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Pastoral profitability lift strengthens bank balances

August 22, 2011

The pastoral sector has experienced a significant lift in profitability which is enabling farmers to restore bank balances.

The Ministry of Agriculture and Forestry has released the 2011 pastoral farm analyses as part of its annual Farm Monitoring Report series. The reports provide models and overviews of the financial performance of typical dairy, sheep & beef, and deer farms, based on information gathered from a sample of farmers and industry stakeholders.

Dairy incomes lifted significantly in 2010/11, despite a variable year climatically in many parts of the country. MAF reports that nationally dairy production increased and, coupled with a record payout of $7.50 per kilogram of milksolids, this saw gross incomes lift by 23 percent. This continues a trend of improving returns since the low of 2008/09.

Despite the increase in dairy income, spending on many farms remains quite tight, says MAF analyst Phil Journeaux. “This is likely to remain so until some time into the 2011/12 season when farmers see how the season – and payout – is progressing.”

Nevertheless dairy industry morale and optimism has lifted, and the Farm Monitoring Report indicates many farmers are now concentrating on debt reduction and looking to further boost productivity.

Better product prices increased sheep and beef farm profits to record levels in 2010/11. MAF’s models show that reports farm profits before tax more than doubled to $148,000 – the highest level for ten years.

While lambing was down 10 percentage points (129 to 119%), the better prices for lamb, wool and beef more than offset this, says MAF analyst John Greer.

“As a result, farmers increased spending later in the season on productive inputs, particularly fertiliser. They have also reduced debt through principal repayments and lowering overdrafts.

Some have taken advantage of the good year to purchase capital equipment such as tractors and vehicles.”

Sheep and beef farmers are budgeting for an equally good 2011/12 income, with increased lamb sales after a favourable 2011 autumn mating season. “Prices are predicted to be almost as good as last year – though the increasing strength of the New Zealand dollar may undermine this.”

MAF reports sheep and beef farmers are still conservative about spending because they feel there has been no substantial change to industry structure or strategies, and they are very conscious that their returns can go down as fast as they have gone up.

Venison returns at above five-year-average levels enabled deer farmers to achieve a good financial result in 2010/11, MAF reports.

Once again climate had a significant impact on North Island deer farms, with a dry autumn and a wet spring reducing the average fawning rate to just 80 percent. Many North Island farmers are rebuilding stock numbers.

The South Island deer model largely maintained productivity despite a cold spring. However, finishing animals were slower than usual to achieve slaughter weights.

Velvet prices were largely sustained in 2010 and remain above the five-year average of $81 per kilogram.

The more stable income in the past few years has deer farmers feeling positive. Improved venison prices are again expected in 2011/12.

Actual and budgeted figures from MAF’s typical farm models

Dairy – National

2010/11 actual: $345,400 profit before tax (+70% on previous year)

(In other words, profit equivalent to $2.36 per kilogram milksolids
produced)

2011/12 budgeted: $322,900 (-7% on previous year)

(In other words, profit equivalent to $2.13 per kgMS produced)

Sheep and beef – National

2010/11 actual: $148,100 profit before tax (+122% on previous year)

2011/12 budgeted: $184,200 (+24% on previous year)

Deer:

North Island

2010/11 actual: $100,700 profit before tax (+29% on previous year)

2011/12 budgeted: $123,100 (+22% on previous year)

South Island

2010/11 actual: $117,800 profit before tax (+45% on previous year)

2011/12 budgeted: $130,000 (+10% on previous year)

To view the full reports, go to:
http://www.maf.govt.nz/news-resources/statistics-forecasting/statistical-publications/pastoral-monitoring.aspx

ENDS

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