Federated Farmers' meat and wool chairperson Toby Williams. Photo: RNZ / Jimmy Ellingham
It is looking like another challenging season ahead for the country's already struggling sheep farmers.
Beef and Lamb New Zealand's new season outlook showed while global demand for red meat was forecast to improve slightly next season, farm profitability will remain a challenge - especially for sheep farming.
The report said farm profit margins were being hit by high costs, especially interest payments, reaching low levels similar to those seen in the 1980s and 1990s.
It described the current forecast for farm profitability this coming year as "sobering" - with profitability for red meat forecast to drop 7.4 percent to an average of $45,200 per farm.
It said the 1 percent expected increase in revenue would be eaten up by the 1.8 percent rise in expenditure.
Continued weak demand from top market China was expected to keep sheepmeat prices at their multi-year lows, though European and North American markets were expected to remain solid for lamb.
The forecast lamb price was $6.79 per kilo carcass weight or $130 a head, which was 8.2 percent below the five-year average.
An even deeper hit to mutton prices, forecast to be about $60 a head - 46 percent below the five-year average.
Federated Farmers' meat and wool chairperson Toby Williams said the mood among sheep farmers was sombre, with many feeling "brow-beaten" about their future.
"In the last you know sort of 18 months now, we've seen that strong pricing for sheepmeat drop right off," he said.
"It doesn't look like there's going to be the recovery people are expecting coming into this season, and it's going to be a real challenge for a lot of farmers."
Williams said lamb prices would need to lift 20 to 30 percent for farmers to breakeven - which was not expected.
He said as a result, many were leaving their sheep-based businesses or changing their whole business models just to get by.
"Farmers are going to be seriously looking at their businesses, going, 'well, if I'm in an area where I can actually get out of sheep and do something else and move to more dairy support, dairy beef finishing, then maybe there's an option for me moving forward'.
"That will help get you back to profitability, but sheep are going to be a real challenge this year.
"Currently it hasn't been this hard since the 1980s in the Roger-nomics eras."
Exports of lamb and mutton were expected to fall 7 percent - driven largely by the drop in breeding ewes and the lamb crop as many farmers responded to drought this season.
However, the report said profitability could change if interest rates change and lamb prices improve.
Beef and Lamb chairperson Kate Acland said despite the sector's current difficulties, she was optimistic about the future.
"It's been a tough year for many in the industry, and the upcoming season is also shaping up to be challenging," she said.
"However we are starting to see some positive signs in the market, we know our sector is strong, resilient, and will bounce back even if it may still take some time."
On the other side of the coin to sheepmeat was beef.
The report said all-beef price was forecast to be $5.35 per kilogram, which was 4.3 percent above last season and 4.8 percent above the five-year average, reflecting strong demand in the United States.
New Zealand has been plugging the gap in strong American demand for beef, with its cattle herd is at its lowest level in over 70 years.
Though lower exports were expected in the coming season, with beef down 3 percent.
The report said some farmers have started to feel a bit of relief in their debt servicing with a reduction in floating interest rates, after the Reserve Bank cut the official cash rate last month.
