27 December 2002

Media Release

Sheep and Beef Outlook Still Positive

S
“Sheep and Beef Farm profit for 2002-03 eases from last season’s peak due to lower prices for lamb, sheep, and cattle production”, said Rob Davison, Executive Director of the MWI Economic Service. Mr Davison made these comments when releasing the ‘Mid-Season Update’ publication.

“Farm profitability is expected to fall 7 per cent from last season’s level to $112,200 per farm”, said Mr Davison. “However, this will still be the second-highest profit in inflation adjusted terms since 1976-77, and continues the sector recovery from the depressed 1990s”.

“Profitability will be down in all regions except Marlborough-Canterbury”, said Rob Davison. “This is a reflection of the low production in the Marlborough-Canterbury region last season, following drought in 2000-01. With a recovery in production this year, profitability for this region has increased despite lower product prices.”

Production

“Production levels in the year ended 30 June 2003 are expected to be good in most regions”, said Mr Davison. Lamb numbers were up in most regions after favourable conditions last season allowed high conception rates, and generally favourable weather at lambing allowed good survival. However, coastal regions of Otago and Southland suffered an extended period of cold, wet weather which reduced the lamb crop in these regions.

Beef production is expected to show a moderate lift due to growth of the beef and dairy herds over recent seasons. In addition, a number of older cattle carried through an extra winter will be available for production this season.

Wool production is expected to lift due to a combination of increased sheep numbers, good wool growing conditions plus an increased carryover of wool into this season due to wet conditions in May and June.

Product Prices

“A key factor affecting product prices is the level of the exchange rate”, said Rob Davison. “The New Zealand dollar remained at extremely competitive levels against our trading partners during the first half of the 2001-02 season, before appreciating rapidly in the February to June period. Another recent surge in the exchange rate has lifted the dollar to its highest level since June 1999 as measured by the Reserve Bank TWI.”

“The recent increases in the exchange rate have the effect of reducing the amount we receive in New Zealand dollar terms for our exports. Those price changes flow directly through to the prices received by farmers for their meat and wool production. As a result, average export lamb prices are expected to decline from $70.30 per head in 2001-02 to $63.65 per head for 2002-03. Similarly, the price for a 270 to 295 kg bull is expected to decline 13.3 per cent from 383 cents per kilogram in 2001-02 to 332 cents per kilogram in 2002-03.”

“Wool prices have performed well in the face of this appreciating exchange rate. Prices for all wool types have increased during the first half of this season, with fine wools in particular lifting strongly. A key factor in this lift in price has been the realisation that the world wool supply is lower in 2002-03 due to a fall in Australian sheep numbers and the impact of the Australian drought.”

Farm Revenue

Sheep and Beef Farm gross revenue is expected to decline in most regions. Increases in revenue from wool and crops are offset by reductions in lamb, sheep, cattle, and deer. Overall, gross farm revenue is expected to be down 4 per cent on the previous year’s level.

The Marlborough-Canterbury region is an exception to this general outlook. Increased production in this region is expected to offset lower product prices to lift gross revenue by 4 per cent.

Farm Expenditure

“The reduction in gross farm revenue is expected to lead to some constraint in farm expenditure”, said Rob Davison. “On this basis, farm expenditure is expected to fall by 2 per cent in the 2002-03 season. However, with on-farm inflation estimated at 1.9 per cent, this means the volume of goods and services purchased declines by just over 4 per cent.”

Amongst the components of farm expenditure, maintenance is expected to fall by 12 per cent, fertiliser by 5 per cent from high levels last year. Interest expenditure falls 4 per cent from reduced debt and slightly lower interest rates than last season.

Profit

“On the basis of lower gross revenue and slightly lower expenditure, farm profit before tax is estimated to fall 7 per cent to $112,200 per farm”, said Rob Davison. “In inflation adjusted terms, this will be the second-highest farm profit since 1976-77. Note, this farm profit must meet the business requirements of tax, debt repayment, and purchase of capital items, as well as the farm family living expenses.”

Profit will be down in all regions except Marlborough-Canterbury.

Exchange Rate Increase

Should the trade weighted exchange rate appreciate 5 per cent above the forecast base of 50 cents US and 32.5 pence Sterling to the NZ dollar, then on an annual basis gross farm revenue would be 6.4 per cent or $19,200 per farm below the current expectation. On-farm expenditure and farm profit before tax would adjust downwards accordingly.

Farm Debt

Debt levels on sheep and beef farms have been reduced in the three seasons from 1999-00 onwards, and further reduction is expected in 2002-03. Land values have increased strongly through this period, placing most sheep and beef farms in a strong financial position.

Overall

“The sheep and beef farm sector continues to perform strongly”, said Rob Davison. “A multitude of improvements in technology, genetics, animal health, nutrition, and management, made over the last decade have contributed to the excellent livestock performance of recent years.”

“The sector is one of New Zealand’s major knowledge industries whose continual innovation and applied research continues to drive productivity increases”.

Contact:

Rob Davison Executive Director 
Phone: (04) 471 6020
DDI: (04) 471 6034
E-mail: rob.davison@mwi.co.nz

Brian Speirs Chief Economist 
Phone: (04) 471 6020
DDI: (04) 471 6035
E-mail: brian.speirs@mwi.co.nz

Regional Comment: -

Northland-Waikato-BoP

Stock Numbers (000s)

• Dairy cattle dominate production in this region.
• Beef production provides 50 per cent of the revenue on sheep and beef farms.
• Average sheep and beef farm size: 3,215 stock units; 43% sheep, 55% beef cattle;
  2% deer.

Production

• Favourable seasonal conditions in this region have resulted in increased stock numbers.
• The lambing percentage achieved this spring was marginally down on last season’s record, leaving lamb availability similar. Beef cattle availability is up reflecting growth in the beef herd over recent years.

