TL;DR:
- Southern New Zealand sheep and beef farmers face a forecasted 58% drop in before-tax profit for 2023-24, averaging $44,500 per farm, due to lower lamb prices.
- Beef + Lamb New Zealand’s mid-season update indicates a 54% overall profit decrease, with the Chinese market’s sluggishness and Australian meat oversupply contributing factors.
- Despite global economic slowdowns affecting consumer demand and wool sales, there’s a slight improvement in farm confidence, though challenges like high inflation and interest rates persist.
In a recent update from Beef + Lamb New Zealand, southern sheep and beef farmers are bracing for a significant downturn in profits. The forecast for the 2023-24 before-tax profit shows a steep 58% decline to an average of $44,500 per farm, marking the lowest January result since 2019.
This downturn is primarily attributed to a substantial drop in sheep farmgate prices, particularly affecting high-country properties in Otago-Southland, which are now facing negative profitability.
The mid-season update reveals an overall profit forecast to decrease by 54%, a revision from the initial prediction of a 31% decline from the previous year. This adjustment reflects weaker than anticipated demand for red meat, especially lamb and mutton, with profit now estimated to average $62,600 per farm. Adjusted for inflation, this profitability level is akin to that of the 1980s and early 1990s, the lowest since the 2007-08 period.
Contributing to this scenario is the sluggish Chinese economy and the inundation of Australian meat in the markets. While European and North American markets have shown relative strength, they have not compensated for the downturn caused by China’s reduced demand.
The forecasted lamb price of $125 per head is down 12% from last season, and the mutton price at $63 per head is 34% down, significantly impacting farm classes heavily reliant on sheep revenue.
The East Coast region, still reeling from Cyclone Gabrielle and ongoing wet weather challenges, is expected to see the lowest regional profitability. BLNZ chief executive Sam McIvor notes that input costs remain high, and farmers are diligently seeking ways to reduce expenses, particularly those with high debt levels. Interest rates pose a significant challenge, with uncertain relief prospects, necessitating a reliance on the sector’s resilience and adaptability.
In light of these challenges, the New Zealand Merino Company (NZMC) has adjusted its full-year earnings forecast, expecting a net profit after tax loss due to deteriorating trading conditions and a global slowdown in consumer demand. This has led to high inventories of finished products and unmet aggressive growth targets by brand partners, directly affecting demand for wool.
Despite these hurdles, the latest Federated Farmers farm confidence survey indicates a slight improvement in rural mood, albeit from a very low base. National president Wayne Langford emphasises that while confidence is no longer declining, it remains low, with farmers grappling with high inflation, interest rates, and lower commodity prices affecting profitability.
