Average sheep and beef farmer pre-tax incomes across the country are expected to rise 39% year-on-year by the end of the export season, with the greater part of the gain being achieved in the North Island, which has a higher revenue input from cattle than the South Island.
Nationally, the average pre-tax income is forecast at $126,300 for the export year to September 30, up from $90,600 last year.
The North Island figure is up 46% to $136,000 from gross revenues up 17% at $472,000 and the South Island profit gain is 33% to $115,000 on gross revenues up just over 6% at $572,000.
The estimates allow for more livestock being bought and sold as stores over the season because of price and climate factors, Burtt said.
As well as higher prices, the results do indicate that processing companies have come a long way in recent years, improving their cost structures and being able to pass on more of the price gains to sheep and cattle suppliers, Burtt said.
“They don’t get a lot of credit but it is a bloody hard business.”
The earnings forecast are nominal figures, ahead of inflation-adjustments, and are based on an average NZ dollar currency rate of US$0.69 over the export season. The kiwi was about that level from October to December but has largely been in the 0.72/0.73 range from mid January to March. Major trading bank currency forecasts are for it to slip back to about 0.69 over the next half-year so the B+LNZ figure could be a reasonable yardstick. Its mid season report says at an average exchange rate of US$0.76 for the season, the pre-tax profit will reduce to $78,000. That looks an unlikely scenario.
About 70% of all meat export volumes are traded in US dollars.
Burtt said B+LNZ uses a pre-tax profit measure in its forecasts because every farmer has a different tax situation and it can’t work out average after-tax performance.
North Island farms have 49% of the country’s sheep, 70% of beef cattle and 60% of dairy cattle.
Sheep meat (so excluding wool) provides 46% of average North Island farm revenues, with cattle at 38%.
In the South Island sheep provide 48% of average revenues, cattle 17% and cropping also 17%, the report says.
The South Island profit figure is skewed slightly by the Canterbury/Marlborough numbers, with the highest gross revenues at an average $657,200 but also the highest farm expenses, at $554,000. That is largely due to catch-up spending on many farms following several years of serious drought, Burtt said.
The farm expenses do not include stock purchases.
As well as higher lamb and mutton prices, returns in some regions, especially the east coast of the North Island, are being helped by having more lambs to sell because of higher and excellent lambing production. Cattle revenues are also higher but off a stronger base so they don’t look as impressive in percentage terms. The east coast zone is the most profitable region, per average farm return and has the greatest percentage profit increase.
Through the 2017-18 season, B+LNZ expects NZ returns to benefit from a reduction in Australian sheep meat exports as that country continues to rebuild the national flock. About 44% of Australian production is sold domestically so the rebuilding has an impact on exports with lambs exported expected to be down by 4% and mutton exports by 6%.
The two countries account for 90% of world sheep meat trade, excluding intra-EU trade.
As reported earlier, B+LNZ expects both beef and lamb export revenues to exceed $3 billion this year, the first time they’ve both made the milestone.
NORTH ISLAND: Sheep revenues up 31% to $219,000 on greater lamb numbers and prices. Cattle revenues up 7% to $179,000 on strong prices and steady-to-higher numbers. Farm expenses higher, supported by the higher revenues. Term debt levels up about 16% over the last four years but interest costs lower because of lower interest rates.
SOUTH ISLAND: Sheep revenues forecast higher though more lambs than usual sold store rather than prime, especially on high country and breeding/finishing farms, selling to mixed cropping and other finishers. Cattle revenues moderately higher though strong store prices eroded margins for finishers. Strong wool revenues lower as the price fall offsets higher volumes caused by wool stored from last year being brought forward for sale. As with the North Island, term debt levels higher but interest costs lower.
NORTHLAND/WAIKATO/BAY OF PLENTY: Gross revenue $396,900, up 12%, including sheep revenues up 21% to $125,900 after increased lambing numbers and cattle up 8% to $200,200, the highest level on record. After expenses, pre-tax profits up 28% to $108,600. Fertiliser spend up 13% to $47,300 average per farm, catching-up after lower volumes previously. Repairs and maintenance spending higher to record levels, except on hard hill country where more was spent after 2013 drought.
EAST COAST, North Island: Gross farm revenue forecast up 24% to $559,900 with sheep revenues up 42% to $294,000 after near-record lambing and cattle revenues up 7% to $188,200, thought to be a record because of more stock sold and higher prices. Cattle continue to be the favoured livestock ahead of sheep because of the returns and lower labour input, especially among older farmers. Sheep still produce greater revenues at 53% of the farm total. Wool revenues up 19% to $33,900 as increased volumes offset lower prices. Fertiliser inputs and repairs and maintenance both higher, making up for work deferred previously. Autumn conditions more favourable for fertiliser applications than autumn last year. Average farm pre-tax profit up 63% to $164,600.
TARANAKI/MANAWATU: Gross farm revenue up 13% to $485,300, with sheep up 24% to $290,000, though numbers were lower, and cattle up 3.5% to $123,300 and just better than the 2014-15 record. Dairy grazing revenues were lower, especially on hill-country farms. These properties also took up much of the increased fertiliser spend, up to an average $44,200 a farm. Farm pre-tax profit jumped 51% to $143,200.
CANTERBURY/MARLBOROUGH: Has the most diverse revenue stream with forecast sheep revenues up 21% to $235,000, the highest average since 2011-12 with more lambs for sale and the area recovered from the earlier prolonged drought. Cattle up marginally to $123,400 because of strong pricing. Wool revenue is forecast to fall 9% to $37,800, the lowest level since 1998-99, because of low strong wool prices, though the income on high-country farms producing fine wools increases sharply because of their high prices. Cropping revenues down marginally to $172,100 with changes caused by different product mixes and area under planting. Dairy grazing revenues forecast down 8% to $52,900 on reduced dairy cattle numbers and still potential impact from Mycoplasma bovis disease. Fertiliser spend down slightly, similar tonnages but lower input prices. Pre-tax farm profit forecast up 35% to $103,000.
OTAGO/SOUTHLAND: Gross farm revenue forecast up 8% to $465,300. Season marked by strong livestock prices and very dry conditions for much of the summer, leading to earlier weaning, selling more lambs as stores or finishing lambs earlier and culling old ewes then rainfall from February onwards. Sheep revenues up 11% to $311,000. Though lambs were sold earlier, a lower number of breeding ewes means fewer lambs available overall. Sheep revenues make up 67% of the average farm totals, the highest ratio in the country. Cattle revenues forecast up 9% to $68,200. Wool revenues dropping 8% to $47,600. For the total region wool makes up 10% of revenues but this rises to 30% for fine wool producers in the high country. Farm profit pre-tax up 29% to $126,000 for the September 30 export season.