Revenue, Expenditure and Profit

• Gross revenue declines an estimated 8 per cent to its second-highest level in inflation adjusted terms in over 30 years.
• The largest declines are in the cattle (-11%) and sheep (-8%) accounts. Revenue from other sources remains similar, or increases (wool +6%).
• Expenditure decreases 2 per cent.
• Farm profit before tax falls 18 per cent to $74,800 per farm. This is the third-highest profit in inflation adjusted terms since 1979-80.

East Coast North Island

Stock Numbers (000s)

• Sheep and beef cattle are both important livestock types in this region.
• Sheep and wool provide 64 per cent of the revenue on sheep and beef farms, with beef cattle providing a further 32 per cent of revenue.
• Average sheep and beef farm size: 4,890 stock units; 62% sheep, 37% beef cattle; 1% deer.

Production

• Generally good seasonal conditions in this region allowed stock numbers to increase.
• A record lambing percentage lifts lamb availability within the region. Increased cattle numbers allow a higher offtake of beef cattle.

Revenue, Expenditure and Profit

• Gross revenue declines an estimated 8 per cent to its second-highest level in inflation adjusted terms in over 30 years.
• The largest declines are in the cattle (-12%) and sheep (-8%) accounts. Deer revenue declines sharply (-33%), but is only a small contributor to overall gross revenue. Revenue from other sources remains similar, or increases (wool +7%).
• Expenditure remains similar (+0.3%) to the previous year.
• Farm profit before tax falls significantly (-18%) to $128,200 per farm. This is the second-highest profit in inflation adjusted terms since 1976-77.

Taranaki-Manawatu

Stock Numbers (000s)

• Sheep, beef, and dairy cattle are all important livestock types within this region.
• Sheep and wool provide 66 per cent of the revenue on sheep and beef farms, with beef cattle providing a further 26 per cent of revenue.
• Average sheep and beef farm size: 4,510 stock units; 63% sheep, 34% beef cattle; 3% deer.

Production

• Stock numbers remained stable within this region.
• A record lambing percentage lifts lamb availability within the region. Cattle availability remains similar to the previous year.

Revenue, Expenditure and Profit

• Gross revenue declines an estimated 5 per cent to its second-highest level in inflation adjusted terms in over 30 years.
• The largest declines are in the cattle (-11%) and sheep (-5%) accounts. Deer revenue also declines sharply (-27%). Revenue from other sources remains similar, or increases (wool +11%).
• Expenditure decreases by 3 per cent from the previous year’s level.
• Farm profit before tax declines moderately (-8%) to $124,400 per farm. This is the second-highest profit in inflation adjusted terms since 1973-74.

Marlborough-Canterbury

Stock Numbers (000s)

• Sheep and beef cattle are both important livestock types in this region. Dairy cattle continue to increase in significance.
• Sheep and wool provide 62 per cent of the revenue on sheep and beef farms; beef cattle provide 14 per cent, while crop provides 18 per cent of revenue.
• Average sheep and beef farm size: 3,415 stock units; 77% sheep, 22% beef cattle; 1% deer.

Production

• 
  Excellent seasonal conditions in this region allowed stock numbers to recover from the 2000-01 drought.
• A record lambing percentage lifts lamb availability within the region above the previous season’s low. However, lamb availability has not returned to pre-drought levels. Cattle availability increases significantly as older cattle held over an extra winter come forward.

Revenue, Expenditure and Profit

• Gross revenue increases an estimated 4 per cent to its highest level in inflation adjusted terms in over 30 years. This reflects increased production offsetting lower prices.
• Revenue holds or increases on last year from most sources other than cattle (-5%).
• Expenditure remains similar (-0.6%) to the previous year.
• Farm profit before tax lifts 15 per cent to $101,200 per farm. This is the highest profit in inflation adjusted terms since 1973-74.

Otago-Southland

Stock Numbers (000s)

• Sheep are important in these regions and beef and dairy cattle are approximately equal in number with each making up around 9.8 per cent of their respective New Zealand herds. Dairy cattle continue to increase in significance for the region.
• Sheep and wool provide 86 per cent of the revenue on sheep and beef farms; beef cattle provide 7 per cent.
• Average sheep and beef farm size: 4,170 stock units; 88% sheep, 11% beef cattle; 1% deer.

Production

• The cold wet spring reduced the number of lambs tailed. Although the combined regions lambing percentage was below last season’s record it was the second highest for Otago and the third highest on record for Southland.
• Even though there were fewer ewes in the region (-2.2%) from land use change and despite the slightly lower lambing percentage, the yield of lamb from the region is expected to remain similar to the previous year. Cattle availability increases significantly as older cattle held over an extra winter come forward and more cull cows are available from the expanded dairy herd.

Revenue, Expenditure and Profit

• 
  Sheep and Beef Farm gross revenue decreases an estimated 7 per cent to its third highest level in inflation adjusted terms in over 30 years. Only the previous two years recorded higher levels of gross farm revenue.
• Revenue decreases 11 per cent and 20 per cent respectively for the sheep and cattle trading accounts while wool revenue increases 9 per cent for the region and largely reflects improved fine, medium and lambs wool price increases on last season.
• Farm expenditure decreases (-6%) on the previous year reflecting lower revenue.
• Farm profit before tax declines moderately (-8%) to $135,800 per farm. This is the second-highest profit in inflation adjusted terms since 1973-74.

Contact:

Rob Davison Executive Director 
Phone: (04) 471 6020
DDI: (04) 471 6034
E-mail: rob.davison@mwi.co.nz

Brian Speirs Chief Economist 
Phone: (04) 471 6020
DDI: (04) 471 6035
E-mail: brian.speirs@mwi.co.nz