters because low consumer confidence has dampened retail demand in major wool clothing markets, and the downturn in housing, commercial construction and building refurbishment has reduced the demand for carpets.
Meat Industry Association (MIA) chairman Bill Falconer said earlier this week that reported sales returns from member companies from lamb are well up on those 12 months ago.
"This is illustrated by NZX Agrifax data which shows earnings for lamb cuts to the EU are up 30% on the same time last year, and racks and forequarters into Asia and the US are up 28%.
"This is significant and even with uncertain times given the global financial crisis, we remain cautiously positive going forward," Falconer said.
The ANZ Commodity Price Index plunged 7.4% for December 2008, its fifth consecutive monthly fall, and has posted a cumulative fall of 27% since July 2008.
Lamb prices fell 2.4% on the index in December, while venison
and beef prices both dropped 1.4%.
