Words by Richard Rennie, images by Annie Studholme and Larry Prosor.
As the farming season draws towards a close, the ups and downs of a particularly tumultuous year have finally started to make themselves clearer as crops are sold, herds start to be dried off, and the last of the season’s lambs are sold.
Depending on what side of the fence your farm business is in, the outcomes for farm profit and loss are likely to be quite varied, coming after a few years where most sectors have almost uniformly enjoyed buoyant returns.
Dairy
Dairy farmers kicked off the 2023–24 season with prospects of an extremely tough year ahead, with prices well below break even, cost increases well in double digits and the grim prospect of being unable to clear the farm overdraft before year’s end.
But a shift in global dairy dynamics proved just how volatile the sector can be. No sooner had processors announced drastic reductions in payout to a midpoint of $7.00/kg of milk solids, well below a realistic breakeven for most, than global milk prices took a turn for the better.
Within only a few weeks of the announcement Global Dairy Trade prices started to march north, with four consecutive lifts putting values well back where they were prior to the slide.
With prospects of dairy payouts now sitting well over $7/kg of milk solids, and even having an upper level with an $8 in it, dairy farmers can justifiably finish this season with a sigh of relief that revenue is at least going some way to offset the dizzying surge in interest and farm costs they have faced.
China’s reticence to buy whole milk powder appears to have eased, while there is little prospect growth in global milk supply through the second half of this year to knock prices back again.
Sheep
Over the other side of the fence, sheep farmers may well be gritting their teeth and crossing fingers things pick up for the new farming season, with 2023-24 proving to be one to forget. As lambs reached weight late last year and were ready to be quit, prices started to drop quicker than forecast, with one processor lowering its prices for lamb through to January by a further $1.10/kg.
China’s slowdown has continued to impact harder upon sheep meat than dairy, while industry heads have warned that any turn REAL FARMER 15
around may not be seen until well into the second half of this year.
On top of China’s economic slowdown has been the supply side impact of Australia’s big surge in lamb supply. Coming after four years of reliable rainfall and good growth, Australia has set itself up to knock New Zealand off its spot as the world’s largest exporter of sheep meat as restocked flocks have been reduced in the face of predicted drought this summer. Those reductions in numbers have also included significant levels of capital stock sold as mutton.
By early this year the Australians had exported 85,000t more sheep meat than for 2022.
The hit that Australian farmers have taken to claim that title has been significant however.
By late spring last year, they were receiving prices almost A$3.50/kg below their five-year average, and a full A$2/kg lower than what New Zealand farmers have been receiving. This gives some hope to farmers here that such values will soon be revealed for how unsustainable they are and put the brakes on future surges in supply.
Meantime the drought prospects that prompted so many farmers to quit stock did not materialise as early as expected, leaving depleted flocks and likely to also stem the flood of cheaper Australian sheep meat that has contributed in part to farmers’ woes here.
While returns are likely to remain down for the first half of this year, the drop is not as great as what Australian farmers have had and highlights how well New Zealand processors have done to retain value in New Zealand lamb as a premium product.
Adding to concerns however is the massive stockpile of sheep meat already held in China, with estimates that the 1 million tonnes are almost double what is usually held, further fuelling prospects any turnaround is unlikely until the second half of this year as that stockpile gets reduced.
Beef
Beef farmers have been spared quite the pummelling sheep farmers have had in the past year, and the impact of drought in the United States is likely to help cushion any future risk of value slide.
United States farmers have been liquidating herds in response to drought challenge and are expected to continue for the remainder of this year. A third of the United States is feeling the pinch from drought with the national herd estimated to be 3% lower by January compared to the same time 2022, and supplies of beef are estimated to fall to levels last seen in 2019.
The sector has enjoyed a steady gain in volume sales of 20% in the last five years, accompanied by solid prices as global demand for beef continues to grow with emerging middle classes wealth gains through China and south-east Asia.
The United States’ loss of herd helps counter continuing strong competition from the likes of Brazil and Australia, and New Zealand’s tendency to provide the low-fat ground beef addition to cheaper takeaway type products is a good place to be when consumers are more conscious than ever about the cost of protein.
The biggest challenge for beef farmers over the coming year will include working to adopt a lower carbon profile, in the face of growing efforts by Australia in particular to deliver carbon neutral beef by 2030 and the focus of significant industry led initiatives through their CN30 campaign, many which are still to gain momentum here.
Venison
Venison farmers had a tough run through Covid, with the global pandemic shutting down many of the high value hotel and restaurant outlets that featured New Zealand product. Previously healthy prices crashed below $7/kg as exporters struggled to move product, often doubly limited by the loss of timely chilled shipping routes.
But with a strong industry focus on diversifying markets and product, the sector is now looking significantly more robust with returns once again up over the $10/kg mark in response to strong demand.
Farmers can finish the 2023-24 season after a tough spring that had stock finished later than usual, forcing air freighting to meet delivery deadlines, and keep promised orders filled.
Processors have been left with the luxury of turning away some enquiry while markets are responding well to the variety of new branded venison products that have helped reduce reliance upon only top end cuts.
Meantime velvet has also been given a valuable boost in the past year that sets it up well for the new season’s trade. The approval late last year by South Korea’s food safety authority for New Zealand velvet to carry functional food claims is the culmination of several years’ worth of work and co-operation between New Zealand researchers and South Korean pharmacy and regulatory agencies.
The claims for prostate function and anti-fatigue add a valuable unique selling point to New Zealand sourced velvet in as a functional foods ingredient that fits well in a market very familiar with traditional deer antlers’ value as a tonic and healing compound.
The functional food supplement market is worth about $6 billion a year, and has the New Zealand industry fulfilling its aim to further diversify and add value for farmers here.