2  Overview of the sheep and beef sector

Review of 2005/06

The key issue this year was the sharp fall in the export lamb schedule and the fact that market intelligence did not predict the magnitude of the situation. Prior to December, farmer confidence was good and sheep sales reflected this. The prices paid for store lambs and all-counted prices for ewes with lambs at foot were higher than would later be justified. The lamb price dropped $9 to $10 per head but is forecast to rise $4 to $5 per head in 2006/07.

There was a good start to the season, with favourable lambing and calving conditions throughout the country. The favourable early spring boosted the lambing percent to record levels in most regions. However, weaning weights and post-weaning growth rates were down because of the cold wet conditions over much of the country in mid-spring and summer, and drought affecting Canterbury and Northland. A good autumn in 2006, with late rains and mild conditions, gave good pasture cover going into the winter of 2006.

A drop in lamb returns led to the cash farm revenue declining 8 percent to $320,800, despite a record high lambing percentage. Beef revenue and wool revenue also declined. Farmers were unable to arrest operating or capital spending in the face of the decline in product prices and revenue from December 2005, and consequently a disposable deficit of $45,300 has been incurred. Economic farm surplus per hectare has more than halved and return on capital has slumped from 3.1 percent in 2004/05 to 1.1 percent in 2005/06.

Farmers continue to focus on improving productivity, with change of sheep breed to improve lambing percent a particular focus. Other areas include changes in pasture varieties and strategic use of nitrogen. Animal health costs are constantly reviewed to achieve the best outcome for the least cost.

Cattle policy has been varied to maintain trading margins, including buying weaner bulls instead of bull calves, buying younger trading cattle, and holding cattle on the property for longer.

Farmers have spent above maintenance levels on fertiliser, repairs, and maintenance in recent years and consequently feel comfortable restricting spending in these areas for one or two years. In most models fertiliser spending will still achieve maintenance levels.

In most models accessing good quality permanent labour has remained difficult. This puts increasing stress on farmers and their families to cope when staff are not available or on holiday. Shearing now represents 50 percent or more of wool revenue in most models.

Land prices appear to have stabilised in the second half of the year. While sales have slowed prices are not expected to drop significantly. Farmers are concerned at the gap between land prices and farm profitability, and the effect of this on farm succession.

Farmers are concerned about increasing compliance costs, and compliance requirements that do not take sufficient recognition of the impact on farm operations. Some farmers feel the increasing urbanisation of district authorities is creating a gap between rural and urban communities. They also experience an increasing level of “red tape”, for example tuberculosis (Tb) movement cards, Resource Management Act consents, and complying with holiday legislation with respect to labour.

Table 2.1: Sheep and beef model results, 2005/06

 Effective
area
(ha)		Total
opening
stock units
(su)		Gross
farm
revenue
($)		Cash farm
expenses
($)		Net trading
profit
before tax
($)		Total farm
capital at
start of year
($)		Total farm
capital at
end of year
($)
Northland3143 176208 298120 16343 9602 001 8571 998 984
Waikato/Bay of Plenty intensive3003 876269 728141 63598 6543 344 3443 370 904
Central North Island hill country5505 681301 776179 56087 5153 923 3773 949 616
Gisborne large hill country1 68115 024751 317578 14887 9368 373 52210 809 225
Hawkes Bay/ Wairarapa hill country5575 754365 521243 24462 0814 453 2154 622 907
Manawatu/Rangitikei intensive3934 561397 757253 13135 4264 907 2304 941 680
South Island merino6 5009 363496 492367 80017 5816 713 9756 834 694
Canterbury/Marlborough hill country1 1496 459391 088251 31566 5664 281 2224 608 773
Canterbury/Marlborough breeding and finishing3403 871249 651147 44638 6973 070 6383 061 410
Otago dry hill2 0006 518394 661232 33788 5514 099 4364 101 393
Southland/South Otago hill country7106 035389 668252 98669 8214 655 2484 693 747
Southland/South Otago intensive1942 636193 034112 66848 5772 508 6752 612 905
National model6735 073320 766200 55162 5353 846 4153 967 224

Note
1 Before interest, rent and lease costs.

Outlook for 2006/07

The outlook for the 2006/07 season is more positive. Stock numbers are predicted to increase slightly and gross farm revenue is expected to increase 5 percent to $339,000. This is dependent on farmers’ assumptions for lambing percentages to hold near the 2005/06 levels and for lamb price to improve by $4 to $5 per head. For many models, industry observers felt that farmers were a little optimistic in their estimate of lambing percentage, particularly if more normal lambing conditions occurred and lamb deaths were higher than the very favourable 2005/06 season.

Cash farm expenditure is expected to increase slightly overall. Many items such as wages, animal health, shearing, fuel, and rates are expected to increase, but this is expected to be offset by cuts in discretionary spending on fertiliser, and repairs and maintenance. Interest costs are expected to increase because of increased debt levels and slightly increased interest rates.

With the dramatic reduction in tax payments on the back of the low 2005/06 profit, and with planned reductions in capital spending, farmers expect the disposable surplus to recover to $5,500. If the expected increase in returns occurs, farmers will consider further capital spending later in the year. Overall, financial performance is expected to be at the lower end of the range, with cash farm expenditure at 60 percent of gross farm revenue and return on capital only 1.4 percent.

Snow

Canterbury received a heavy snowfall on 12 June 2006 after a warm wet northwest airflow met a cold front. Snow fell from the coast to the main divide with 30 cm on the upper plains. Farms in the Methven–Mt Somers district remained covered for up to three weeks, while the Fairlie and Mackenzie basins were under snow for almost two months. Snow also fell over Central and North Otago, but did not lie.

Winter feed crops were damaged with kale broken and oats flattened. High levels of supplements were fed, with many farms feeding 100 percent supplements to stock until crops and pasture started to clear. Reserves of supplements were depleted and the value of feed supplements rose steadily. Both farmers and livestock were stressed. Livestock on some farms will be in light condition for lambing and calving. Lambing percentages may be reduced in some areas and breeding stock death rates increased by metabolic diseases.

The financial effects of the snow are not yet known but it is anticipated that profitability will be reduced through the cost of feed purchases and reduced stock performance. Farms are vulnerable to further snows because of depleted reserves.

Figure 2.1: Agricultural production statistics, June 2005 – North Island

Symbols
...c confidential
...s suppressed
Source
Agricultural Production Survey 2005, Statistics NZ.

Figure 2.2: Agricultural production statistics, June 2005 – South Island

Symbols
...c confidential
...s suppressed
Source
Agricultural Production Survey 2005, Statistics NZ.

 

Previous Page Next Page

Contact for Enquiries

Farm Monitoring Programme Manager
Monitoring and Evaluation
MAF Policy
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
Fax: +64 4 894 0741
Contact this person

 
Print this page Print this page