Farmgate returns for most industries were dropping rapidly while interest rates were rising and other farm costs were stubbornly high, the latest ANZ Agri Focus report said.
Working out what options were available and having a variety of plans to manage through the period would be vital to success.
The global economic downturn had suppressed demand for dairy and meat products and was exacerbated by a fall in demand from China, it said.
The lack of urgency from Chinese buyers had resulted in the price of New Zealand’s export commodities plummeting.
The global market for dairy products was extremely weak.
The GlobalDairyTrade price index had fallen by more than 50% in the past 18 months and dairy prices were now the lowest in nearly five years.
The sharp fall in returns was having a significant impact on farm profitability and most dairy farms were expected to incur losses this year, the report said.
Other markets also had plentiful stockpiles and subdued consumer demand and had similarly low incentives to buy.
New Zealand’s spike in milk supply meant there would be more product to sell in the near term while the market was still weak, it said.
Dairy farmers were facing a challenging year in terms of both cashflow and profitability.
The break-even point varied from farm to farm, but achieving a profit would require careful cost management and efficient expenditure relative to production and, for many farmers, would still be beyond reach, the report said.
"Dairy markets typically go through these cycles, but focusing on what can be done, asking for assistance from advisers and keeping cashflow forecasts updated will be imperative."
New Zealand’s high exposure to the slowdown in China’s consumer demand was directly impacting returns, particularly for mutton.
The new season for lamb was likely to start with schedule prices relatively low, but that would hopefully improve before the main processing season in the new year.
Schedule prices for lamb and mutton have fallen by about 30c/kg over the past month.
The lamb schedule was now below $7kg CW and further downward pressure was expected.
This price for lamb was 25% below last season while the mutton price has plummeted by 46%.
Mutton has been hit particularly hard due to its high exposure to China.
This season to date, 86% of New Zealand’s mutton exports have been sold to China and 50% of its lamb exports, measured by volume.
Relatively large volumes of New Zealand and Australia beef were sold into the United States market due to weakness in other markets.
That meant New Zealand’s farmgate prices eased this winter, contrary to what typically happened.
Farmgate prices were holding up better for venison than for most other forms of protein; venison’s diversified market was helping returns.
While the China market was challenging, the US market is proving more resilient from an economic point of view.
Farmgate prices for venison eased marginally in July and had been stable since. The current price was slightly stronger than it was a year ago.
Exporters were making a concerted effort to stabilise farmgate returns to rebuild confidence in that market, the report said.
A high level of uncertainty continued to hang over global grain markets, as transporting grain out of Ukraine remained challenging.
Overall, global crop production was expected to ease in the season ahead and export volumes were expected to fall.
International markets for logs remained weak and it was unlikely that situation would improve soon.
New Zealand’s supply of logs for export dropped over the winter, partly in response to lower returns but also due to wet conditions and damaged road access to forests that caused logistical challenges for harvesting, it said.
The Emissions Trading Scheme and the "permanent forestry" category were both under review.
Demand for land to plant trees for carbon fell sharply over winter, as did the volume of planting, due to uncertainty about proposed legislative changes, the report said.
