Key highlights
The Ministry of Agriculture and Forestry’s Pastoral Monitoring Report 2008 compares the financial performance of three pastoral sectors – dairy, deer, and sheep and beef – and contrasts the variation in actual and expected profitability of each sector between 2007/08 and 2008/09.
The model1 information was compiled between June and August 2008 and is based on farmer and industry expectations at that time.
Key highlights from the Pastoral Monitoring Report 2008 are detailed below by sector.
General
- The 2007/08 year was dominated by drought and relatively poor prices, apart from the significantly improved dairy payout.
- Widespread drought caused by La Niña weather conditions affected many regions, in particular those that usually have reliable summer rainfall.
- The widespread nature and duration of the drought meant supplementary feed reserves were lower than usual and, as the drought continued, the prices of hay, silage and grain increased steadily.
- The strength of the New Zealand dollar constrained returns, but this result was more noticeable in the sheep and beef sector than in the dairy sector as the large increase in dairy payouts masked exchange rate-related constraints.
Dairy
- Despite the drought, farm profit before tax on the national dairy model rose 449 percent to $384 000 in 2007/08.
- Fonterra’s record payout of $7.90 per kilogram of milksolids (before retentions) dramatically increased dairy farm profits in 2007/08. The payout increased 71 percent (after retentions) compared with the 2006/07 payout.
- Dairy farm working expenses increased significantly, up by 15 to 30 percent in 2007/08 compared with 2006/07. While a significant portion of this increase was due to extra spending because of the drought, it continues to be a worrying trend.
- International dairy commodity prices have fallen from the peaks achieved in early 2008. Prices in New Zealand dollars are expected to continue to fall in 2008/09 as the weakening of the New Zealand dollar is unlikely to compensate for falls in international dairy commodity prices.
- Dairy farm profitability was budgeted to drop in 2008/09, with farm profit before tax expected to be down 42 percent; the expected higher production being offset by a lower payout. A payout of $6.00 will decrease the national dairy model farm’s milksolids revenue by $113 000 or 13 percent compared with the original budgets (based on a final payout of $7.00). Despite this, profitability is still strong compared with three years earlier when the price was $4.46.
- Farmers are budgeting on an overall increase in costs of 5 to 10 percent for 2008/09, especially in the face of major increases in fertiliser and fuel costs during the 2007/08 season.
Sheep and beef
- Sheep and beef farmers are budgeting on further increases in farm working expenses (8 percent) and interest costs (5 percent).
- Sheep and beef farm incomes fell in 2007/08 compared with 2006/07. On average, sheep and beef farm net cash income fell 2 percent to $288 000 and would have been lower without $15 000 released from destocking 200 stock units (mainly sheep).
- The sheep and beef sector continued to experience relatively low prices, particularly for lamb and wool, which kept incomes low and led farmers to change land use and reduce sheep numbers. Over 2007/08, sheep numbers fell 4.3 million (11 percent) as a result of drought and land use change to dairy, dairy support and cropping.
- Farm working expenses on sheep and beef farms increased by an average 4 percent and interest costs by 20 percent. Consequently, farm profit before tax and farm surplus for reinvestment fell to low levels ($19 000 and -$15 000 respectively) on the national sheep and beef model.
- Most sheep and beef farmers were unable to afford the increasingly expensive feed, so had to quit stock onto an oversupplied store market. This situation severely depressed prices for lambs and cattle as few areas had the feed available to finish animals.
- When compiling their budgets, farmers were expecting higher prices for lamb, wool and beef compared with last year. Net cash income on the national sheep and beef model is expected to increase by an estimated 13 percent.
Deer
- Deer farmers’ profitability improved in 2007/08 with higher prices for venison despite velvet prices falling by around a quarter compared with 2006/07. There were increases of 4 percent ($6000) and 24 percent ($44 000) in the net cash income of North and South Island deer farms respectively compared with 2006/07.
- Average velvet prices fell 25 percent and 21 percent for North and South Island deer model farms respectively.
- Rising expenditure almost completely offset the increases in net cash income, resulting in farm profit before tax in 2007/08 being at similar levels as in 2006/07 for North and South Island deer model farms.
- Deer farm working expenses increased 6 percent and 18 percent in 2007/08 for the North and South Island model farms respectively.
- Deer farmers expect improved venison prices and revenue in 2008/09. The North Island model budgeted for farm profit before tax to increase 127 percent on 2007/08, while the South Island model budgeted for a 20 percent increase.
1 The model farms depicted in this report are representative of their farm type within each region. Each model is created from information drawn from at least 20 properties and a wide cross section of agribusiness representatives. The aim of each model is to typify an average deer, dairy, or sheep and beef farm for the region. Budget figures are averaged from the contributing properties and adjusted to represent real farms.
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
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