Farm profit before tax in the region was picked to drop 42% to average $123,700 per farm for 2022-23, a major decline from $212,700 in 2021-22.
Real farm profit (farm profit adjusted for inflation) of $81,200 in the region was more than 20% below the 10-year average. Those projections came on top of dry conditions in the region, placing additional pressures on farmers.
B+LNZ expected farmer profitability to fall sharply due to reduced livestock prices and continued high inflation, despite an improving outlook for global sheepmeat and beef trade.
Nationally, farm profit before tax was estimated at $146,300, a 31% decrease from 2021-22 and below the average for the past five years.
Farm profit before tax was equal to gross farm revenue minus total farm expenditure.
Farm profit was used to meet taxation payments, personal drawings, debt repayments and the purchase of capital items.
In a statement, B+LNZ chief economist Andrew Burtt said inflationary pressure was causing on-farm costs to increase sharply, eroding the benefit of what were still historically "pretty good farm-gate returns".
The forecast up-tick in global sheepmeat and beef trade was supported by generally solid fundamentals in key markets, with demand projected to recover, while global supply levels remained tight.
That followed a stark drop in demand for sheepmeat at the start of the season before China relaxed its zero-Covid policy.
Farmers had sought to reduce costs by deferring repairs and maintenance and reducing fertiliser use, but inflation and the increasing price of farm inputs were outweighing cost-cutting initiatives.
Overall expenditure had increased to an average $531,500 per farm in 2022-23, he said.
Fertiliser, lime and seeds expenditure was forecast to increase by 6% to average $102,100 per farm, following a 15% increase last season.
That was the largest area of expenditure for sheep and beef farms.
Interest rate rises and increased overdraft borrowing were forecast to increase interest expenditure 12.5% above last season — averaging $54,000 per farm.
To add to the financial pressures, the full impact of Cyclones Hale and Gabrielle was not yet known, Mr Burtt said.
B+LNZ chief executive Sam McIvor said those factors were another reason the Government should put brakes on its raft of environment policy changes.
"Farmers are already feeling overwhelmed with the environment-related policy changes, on top of reduced revenues and high on-farm inflation.
"For some, they’re also now faced with having to rebuild their businesses after severe weather events like the cyclones," Mr McIvor said.
"Almost one-third of New Zealand’s sheep and half of New Zealand’s beef cattle were in the North Island regions that were subject to a state of emergency following the cyclones."
One-third of New Zealand’s sheep and 14% of New Zealand’s beef cattle were in Otago and Southland.
"This means two-thirds of New Zealand’s sheep flock and two-thirds of New Zealand’s beef cattle are in areas either suffering from the effects of the cyclones or suffering very dry conditions.
"When farmers are impacted in this way, it has a knock-on effect to the wider economy, including businesses that service farms like vets, trucking companies, shearers and many more," Mr McIvor said.
The impact on livestock numbers caused by the cyclones was unknown for the East Coast, Northland, Coromandel and other parts of the Waikato.
Many instances of stock losses during floods were reported by media, particularly for the East Coast and Hawke’s Bay, and the loss of fencing would also affect the ability to account for stock, Mr McIvor said.
Meanwhile, the outlook was for wool markets to remain uncertain.
Industry participants reported it was difficult to see demand from China differing from last year.
There was little evidence signalling improvement in demand for mid-micron and crossbred wool in the medium term.
