Farm profits expected to be lower

| November 4, 2012 | 0 Comments

The 2012/13 season is expected to be more subdued for pastoral farm businesses as product prices come off recent highs, the Ministry for Primary Industries says.

MPI has released the 2012 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 and beef, and deer farms, based on information gathered from a sample of farmers and industry stakeholders.

Production has been good on pastoral farms, as a result of generally favourable weather.

National dairy production was up nearly 10 percent for the 2011/12 season. However this was offset by a declining payout, so the farm income was similar to the previous year.

On sheep farms, lambing was up 10 percentage points on the previous season. Improved prices for sheep meat, beef and wool combined with the higher productivity in 2011/12 lifted net cash income for the sheep and beef farm model by 18 percent to $543,000.

The obvious concern for dairy farmers this season (2012/13) is the drop in expected payout, which will test the resilience of their businesses. Total income from milksolids is expected to fall 20 percent for the national dairy farm model, and this will result in a drop in profit before tax of around 57 percent compared with 2011/12. Businesses carrying high levels of debt are particularly vulnerable.

Sheep and beef income is expected to be down 6 percent in 2012/13 due to lower returns for lambs and wool, and farmers are cautious. However, while the profit before tax is forecast to fall around 15 percent, at $181,300 it is still the second-highest profit for the national sheep and beef farm model since 2000.

Deer farmers, meanwhile, experienced their third season of relative stability in product prices and good on-farm productivity in 2011/12, which has enabled some capital expenditure and debt repayment, and boosted confidence in their sector. Similar results are forecast for the 2012/13 sector.

MPI analysts have also noted some key developments for the pastoral sectors, including the need to reduce environmental impacts such as nutrient runoff into waterways, the beginning of mandatory tagging of cattle under the National Animal Identification and Tracing (NAIT) programme, land-use change and succession for sheep and beef farmers, and the Trading Among Farmers proposal for dairy farmers.

In dairying there is something of a divergence occurring in pasture-based farming – into either low-cost, low-input farming which might include once-a-day milking, or into high-intensity, high-input farming using infrastructure such as herd homes and feed pads. These require quite different management skills.

Actual and budgeted figures from MPI’s typical farm models

Dairy – National
• 2011/12 actual: $319 519 profit before tax (-7% on previous year)
(In other words, profit equivalent to $1.98 per kilogram milksolids produced)
• 2012/13 budgeted: $137 589 (-57% on previous year)
(In other words, profit equivalent to $0.87 per kgMS produced)

Sheep and beef – National
• 2011/12 actual: $213 841 profit before tax (+44% on previous year)
• 2012/13 budgeted: $181 305 profit before tax (-15% on previous year)

North Island
• 2011/12 actual: $111 724 profit before tax (-1% on previous year)
• 2012/13 budgeted: $115 022 (+3% on previous year)
South Island
• 2011/12 actual: $127 417 profit before tax (+8% on previous year)
• 2012/13 budgeted: $140 116 (+10% on previous year)

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