Cool spring, rising dollar, falling prices cut into farm profits

The latest Ministry of Agriculture and Forestry forecasts for the year ending June 2003 indicate dairy farmers' gross income -- from a "model" farm of 96ha -- will slump 23.8 percent to $355,680 in the year to June 2003, and the net trading profit after tax will plunge 61 percent from $191,025 in the June 2002 year to $74,335 in June 2003.

A sheep and beef farm of 590ha will drop in gross income by 10 percent to $306,176, but its after-tax net trading profit will drop 47 percent from $112,006 this year to $59,329 in June 2003.

A Hawke's Bay pipfruit orchard of 12ha is forecast to have a drop of 12 percent in gross income to $480,000 in June 2003, but its after tax profit will drop 76 percent, from $96,568 to $22,862.

In the South Island, a deer farm of 180ha will drop 14.8 percent in gross income, to $230,676, in June 2003, but the after-tax net trading profit on the property will plunge 50.8 percent from $122,415 to $60,205.

To compensate, farmers and orchardists plan to spend less on capital items, such as tractors, and development, MAF senior policy analyst Chris Ward said.

"Farmers are concerned that drought conditions could develop this summer as an El Nino weather pattern strengthens," he said.

Irrigation had begun early and there were good flows in rivers used for irrigation.

This year's colder-than-usual spring was also depressing pasture growth.

As a result, milksolids and meat production could be down between 2 percent and 5 percent for the year.

Horticultural grape, stonefruit and apple crops have been hit hard by frosts, especially in Hawke's Bay, while in Canterbury fruit was damaged by hail over the weekend.

The apple crop could be down 20 percent nationally and the grape harvest down by 15 percent.

Dairy farmers are bracing themselves for a substantially lower ($3.70/kg versus $5.30/kg) milksolids payout, which had slowed the rate of dairy conversions and cow prices had fallen, in some cases by 45 percent. Land prices so far have not fallen dramatically. The national dairy farm model shows a 24 percent drop in gross revenue for 2002/03. Deer farmers also expect a much lower schedule of prices with the price for a top-grade AP 60kg stag expected to drop from $8.05/kg in 2001/02 to $5.50/kg in 2002/03 (a fall of nearly 32 percent). This will significantly hurt deer farm incomes. Sheep and beef farmers are expected to fare relatively better, with a 10 percent drop in gross revenue. This reflects price drops of 10 percent for lambs and 12 percent for cattle, offset by higher wool prices. The outlook for grain crops looks good.

The price outlook is high due to droughts raging in Australia and the USA. Arable farmers have enjoyed a dry spring allowing for cultivation but crops need some warmth now. Small seed production has expanded, which should mean more grazing is available once seed has been harvested. Many farmers have re-estimated their provisional tax payments downwards. These payments are due in the current financial year.

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