Rising demand and falling supply will bring better returns in the coming season to farmers who have stuck with sheep and beef.
It’s not just the demand for protein which will boost returns, the price of strong wool is also rising and the falling dollar will help too.
The average profit for each farm in the sheep and beef sector will jump from just $19,400 in the 2007-2008 season to $53,000 in 2008-2009, said Rob Davison, executive director of Meat and Wool NZ’s economic service.
Farmers have a lot of ground to make up because accountants in Otago reported sheep and beef farm clients making losses of more than 100,000 in the past year. And while the increase is very welcome, returns have a long way to go before they approach returns from dairying or dairy support.
Gross farm revenue next season is forecast to increase $575 million to $4.5 billion at the farm gate. Economists estimate farmers will spend $3.78 billion or 84 per cent of the earnings on running their farms, and paying costs such as fuel, shearing and local government rates.
“The remaining $720 million [16 per cent] is farm profit before tax which is spent on mortgage repayments, tax, capital equipment replacement and farm family living expenses,” Davison said.
But he said that while farm profits for next season will be better, they will remain below levels recorded in 2000 to 2005 because of high on-farm costs estimated at 10.4 per cent of revenue and production lost from the big “dry’ which hit many regions last year.
There won’t be much of the $53,000 left for capital replacement and living expenses when Inland Revenue and the bank get their money. The high on-farm costs are also a concern becasue they eat into profits when returns are rising and decrease more slowly if at all when prices fall.