Up to 600 sheep farms nationally are expected to convert to dairying in the next 15 months, increasing the nation's milking herd by more than 300,000 cows.
About 100 farms in Southland this year and a similar number next year are expected to convert.
Meat and Wool New Zealand senior economist Con Williams told the New Zealand Chartered Accountants Primary sector conference at Millbrook on Thursday that 300 farms were expected to convert this spring and another 200-300 in the spring of 2009.
He could not say how many extra cows would be run, but new dairy farms typically average more than 500 cows.
Mr Williams said that while there were bright prospects for lamb and beef prices, it seemed too late for many sheep and beef farmers.
He joined other speakers at a parallel conference in Queenstown of the New Zealand Institute of Primary Industry Management.
Anzco chairman Graeme Harrison said a shortage of red meat and steady demand would drive up prices, and there were signs late this season of that happening.
Mr Williams said prospects for beef in particular were good and were also being driven by demand from cash-rich Russia which had increased imports 75% in the past 10 years.
There was a major rejigging of beef around the world.
Christchurch accountant Pita Alexander told accountants that his sheep farming clients needed $70-$75 a lamb to be profitable.
Lamb averaged $55-$60 this season, and Mr Williams provided startling evidence why sheep farmers were exiting the industry in droves.
Mr Alexander said many of his clients had recorded a third year of financial losses in the vicinity of $30,000, a figure he described as unsatisfactory.
A third of farming spouses now worked off the farm.
Between 2000-01 and 2006-07, the average income for sheep and beef farmers fell 20%, while farm inflation was 23%.
This resulted in gross profits declining 35%.
Mr Williams predicted the area of dairying would increase from 1.94 million ha in 2006-07 to 2.12 million ha in 2010-11, or 19% of the total pastoral farmed area, while the sheep and beef farmed area would fall from 9.62 million ha to 9.31 million ha, but still represent 81% of the country's pastoral area.
Land would also be lost to forestry and urban expansion.
Mr Williams said that by 2011, two million fewer lambs would be available for processing but, in the short-term, there was little incentive for farmers to rebuild flocks after last summer's drought.
There was also likely to be some destocking from hill country where soaring fertiliser prices were making semi-intensive sheep farming unviable.
The land-use change was dramatically illustrated with changes to livestock numbers.
Between 1990-91 and 2010-11, sheep numbers had fallen 35% and beef 4%.
Dairy cow numbers had increased 66%.
