Looking ahead to 2024-25, farm profit before tax for Otago-Southland was expected to increase 6.9% to average $20,200 — the lowest expected profit for any region this season. In real, inflation-adjusted terms, 2023-24 and 2024-25 were estimated to be the lowest farm profit before tax for the region on record.
Due to the reliance on sheep revenue, the forecast was more sobering than other regions where cattle had a larger influence.
High country farms were forecast to experience negative profitability on average.
Sheep revenue was forecast to increase in 2024-25 with a small improvement in farmgate prices. A continued trend in the region was the movement away from sheep towards cattle to improve gross farm revenue.
Pruning of farm expenditure continued as more cash was required to service debt. Some farms were well below maintenance levels of inputs such as fertiliser and general repairs and maintenance.
Nationally, the report forecast farm profitability would remain under pressure with farm profit before tax expected to decrease by 7.4% to an average of $45,200 per farm.
Although revenue was forecast to increase by 1.1%, that was offset by a projected 1.8% rise in farm expenditure.
High costs, particularly interest payments, continued to impact profit margins, with profitability remaining at levels similar to those seen in the 1980s and 1990s, the report said.
In a statement, B+LNZ chairwoman Kate Acland acknowledged the sector’s difficulties but remained optimistic about the future.
"It’s been a tough year for many in the industry, and the upcoming season is also shaping up to be challenging. 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."
A sluggish Chinese economy was expected to continue to weigh on sheep prices. China was by far New Zealand’s largest mutton market and remained its largest single lamb market.
The lamb price was projected to be $130 per head, up just 1.1% from last season but still 8.2% below the five-year average. Mutton prices were expected to remain steady at $60 per head, which is 46% below the five-year average.
The all-beef price was forecast to be $5.35 per kilogram, 4.3% above last season and 4.8% above the five-year average, reflecting strong demand in the United States, where the cattle herd was at its lowest level in more than 70 years. European and North American markets were also expected to remain solid for lamb.
In the last few weeks, there had been a significant decrease in lamb processing in Australia. If the trend continued, that coupled with less expected supply from New Zealand, the EU and UK, could see global lamb prices lift higher than was currently forecast, Mrs Acland said.
As sheep revenue represented about 42% of average farm revenue, what happens with these prices is key to the speed of a recovery in farm profitability, she said.
Federated Farmers national meat and wool chairman Toby Williams and national vice-president Colin Hurst caught up with local farmers near Waimate earlier this week.
Concerns raised included costs facing farmers, from wool harvesting to rates, along with governance groups being set up without farmer representation on them.
Mr Williams raised some positives in the wool industry, including Bremworth’s 10-year contracts for strong wool producing farmers, and the work being done by Wool Source to turn strong wool fibre into small particles which could replace oil-based ones in products such as inks and dyes.
He said the wool auction system was not working and believed a blind tender system should be used so that there was competition in the market.
A group, led by North Otago farmer David Douglas, is campaigning for southern councils, from Waitaki to Selwyn, to break away from Environment Canterbury and amalgamate.
Mr Hurst said the economics needed to be understood but a unitary authority, which would bring efficiencies, could be well worth pursuing.
