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Tough Economic Conditions Persist

03 February 2010

NEW ZEALAND - The strength of the New Zealand dollar (NZ$) will have the biggest impact on beef farm gate receipts and profitability, according to Meat & Wool New Zealand’s Mid-Season Update for 2009-10.

Meat & Wool New Zealand Economic Service Director, Rob Davison says the New Zealand dollar appreciated remarkably over 2009, compared with the previous year.

“Unfortunately for the beef sector, the NZ$ strength has been against the US dollar (US$), British pound (GBP) and Euro (EUR) where the majority of New Zealand’s beef is sold. We expect this will continue in the first six months of 2010.

“We estimate there will be an 8.6 per cent decrease in total gross farm revenue to $317,600 for the average New Zealand sheep and beef farm in 2009-10. On-farm input prices are expected to remain stable (+0.5 per cent) which will be a welcome relief from the 9.7 and 7.6 per cent increases experienced in the previous two years. However, this leaves per farm, profit before tax at $37,400, a significant decrease from 2008-09’s $58,800.”

Mr Davison said offshore prices for sheep and beef products continue to remain strong in 2010 in spite of the financial crisis and have improved in some cases. With export volumes for wool, lamb, mutton and beef similar to last year (+1 per cent), the exchange rate factor will reduce those export receipts to $5.4 billion which is 12 per cent down on last year, he said.

“This translates to $700 million being wiped from meat and wool sector receipts, just because of the exchange rate. The high NZ$ completely masks the price levels achieved offshore and the productivity increases.”

Key points:-
  • Average sheep and beef farm profits before tax are expected to be $37,400 in 2009-10, down from $58,800 in 2008-09.

  • Offshore prices for beef products are strong, but the strength of the NZ$ is eroding improved returns.

  • Sheep and beef export receipts are expected to be $5.4 billion (- 12 per cent).

  • Beef export volumes are expected to be down 4.2 per cent with receipts totalling $1.9 billion (-18 per cent).

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