Thursday, 26 October 2023 10:55

Another tough year ahead!

Written by  David Anderson
B+LNZ is warning that some sheep and beef farmers are unlikely to make a profit this coming season. B+LNZ is warning that some sheep and beef farmers are unlikely to make a profit this coming season.

Beef + Lamb New Zealand warns that the country's meat producers face another tough year as demand for sheep and beef recovers slightly, but not enough to outweigh increases in on-farm costs.

This comes following the release of the industry body's New Season Outlook 2023-24 forecasts, which show farm profitability at a 15-year low.

"It's going tobe another tough year for farmers," says B+LNZ's chief economist Andrew Burtt. "Farm-gate 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."

B+LNZ is forecasting farm profitability to fall by 31% for the 2023-24 year, which follows a decline of 32% in 2022-23, meaning profits for farmers have more than halved in two years.

"This is a 15-year low, when you take inflation into account," Burtt adds.

The report says demand in key markets is also likely to be soft as economies remain weak and China's economic recovery remains uncertain. B+LNZ is also warning that competition from Australia may also add to lower prices for NZ producers.

"There are further short-term downside risks on these forecasts, should China not recover as quickly as forecast, and if Australia suffers a strong drought its red meat exports would be higher than expected in New Zealand's key markets," Burtt adds.

He says while the red meat sector faces a challenging year, this is balanced by strong longer-term fundamentals.

"We expect an improvement as the economies of our key markets recover. The global population and demand for protein is expected to continue to grow and therefore the fundamentals for the sector remain sound."

However, Burtt warns that some farmers are unlikely to make a profit this coming season.

"The sector has gone through turbulent times before, along with our processing and exporting companies, and while farmers are resilient, these are very challenging times."

The report shows that farm profit before tax for 2023-24 is forecast to average $88,600 per farm. However, after adjusting for inflation, this is equivalent to $54,800 per farm in 2004-05 terms, a 15-year low and 25% lower than in 2004-05.

"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."

B+LNZ says that money management is going to be critical for farmers this year.

It advises farmers to ensure that every farm input is driving productivity and profitability, and for them to work proactively with bankers and accountants to best manage any debt and tax obligations.

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