Dairy power
OPINION: The good times felt across the dairy sector weren't lost at last week's Beef + Lamb NZ annual meeting.
“However we are starting to see some positive signs in the market, we know our sector is strong, resilient, and will bounce back even if it may still take some time.”
She was commenting on B+LNZ’s New Season Outlook report for 2024- 25 which says that while the red meat sector continues to face difficult times, there are signs of ‘green shoots’ on the horizon.
The report forecasts that farm profitability for 2024-25 will remain under pressure, with farm profit before tax expected to decrease by 7.4% to an average of $45,200 per farm.
Although revenue is forecast to increase slightly by 1.1%, this is offset by a projected 1.8% rise in farm expenditure. High costs, particularly interest payments, continue to impact profit margins, with profitability remaining at levels similar to those seen in the 1980s and 1990s.
A sluggish Chinese economy is expected to continue to weigh on sheep prices. China is by far New Zealand’s largest mutton market and remains our largest single lamb market, so what happens there has a big impact on global lamb markets.
The lamb price is projected to be $130 per head, up just 1.1% from last season but still 8.2% below the five-year average. Mutton prices are expected to remain steady at $60 per head, which is 46% below the five-year average.
However, there are some positives.
The all-beef price is forecast to be $5.35/kg, 4.3% above last season and 4.8% above the five-year average, reflecting strong demand in the US, where the cattle herd is at its lowest level in over 70 years. European and North American markets are also expected to remain solid for lamb.
The report notes that in the last few weeks we have also seen a significant decrease in lamb processing in Australia. If this trend continues, that coupled with less expected supply from New Zealand, the EU and UK, could see global lamb prices lift higher than current forecasting.
As sheep revenue represents about 42% of average farm revenue, what happens with these prices is key to the speed of a recovery in farm profitability.
Acland says some farmers have started to feel a bit of relief in their debt servicing with a reduction in floating interest rates, following the recent first cut in rates by the Reserve Bank.
“It is possible there could be faster and deeper cuts in interest rates than are currently built into our forecasts,” she says.
“So, while the current forecast for profitability this coming year are sobering, there are a number of factors that could see the recovery be more rapid than anticipated and the medium-term outlook for our red meat exports remains strong.”
