N.Z. sheep, beef industries face tough economy

by Bryan Salvage
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WELLINGTON, NEW ZEALAND — Strength of the New Zealand dollar (NZD) will have the biggest impact on sheep and beef farm-gate receipts and profitability, according to Meat & Wool New Zealand’s Mid-Season Update for 2009-10.The NZD appreciated remarkably over 2009, compared with the previous year, said Rob Davison, M&WNZ economic service director.

“Unfortunately for the sheep and beef sector, the NZD strength has been against the U.S. dollar (USD), British pound [GBP] and Euro [EUR], where the majority of New Zealand’s beef and lamb are sold,” he said. “We expect this will continue in the first six months of 2010.

“We estimate there will be an 8.6% decrease in total gross farm revenue to NZD$317,600 ($225,300) for the average New Zealand sheep and beef farm in 2009-10,” he added. “On-farm input prices are expected to remain stable (+0.5%), which will be a welcome relief from the 9.7% and 7.6% increases experienced in the previous two years. However, this leaves per farm, profit before tax at NZD$37,400 ($26,500), a significant decrease from 2008-09’s NZD$58,800 ($41,700).”

Offshore prices for sheep and beef products continue to remain strong in 2010 in spite of the financial crisis and have improved in some cases, Mr. Davison said. With export volumes for wool, lamb, mutton and beef similar to last year (+1%), the exchange rate factor will reduce those export receipts to NZD$5.4 billion ($3.8 billion), which is down 12% on last year.

“This translates to NZD$700 million ($497 million) being wiped from meat and wool sector receipts, just because of the exchange rate,” he added. “The high NZD completely masks the price levels achieved offshore and the productivity increases.”

Other key points in the update include:

 Average sheep and beef farm profits before tax are expected to be NZD$37,400 ($26,545) in 2009-10, down from NZD$58,800 ($41,757) in 2008-09.

 Offshore prices for sheep and beef products are strong, but the strength of the NZD is eroding improved returns.

 Sheep and beef export receipts are expected to be NZD$5.4 billion ($3.8 billion) (-12%).

 Lamb export volumes are up 3.4%with receipts totaling NZD$2.5 billion ($1.8 billion) (-10%).

 Farm gate lamb prices are expected to average NZD$72 ($51) per head for a 17.5 kg lamb, compared to NZD$89 ($63) last year (-19%).

 Beef export volumes are expected to be down 4.2% with receipts totaling NZD$1.9 billion ($1.3 billion), (-18%).
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