Wednesday, May 22, 2024

Sheep and beef farms set to take hit on profits

Neal Wallace
Beef + Lamb NZ delivers bad news for farms due largely to inflation.
International markets have been mixed, with prices and demand for red meat – especially sheepmeat – falling in the first four months of the seasonFile photo.
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Inflation and softening international prices are expected to erode this year’s forecast sheep and beef farm (ngā kau me ngā hipi) profits by a third compared to last year.

In its mid-season outlook released this week, Beef + Lamb NZ (BLNZ) estimates average farm profit before tax of $146,300 for 2022-23, 31% below 2021-22 and lower than the average for the past five years.

After adjusting for inflation, the 2022-23 farm profit before tax is estimated at $96,600, a 35% decrease from 2021-22 and slightly below the 10-year average.

Farm profit before tax is equal to gross farm revenue minus total farm expenditure and is used to meet taxation payments, personal drawings, debt repayments and the purchase of capital items.

“Inflationary pressure is causing on-farm costs to increase sharply, eroding the benefit of what are still historically pretty good farmgate returns,” said BLNZ chief economist Andrew Burtt.

International markets have been mixed, with prices and demand for red meat – especially sheepmeat – falling in the first four months of the season before recovering once China relaxed its zero-covid policy.

Other sheepmeat markets were more stable and demand overall is projected to recover on the back of tight global supply.

The average FOB value per tonne for export lamb this season is forecast at $11,600, an 11% drop on 2021-22 but 6% above the average of the previous five years.

Lamb exports are forecast to be 2.5% lower on 2021-22 at 284,000t with forecast receipts of $3.54 billion FOB, down 12% on the record in 2021-22.

For 2022-23, total mutton exports are picked to decline 3.9% to 89,100t with the average value 15% lower.

Beef returns have only decreased slightly due to tighter global supplies, which have been accentuated by a recent case of bovine spongiform encephalopathy (BSE) in Brazil.

Export revenue from beef and veal in the 2022-23 is forecast at $5.04bn FOB, down 8% on record 2021-22 prices, due to a 0.5% decline in the volume exported and a 6.1% decrease in the average export value.

Burtt said inflationary pressure has increased farm expenditure.

Fertiliser, lime and seed expenditure is forecast to increase 6% to average $102,100 per farm, which follows a 15% increase last season.

“This is the largest area of expenditure for sheep and beef farms at around 19% of farm expenditure in 2022-23.”

Interest rate rises and increased overdraft borrowing is forecast to increase interest expenditure 12.5% above last season to average $54,000 per farm.

Burtt said as farmers refinance and extend overdrafts on the back of lower farmgate prices, managing cashflow will be a challenge this season.

BLNZ chief executive Sam McIvor said two-thirds of NZ’s sheep flock and two-thirds of its beef cattle are in areas either suffering from the effects of summer cyclones in the North Island or suffering very dry conditions in the south of the South Island.

Given the financial and inclement pressures, he is calling on Prime Minister Chris Hipkins to put the brakes on the imposition of environmental policy.

“Farmers are already feeling overwhelmed with the environment-related policy changes, on top of reduced revenues and high on-farm inflation.

“For some, they’re also now faced with having to rebuild their businesses after severe weather events like the cyclones,” said McIvor.

Looking ahead, BLNZ sees growth opportunities for sheepmeat in high-value markets such as Germany, Netherlands, France, the United States and China, as well as in the expanding Asian middle class seeking protein, more consumer awareness for safe, traceable and sustainable food and lower freight costs.

Challenges will come from consumer resistance to rising lamb prices in the United Kingdom and Europe, competition from Australia, climate change policy driving consumer behaviour and supply chain bottlenecks.

Opportunities for beef are expected for similar reasons as sheepmeat, as well as from an ongoing protein deficit in China, and Brazil’s BSE issue.

Beef also faces many of the same challenges as sheepmeat, but additionally from meat worker labour shortages, the risk of foot and mouth, which has been discovered in Indonesia, and global inflation.

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