AgFirst’s Central North Island Sheep and Beef Survey is forecasting a 22% fall in cash income compared to last season because of lower lambing percentages and expectation of reduced prices for lamb, wool and cattle.
The fall in income meant farm profit before tax was down 57%, AgFirst sheep and beef consultant Steve Howarth said in presenting the survey during a webinar: “In absolute terms, we have come from $112,000 in the previous year down to $48,000 profit for 2020-2021.”
Allowing for tax and drawings, the result was a deficit of $28,600.
Howarth urged rural professionals and farmers to plan for this forecasted shortfall.
“The budget for the coming year isn’t great and working through the budget with clients there was a bit of ‘I don’t really like that’, and I really encourage people to be encouraging their clients to do those budgets and to start that planning process,” he said.
The survey is based on 13 Central North Island hill country sheep and beef farms assessed during June. From that data, a farm model is created following consultation with industry personnel.
This model is 614 hectares, running 2300-2500 breeding ewes, lambing at 128%. Two-thirds of the lambs are finished and one third sold as store.
Its cattle policy is to finish any progeny not kept as replacements at 18 months, and finish steers to 300kg carcass weight. The farm also buys in 60-70 weaner steers which are also grown to 300kg CW.
Howarth said the drought had a huge effect on both production and profitability for the 2019-20 season.
Subsequent rain in May and June had led to some recovery, and stock conditions going into the new season are very mixed.
While cattle condition is reasonable, breeding ewe condition is generally down.
Howarth emphasised that management response to the drought did vary between the farms.
“Scanning results have generally been down in the range of 0-20%. There have been some large drops while other farmers have managed to protect their ewe performance,” he said.
As a result, AgFirst’s model farm will have a 3% fall in scanning for the new season.
The significant processor backlog caused by drought combined with the covid-19 lockdown led to beef chains running at 50% capacity and lamb chains at 75%.
“That created a perfect storm on-farm – the dry conditions and farmers needing to offload stock and the limitations on killing stock thanks to covid-19,” Howarth said.
Heading into this season, a lower schedule outlook combined with fewer stock wintered with lighter weights and lower lambing percentage would cause the fall in revenue.
Financially, last season saw net cash income for the farm model increase by 2% compared with 2018/19. Farm profit before tax up 4% to $112,200, which was similar to the previous year, Howarth said.
Looking ahead at schedule predictions for the current season, Howarth said a lot will depend on covid-19 which was still impacting on overseas markets.
Currently, values are sitting at $7.20 for lamb with half of it exported to the UK and EU. Consumption was falling in those markets as restaurants close due to covid-19 and consumers choose lower value protein.
The survey was forecasting a lower price for lamb because of those factors, he said.
However, there was still a lot of optimism in the sector in the longer-term prospects for red meat.
The improved public sentiment towards farming on the back of the covid-19 lockdown had also pleased farmers because they have been recognised as an important part of the rebuild, he said.
Other issues the sector faces is continued uncertainty around the plan change 1 in Waikato and the Government’s freshwater reforms.
“What these two items mean at the farm gate is that there is a potential to restrict how a farm operates and there will be an increase in compliance costs,” he said.
