Farm returns recovering

Livestock prices are higher than a year ago and some input costs have decreased. However, Burtt says the reality is that the cumulative effect of previous low pries and high inflation still lingers.

Farm gate prices for cattle and sheep have increased in recent weeks but this is primarily a result of a shortage of supply domestically rather than an improvement in global prices for sheepmeat and beef.

"We usually see an increase in prices at this time of the year as there is shorter supply over winter, but this year supply has been even shorter than usual because farmers got their animals away earlier because of the drought," Burtt told Rural News.

He expects to see continued strong cattle prices, but the outlook for sheep is less certain.

"Demand from China is expected to remain subdued, but we are seeing strong demand from the UK, EU and US.

"We have seen some recent indications that Australia's supply may have peaked, and New Zealand's supply is expected to be lower. A decrease in supply could help lift prices globally, which could flow back to our farmers this coming season."

ASB senior economist Chris Tennent-Brown noted that finished lambs earlier this month averaged $6.80-$7.10/kg in the North Island. For beef, both North Island export prime and local trade were operating at $6.80-$7/kg excluding beef premiums.

"Being at sixes and sevens normally means confusion or disarray, but when it comes to sheep and beef prices, the high sixes and early sevens per kg prices continue the recent pattern of tight markets and strong prices," Tennent-Brown says.

According to ANZ economist Susan Kilsby, returns for lamb from international markets have improved a little, but the change has been incremental, and the recent increases have not been enough to make exporters more confident about the outlook.

The US market is delivering some of the best returns, Kilsby notes. European markets are in reasonable shape, particularly the UK, where prices have been trending higher.

Kilsby predicts that farm profitability will continue to be hampered by high costs, including borrowing costs, in the year ahead, although inflationary pressures are fading, and interest rates are starting to ease.

Burtt agrees that conditions are improving but cautions that recovery will be gradual.

"Farmers are in a slightly better place than they were a year ago.

"A year ago, farmers faced different challenges, including the impact of drought, expectations of El Niño, and cashflow concerns. The recent change in government has also influenced both short-term and long-term sentiment in the sector.

"Although inflation has eased to 2.8% in 2023-24, it's important to remember that this is on top of a 32% cumulative increase over the past three years.

"This same level of increase previously took 15 years to materialise. So, while conditions may be improving the recovery is gradual."