China and Australia inf luence expected drop in farm profits
China’s slow economic recovery and Australia’s high red meat exports continue to put strain on New Zealand’s farmers.
Beef + Lamb New Zealand is forecasting farm profit drops of
54% to an average of $62,600 per farm in its 2023/2024 mid-season update.
This would be a 67% drop on 2021/2022 profits to levels not seen since the 1980s, excluding the Global Financial Crisis.
But there’s a sliver of hope with Federated Farmers reporting a slight rise in rural confidence from record lows last year.
China’s economy has struggled to bounce back after Covid-19 and growing youth unemployment rates have shrunk its middle-class, who are now leaning towards cheaper meats.
Meanwhile, Australian sheep farmers have been flooding the market as they offload their flocks amid challenging climatic conditions.
Beef + Lamb NZ said these exports have been higher than originally anticipated, which meant New Zealand lamb exports were expected to bring in 4.8% less than last year while income from mutton exports was expected to drop 20%.
Many farmers were also still dealing with the fallout from severe weather events like Cyclone Gabrielle.
“It’s still extremely tough for farmers out there, so please reach out to the likes of Federated Farmers and Rural Support Trust if you need help.”
Wayne Langford, Federated Farmers president
Beef prices, however, have held up as the United States rebuilds its herd after a drought.
“Input costs remain stubbornly high, we know farmers are feeling it,” Beef + Lamb NZ chief executive Sam McIvor said.
“Many have already worked hard on cutting costs and my conversations indicate they’re leaving no stone unturned to find additional savings.”
McIvor encouraged farmers to talk to their accountants and bank managers for support.
Federated Farmers’ latest Farm Confidence Survey found that farmers were concerned about high interest rates, poor commodity prices and excessive red tape.
Federated Farmers president Wayne Langford said there was a small rise in confidence, but pointed out that it was from a 15-year low in 2023.
“Confidence is no longer going backwards, but it’s still in the gutter.
“Most farmers are still feeling that general economic conditions are bad, and most are still making a loss.”
But Langford said there were some good signs.
“Inflation is slowing, interest rates are high but have hopefully peaked, and commodity prices – at least for dairy – seem to have stabilised.
“We’ve also seen a change of government in the last six months, with a real commitment to roll back some of the more impractical and expensive regulation that’s undermined farmer confidence."
In its latest commodities update, ASB reported that a recovery in meat prices over December and January had stalled, with beef prices dropping slightly along with the 13% year-on-year drop in lamb prices.
Dairy prices were also softening, ASB reported, with whole milk powder unable to breach the US$3500/MT mark over the past twelve months.
Westpac’s economic team said milk prices in the coming months would be influenced by the performance of Chinese consumer spending – which still looked weak.
The team expects meat export prices to edge higher over the next couple of years, driven by an eventual recovery in the Chinese market and a drop in Australia’s supply.